Supernatural Agency: Online business tales

This afternoon I looked a new loft development in a small 19th century warehouse in our formerly industrial downtown area. The building has eleven lofts and some commercial space. It required extensive renovation and the lofts will be rentals in the $1500/month range (you get a lot of for 1500 bucks in Rochester). By my calculations the annual revenue from the building will be about $360,000 per year before expenses. Assuming they have $1.5 million into it, and leaving out tax considerations, they’re getting something like 24% return on their money. This is an extremely simplified example that leaves out expenses, equity growth, etc.

Let’s say I have $1.5 million to put into domains. I buy 50 good domains for an average of $1000 each. I spend the remaining money building content on them, buying PPC and doing SEO to increase traffic. When I’m done with my build-out I have 50 sites generating $1000/month each or $600,000 annually (a very conservative estimate). I also have an asset that has grown dramatically in value. The building above might be worth twice what they have invested once its fully rented. My 50 domains are conservatively worth ten times annual revenues or 4x my investment. And I have no renters, complaints, management costs, etc.

This comparison tells me something. The prices of even long tail type-in domains are going to go through the roof as ordinary people start playing the game. Once this bubble begins it will already be too late to get in. It will expand and explode. The real game will be deciding when to get out.

We live in interesting times.