The current situation with domains as a business model has led to comparisons with real estate, the Western land rush in the 1860s, the gold rush and other opportunities. Lately, as our focus has increasingly been on our domain portfolio, I’ve been trying build a comparison model between a classic investment portfolio and a domain portfolio. There are similarities:
- You take a risk by investing in unknown potential
- There is an active market based on an auction model (stocks are basically sold in a constant auction)
- There is easy liquidity- the domain can be quickly transferred. This is where the real estate comparison breaks down.
And there are significant differences:
- The cost of entry for domaining is ridiculously low, so low that many domainers start off as hobbyists. This low cost is rapidly creating what we think will be a huge price balloon, comparable to the Tulip Mania that brought down the Dutch economy hundreds of years ago. Regular people used leverage to buy and sell bulbs. The prices went crazy, the smart people got out and the newbies got crushed.
- The market we see today is a tiny fraction of the potential.
- You can change the value of a domain through your own actions. This is the big one. I can’t increase Apple’s share price by buying an iPhone. I can improve the value of a domain through SEO, content, SEM, various monetization strategies etc. Here it does resemble real estate except that the cost of developing domains is only measured in time spent- there are no physical costs to speak of.
I’m pondering this because I’m interested in raising money to expand our portfolios. This is a very different value proposition than raising venture money in exchange for stock. An investor might invest in a specific domain or family of domains and that investment would be used to grow that portfolio’s traffic and revenue (which might be distributed as a kind of dividend or reinvested). At some point the portfolio is sold and proceeds distributed to the owners. We might keep a management fee in addition to our own ownership portion.
I don’t know the legal implications of this kind of offer- these are not securities. When you think about it, we’re in wholly new territory here.