<Moderator's Note: I've made the following post by GoPC, originally inserted in the Domain Auction Thread [webmasterworld.com], a standalone thread with its own title. The message presents an interesting analysis - one that required a bit of effort - and deserves closer reading and consideration.>
"Has anyone actually seen any studies that demonstrate these domains are actually worth this much?"
Good Question but it's really a matter of ecconomics. I sell advertising space in over 600 Publishers worldwide... Magazines like Better Homes & Gardens, Road & Track, and Cigar Afficionado... let me tell you, Domains offer a much easier breakdown of value.
Better Homes & Gardens charges $365,000 USD for a single, full page ad, first 1/3 of the book... EVERY MONTH. If you've never glanced at a BH&G magazine, pick it up sometime and start counting how many full pages you have to flip through to get to the FIRST PAGE of content! Then do the math... MILLIONS of dollars every month in advertsing.
And I ask you, for what? Exactly how much traffic does your product, good or service actually get for the $365,000 Bucks? Moreover, WHO are you sharing that magazine with? How many 1000s of other ads are in that book?
In the business, we measure things in Cost Per Impression. The higher the cirulation, the more money you can charge for the ad (size, placement, etc) because the "odds" are better for a actionable reader to convert to a sale. BG&G has huge readership so they can demand those kinds of numbers.
Boil that down to a DOMAIN and you have quite a different oppotunity.
1st, most companies are buying PPC ads, Pay Per Click advertising that they only have to pay for when/if a viewer physically visits their website through an ad. This is good because the ads tend to be contextual so the traffic the advertiser sees is VERY focused on their product. It's also good because while many more people see the ad than actually click through to the webpage, you only pay for visits... so impressions are FREE.
2nd, These cpmpanies BID on those ads... The focus their ad budget on "key words" which is how the ads are contextually focused. The better your keyw word marketing, the more qualified, actionable traffic your website gets and the better the odds of a purchase.
Stay with me, I'm getting to the answer.... ;)
Now, these AdWords COST... per click. Parking sites (that pay the domain owners that host the ads) get their ad feeds from companies like google that sell the adwords. The Domain owner, after Google and the Parking Site get's their cut, will get as little as .03 cents per click, but may also see as much as $15 per click. What you get is dependant on alot of factors which I wont go into now, but suffice it to say, when the domain owner gets a $1 click, the advertiser probably paid nearly $3 for it.
So... $3 per click, 5,000 clicks per month, that advertiser is paying $15,000 per month for EACH KEYWORD he is advertising. That's a SMALL advertiser... Think bigger... like:
Cannon, Kodak, Olympus... Camera Manufacturers. These guys buy MULTIPLE keywords that charge perhaps $5 or more per click on sites that get potentiall MILLIONS of visitor and tens of thousands of clicks per month.
Another quick scenario might put Kanon's ad budget for PPC somewhere around $600K - $750K per year... or MORE?
If Kodak were to BUY the domain, Cameras.com for $1.5 Million Dollars, they would break even on the ad budget in only 2 years... but something more important happens... this is where we break away from the Magazine Ads and Googles Adwords and TV and Radio and print...
Once they own the domain, they get 100% of the traffic... ZERO competition for the sales conversion of literally Millions of new customers that come in year after year after year.
How much is a Standard or Digital Camera? Say it's $500 bucks. Say it only $100 bucks... Is it conceivable that with those millions of new, exclusive, highly targeted customers they now have, that they might... just might... sell 15,000 Cameras in say, the same 2 years?
If so (and you so know it is) that company just DOUBLED it's investment in buying that domain for $1.5 Million USDollars.
They've MADE MONEY by purchasing that crazy, overpriced digital roadsign to the virtual super highway.
And it's worth EVERY PENNY.
I wish that selling print ads were this easy.
[edited by: Webwork at 3:13 pm (utc) on Oct. 28, 2006]