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Pricing for traffic domain names: There are still bargains in the marketplace.
Whats kind of multiple you are getting now?...
gopi




msg:681230
 4:38 pm on May 5, 2006 (gmt 0)

A question for the big domainers out there. Whats the going multiple for the passive income producing domains nowadays?.

I know marchex bought Name Development Ltd for a multiple of 8 a year ago. But now considering the media exposure & big privite equity money flowing in, i guess its much more?...

 

Webwork




msg:681231
 5:12 pm on May 5, 2006 (gmt 0)

The multiples are all over the place.

The buying opportunity that businesses are overlooking is that whatever revenue multiple a business pays for an aftermarket domain right now that multiple is:

  • A multiple of what the domainer's income is AND IF the domainer is receiving a 50% share of the PPC income from the feed sub-provider (domain parking company) AND IF the PPC feed sub-provider is receiving a 70% share of the feed source's (Overture, Google, etc.) income from advertisers THEN as an enduser/beneficiary of domain clicks you would otherwise have to buy you are actually buying a clickstream for about THIRTY PERCENT of the clickstream's near term cost to you. Get it? Using the current inefficient (to sellers) pricing model you are buying clicks at a SIXTY-FIVE PERCENT discount. Sounds like a deal to me.
  • Simplified math to explain what I just said: Advertiser pays Overture $1.00/click. Overture pays feed subprovider 70% of the advertising dollar or $.70. Feed subprovider "shares" 50% of their $.70 with domainer who parks their domain with subprovider. Domain gets 100 clicks/month, making domainer $.35 x 100 or $35/month. You pay domainer based upon domainers revenue X years. 1 year revenue = $420. OTHO, if you had to pay for those 1,200 visitors you would have paid $1,200. Do the math. You pay the domainer 8 years revenue (8 X $420 = $3,360). In 8 years you get clicks that, based upon today's costs, are worth $9,600.
  • The price of clicks hasn't been going down that much recently, has it? Buying upon a multiple of today's costs locks in your PPC "ad rate". :)
  • By virtue of buying a "click source" (a type-in domain) you - as the new owner - are virtually removing click fraud from your accounting mix. (Who cares if a future click is bogus? Next . .)
  • Direct navigation clicks are reputed to be highly filtered - that is, high conversion - traffic.

So, I've seen multiples of 6-18 months (for non-generic typos) to 10 years. Variables include:

  • Is the domain "trendy" (FlashGames.com) or is it one that will stand the test of time? (Money.com)
  • Is the domain inherently commercial? ("Turbines" versus "jokes")
  • Is the industry connected to the domain just waking up to PPC? (If so, look for bid values and therefore PPC income to rise. Buy at the bargain.)

The folks that cut out the middlemen (have their own feeds, not a 50% share of a sub-provider's feed) - when they say they're paying "5 or 8 or 10 years future revenue" are actually only offering to pay FIFTY percent of the revenue for that period SINCE the domainer selling the domain is only expecting to receive 50%. The minute that the company with it's own direct feed acquires the domain the "8 years payout payment" is actually reduced to 4 years, since the holder of the feed that just acquired the domain is keeping 100% of the click revenue, not sharing it 50/50 with some domainer. (Is it possible that domain parking will open up so that more domainers qualify for direct (not sub-producer) feeds? I think so, especially for quality generics. Time will tell, benefit to the first mover. You listening Google or Overture?)

SO my advice: If you are buying a domain as someone looking to be an enduser/consumer of the clickstream then buy every domain you can right now from people who are convinced that they are getting a deal when you agree to pay them 8Xs their current revenue stream . . . if their revenue stream is coming from a feed sub-provider.

Think about it: $1.00 clicks being purchased to $.35, a steady stream of them, with no inflation, future fraud issues and nicely filtered and targeted traffic - where you don't give a hoot is visitor 18787 is simple curious. No extra cost. Next!

Get it?

[edited by: Webwork at 8:34 pm (utc) on May 5, 2006]

gopi




msg:681232
 6:20 pm on May 5, 2006 (gmt 0)

Great informative post webwork, thanks...But i think as more and more private equity money flows into this new domain holding companies ,they will use the money aggressively to acquire income generating domains...So the small-time investor looking for a bargain will be priced-out.

But as you said if one is the end consumer of the clickstream (merchants) they still have a price advantage and can beat other investors.

Webwork




msg:681233
 7:56 pm on May 5, 2006 (gmt 0)

Gopi, that's my point exactly.

It's the endusers - anyone running an ecommerce site or anyone running an affiliate website, that is "people who buy clicks" - and webmasters/SEOs/SEMs who buy clicks on behalf of clients who ought to be wading into this market and aggresively spearfishing targeted domains or, at the very least, telling their clients "now is the time to buy".

As endusers of click generating domains, even if you offer 12 years revenue - to beat out the aggregators - you will make up your investment in 4 years - assuming that cost-per-click stays at today's levels. (And assuming a 70% discount to enduser click cost as explained above.)

Unless the architects of the WWW change everything that makes the URL model of web hosting and web surfing work the benefit to the enduser is a very nice clickstream after year 2, 3 or 4 that could be worth $thousands for the mere price of the domain renewal.

Speculative investing has risks but so does building a business model based either solely upon search engine ranking OR PPC. PPC could eventually be used to squeeze out players simply by larger players knocking smaller players out of bid placement.

People need to have a multi-facted online strategy for driving traffic and traffic domains ought to be a tool in every webmasters toolchest.

wolfadeus




msg:681234
 8:11 pm on May 5, 2006 (gmt 0)

This is extremely useful, thank you!

limitup




msg:681235
 10:11 pm on May 5, 2006 (gmt 0)

What webwork said. Buy a domain for 9 times parking revenue, whip up a tiny minisite and slap AdSense or other on it, and now you are making 3 times as much as they were. So really you only paid a third of what it appears on the surface. Right?

Receptional




msg:681236
 8:07 pm on May 6, 2006 (gmt 0)

So - I'm going to pretend I'm in the Boston Sheraton after a few drinks... because disagreeing with Webwork is not necessarily a good plan sober...

I think that the assumption that a parked domain will continue to get traffic for a decade regardless is erronous. This assumes that the search engines continue to miss the mark in search OR that users continue to guess domain names.

Both of these are only assumptions. By contrast I assume that search engines will - more and more - work out that users are not looking for a parked domain, but an active one. I also assume that users and user interfaces will continue to evolve so that users more and more work within an increasingly empowered environment which gets them to where they planned to go right off the bat.

Now - if you own a commercially viable domain, then the reason to buy a parked domain will entirely negate any value formulae based on parked income - a buyer will buy the domain to activate it and past income will be irrelevent.

(Dixon ducks as he runs out of the domain name forum in haste)

oddsod




msg:681237
 11:03 pm on May 6, 2006 (gmt 0)

Business basics almost never change. To buy something and make a profit out of it is dependent on what the business is currently making, your interest to maintain status quo/your ability to apply your imagination and ideas ... and the investment cost. But don't forget market sentiment and the old cliche about something being worth only what someone will pay for it. Don't have competing buyers for a specific domain? Then drive a hard bargain. I don't see what's wrong with 12 months. Content sites with passive income go for less than that!

Sure it has the "potential" to make more money by cutting out middlemen. But "potential" is the BS that sellers use when they run out of other good justification for the asking price.

the assumption that a parked domain will continue to get traffic for a decade regardless is erronous

This is the internet. I wouldn't assume continued traffic for even in excess of a year.

awall19




msg:681238
 11:55 pm on May 6, 2006 (gmt 0)

IE is going to have search integrated into the browser. and potential longhorn at the os level?

what does that do to type ins? how many wrong guesses do people make before they start using the nice box right next to it that tends to offer greater relevancy than random stabs?

IMHO if the traffic is type in (instead of following links, bookmarks, etc) in many markets you could expect a huge decrease in that traffic in the next 12 to 24 months.

Edwin




msg:681239
 5:23 am on May 7, 2006 (gmt 0)

The search forum threads tell the tale (and have been doing so for years): it is pretty much ALWAYS harder to get traffic organically than it used to be - in other words, the search engines get less and less "willing" to hand over traffic for free.

A domain name with steady type-in traffic on the other hand bucks that trend, because even while PPC rates and online advertising expenditure go up (there is a broad consensus of industry reports that suggest that will be the case, for the next 4-5 years at least) the domain will continue to generate "free" traffic day in, day out.

Up to now, it would appear that the typein traffic trend is up i.e. that a generic domain is getting more typeins today than a year ago, and more still than 2 years ago etc. So while that trend may well decline or reverse itself, the continually increasing value of traffic (when measured by the alternative yardstick of having to buy it via PPC or organically SEO for it) will preserve typein traffic values.

oneguy




msg:681240
 1:39 pm on May 7, 2006 (gmt 0)

For a second there, I was almost sure Webwork sold a domain to me. I couldn't remember which one, and don't have a missing chunk of money.

from awall19...

how many wrong guesses do people make before they start using the nice box right next to it that tends to offer greater relevancy than random stabs?

That's a point no one has entered into their figures, even though we're looking at several other unknown variables. I'm not really worried about it today, but I think it becomes a real issue when we are talking about 5, 8, or 10 years out.

We don't really know what the landscape will look like or how people will interact with their browsers and computers over that timeframe. I think most of us believe that users get more savvy over time, and I think that does reduce type-ins as the rate of new people discovering the web slows. Since we're speaking english, I'm talking about the english speaking web. Most likely, there will be other languages and conventions going along with those languages and conventions that will provide opportunities for the same reasons.

oddsod




msg:681241
 4:29 pm on May 7, 2006 (gmt 0)

in other words, the search engines get less and less "willing" to hand over traffic for free....A domain name with steady type-in traffic on the other hand bucks that trend

The cosiness between browser developers and SEs could see the SEs interrupting the flow of traffic to parked domains. Audacious? Illegal? It's already been tried in the name of "improving user experience". How far is a parked domain from a one page site with very little content? As awall19 pointed out, IE could wipe circa 90% of the type-in traffic away with a single sweep of its paw. A realistic price should reflect this risk.

For the big players different economics apply. A large portfolio of domains give them bulk buying negotiation and other benefits which could compensate for them paying in excess of 12 months' income. For other buyers hmmm... the valuations differ wildly depending on whether you're buying or selling.

Automaton




msg:681242
 5:39 pm on May 7, 2006 (gmt 0)

If I am reading correctly, we have a bunch of "domain parkers" here discussing the value of their bogus web sites based on people being tricked into pulling up their page full of useless text ads. YOUR *WEB SITE* HAS NO VALUE!

Random type-in traffic has no value. The users would never have landed on your page had they known what was there. Once they see it is a parked domain, they will quickly leave and never return to your page again. Besides, how much traffic does your parked domain generate compared to a REAL website? Let's compare it to THIS site for example. Your parked domain generates nothing but a *trickle* of garbage traffic compared to any truely active web site.

The value of a parked domain name is NOT the level of garbage traffic that is unfortunate enough to land on your page full of text ads. Potential for the domain name to generate dollars for someone who ACTIVATES it and builds a real destination for users is what determines its value to a buyer.

Also, someone who buys a parked domain in order to leave it parked and thinks they will proffit off of garbage traffic and adsense is an idiot.

PLEASE somebody tell me that I am just misreading the point of this post.

Hanu




msg:681243
 8:17 pm on May 7, 2006 (gmt 0)

Random type-in traffic has no value.

PLEASE somebody tell me that I am just misreading the point of this post.

It does and you are. Read the second post of this thread.

Edwin




msg:681244
 8:28 pm on May 7, 2006 (gmt 0)

Random type-in traffic has no value.

Ah, but it's not random at all. It's hyper-targeted to the keyword/keyphrase the person just typed in to reach the domain.

For example, if they are looking to buy "green widgets" and decide on reflection to start their shopping search at greenwidgets.com (as some percentage of people will if it's a very popular subject) then it's hard to imagine more qualified traffic for that particular niche! You've got people who are genuinely interested in "green widgets" AND who are web-savvy enough to know how to type in a domain name on the off-chance it is relevant.

Eltiti




msg:681245
 9:46 pm on May 7, 2006 (gmt 0)

someone who buys a parked domain in order to leave it parked and thinks they will proffit off of garbage traffic and adsense is an idiot

I'm sure they're crying all the way to the bank!

oneguy




msg:681246
 4:28 am on May 8, 2006 (gmt 0)

If I am reading correctly, we have a bunch of "domain parkers" here discussing the value of their bogus web sites based on people being tricked into pulling up their page full of useless text ads. YOUR *WEB SITE* HAS NO VALUE!

Yeah, you're missing it...

We were talkng about domains, not *WEB SITES* here.

Nobody is "tricked" into typing a domain into their browser.

If you've ever purchased a domain from anyone and want to say that a domain has no value, you'll have to figure out why you bought something that had no value.

Even if it was 4 dollars for a year of rights, tell us why you would do such a thing? Teach us.

awall19




msg:681247
 4:44 am on May 8, 2006 (gmt 0)

I think some people get frustrated or annoyed at the idea of others making easy money.

That is where I think people sense the lack of value from, although it is probably just as easy to find low effort income streams as it is to whine about others doing the same.

joeking




msg:681248
 8:14 am on May 8, 2006 (gmt 0)

Automaton, you are showing your lack of knowledge here. Of course traffic to parked domains has value. In some cases more value per year per domain than you will make in a lifetime. Given your nom de plume, you really need to get up to speed on this one.

Nice to see Edwin on this forum by the way. Hope your portfolio is performing well :-)

Webwork




msg:681249
 1:50 pm on May 8, 2006 (gmt 0)

There's a misconception imbedded in certain arguments.

Type-in traffic domains aren't for parking only. Once developed, subject matter domains continue to benefit from type-in traffic.

Some of the best reasons I can think of for owning natural/generic domain names are:

  • People DO type in subject matter addresses (MiamiWidgets.com)
  • Subject matter addresses are easy to remember, even if you don't bookmark them (MiamiWidgets)
  • A "brand" shares in the concept of branding: Something burned into your mind. In the short run will it will be easier to brand MiamiWidgets as the Source for Miami Widgets OR BlowFooeyGlop = Miami Source for widgets?
  • Natural addresses have a baseline of traffic detached from search engine love.

It's all speculative, but what's more probable:

  • Natural URLs will be increasingly developed and the continuing development of natural names will increase the likelihood that websurfers will "go direct" - type in subject matter URLs - MiamiWidgets.com
  • Browser developers will remove or disable the address bar from web browsers
  • Search engines (a/k/a advertising and marketing firms: no ad revenue, no search engine) will terminate their contextual advertising business and conclude that domains aren't "contextual".
  • The WWW will get entirely rewired; no more domain name system; no more GM.com or Congress.gov
  • Search will be increasingly fractured, with traffic coming form all manner of channels, and that will be seen as a good thing since it avoids a monopoly
  • PPC costs will decrease as more businesses enter the PPC market and more businesses divert funds from traditional advertising to PPC

I see type-in domain names as a form of insurance policy: People pay handsomely for health insurance or car insurance each year, to address a risk. You can put all your eggs in one basket - SEO or PPC - and see what happens or you can develop a strategy that addresses a variety of risks.

Type-in traffic as a basis for assigning value to a domain name is just one component of rationalizing a domain as capital, as an income producting asset. Type-in traffic isn't the sine qua non of value, however it's definitely provided one basis for valuing domain names.

The objective of my post #2 was to nudge some people, give a little wake up call. Where I think some people are missing the boat is that domainers are waking up to the potential of developing their holdings. Some may also be waking up to the fact that they have been undervaluing their holdings.

Others - webmasters, ecommerce site operators - may be waking up to the possibility that the market has been undervaluing traffic domain names and now might be a good time to buy.

wmuser




msg:681250
 9:44 pm on May 10, 2006 (gmt 0)

Nice post Webwork however most buyers are buying them to keep them parked as they wer with the previous owner
A very few of them are going to develope them or use a feeder traffic for their existing ecommerce website

oddsod




msg:681251
 10:35 am on May 11, 2006 (gmt 0)

Natural URLs will be increasingly developed and the continuing development of natural names will increase the likelihood that websurfers will "go direct" - type in subject matter URLs - MiamiWidgets.com

Possibly. But we mustn't forget that .com isn't the only TLD. Perhaps users will become sophisticated enough to try local country TLDs.

redwidgets.com
redwidgets.co.uk
redwidgets.co.in
redwidgets.com.au
redwidgets.info
redwidgets.org
+ lots more

Then they could start using hyphens. Or something else. I can't see them continuing to type in redwidgets.com and redwidgets.com only. Counting on the natural laziness inherent in humans it's easy to see them dropping the TLD altogether and typing in just redwidgets and trusting the browser to do the rest for them. (That's already happening a lot!) What use is owning redwidgets.com if IE7 + MSN AdCenter divert that user to affilliate-company.com/red-widget.html?

Since you ask what's more likely... I think it's more likely that Firefox will buy IE7 than it is for the average widget.com domain to keep gaining traffic from "widget" type-ins. ;)

Yes, I think stock of type-in domains is highly over-valued and I'm not buying even they drop by 50%. I don't see them as insurance but more as small players in a larger game and players who are increasingly diminishing in value.

the market has been undervaluing traffic domain names and now might be a good time to buy.

As you may know, like you, I've been in this a while. My business largely revolves around buying and selling domains, websites, and web businesses. And that's what I've been doing for several years. I'd be interested in knowing some more about these domain names you believe are "undervalued" because, to me, the market looks over-valued and over-hyped.

BTW, developing content for a type-in domain doesn't happen by itself. If you have to do it on a large (and possibly diverse) portfolio of domains it may take you years to recover the cost... if the other risks don't explode in your face.

wmuser




msg:681252
 11:41 am on May 11, 2006 (gmt 0)

"Possibly. But we mustn't forget that .com isn't the only TLD. Perhaps users will become sophisticated enough to try local country TLDs."

Possibly but they woudl rarely become sophisticated enough to start visiting widgets.biz .info etc so .com is still the king

"BTW, developing content for a type-in domain doesn't happen by itself. If you have to do it on a large (and possibly diverse) portfolio of domains it may take you years to recover the cost... if the other risks don't explode in your face. "

Yes but you can also not develope them,keep them parked or forward teh traffic to an affiliate program which will make you even more $$ if you know what the visitors are looking for no?

Webwork




msg:681253
 11:57 am on May 11, 2006 (gmt 0)

My business largely revolves around buying and selling domains, websites, and web businesses.

How did I know that?

Y'all listen up now: Do NOT sell on the cheap to OddSod. Don't let him scare you. It's all just buyer's talk. He's as wrong as muddy footprints on momma's newly waxed floor. :-P

oddsod




msg:681254
 2:16 pm on May 11, 2006 (gmt 0)

How did I know that?

er, I don't know. Maybe the stickies we've exchanged in the past?

Do NOT sell on the cheap to OddSod.

Absolutely! Hype can talk a market up or down. I say research the market before you jump in to either buy or sell. Don't slip on mommy's newly waxed floors! :)

I'd still...

... be interested in knowing some more about these domain names you believe are "undervalued" :)

Academic interest.

BTW, I put my money where my mouth is: I believe domains are vastly over-valued at present (and over-hyped) so I'm buying other investments and avoiding type-ins.

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