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A discussion of the roles and goals of different domain buyers and sellers

Domain Facilitators, Traders, Brokers, Financial Buyers, End Affiliates

1:11 am on Sep 13, 2005 (gmt 0)

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Many people may not know it but there are around 10 domain portfolio owners that own over 100,000 domains each, around 20 that own between 10,000 - 100,000, and around 100 that own between 1,000 - 10,000.

These portfolio owners represent around 5% of all the .com domains in the world.

I thought I might open a discussion about the types of domain buyers and sellers. It is useful to understand the perception of each group to develop realistic expectations and maximized returns on investment.

Types of Domain Buyers and Sellers

Facilitators (Jobbers) - These unique domainers primarily earn their living via research buying for their existing customer base of traders and financial buyers. They work the mines and drops usually with directives from their frequent buyers on what types of domains they wish to purchase and are financially rewarded based on the value of what they prospect. Most purchases of existing domain names do not involve facilitators as that is a Trader role.

Traders – Buy low and sell high is what trading is all about. Traders typically buy domains from domain owners who don’t know the true value of their domains, and buy domains as drops or new registrations for resale, usually in the short to medium term. A limited number of traders deal in “sin” category domains or potential trademark. Their business expectation is that the potential grief and legal liability will be less than the lifetime revenue value of these “risk” domains. These domains are often bought with the knowledge that they can not be resold again and may have to be deregistered if conflict becomes high. The trader needs to turnover domain stock in order to pay the bills.

Domain Brokers – These domainers are similar to traders but they don’t have to own the domains. Domain Brokerage is likely to become quite lucrative for brokers with well developed sales processes. The advantage of brokering is that it doesn’t require a large capital outlay to buy and maintain “domain stock” as the domain owners absorb that risk. The cornerstone of domain brokering is having strong relationships with the owners of the domains, but the key to success is adding value to the sales process. If a broker just lists domains for sale without proactively selling their domain stock they offer very little value for their commission. The thing that defines the value of a domain broker is the proactive value of their sales process.

End destination web sites that have 100,000+ domains on them add value as domain brokers because their critical mass of domains that are available for sale attracts buyers. They also advertiser their domain stock by buying traffic from PPC search engines and offer affiliate programs for domain sales.

Domain brokers that don’t have a substantial critical mass of domains live and die solely on how effective their “proactive” sales process works. If your organization has a talent for proactive sales and marketing this market may represent a significant opportunity.

Financial Buyers– Buying assets for medium to long term gain is the nature of these buyers. These buyers are characterized by being well financed and have no real need to sell in the short or medium term. These buyers can hold “domain stock” for as much as 10 years even while taking a net annual financial loss while their assets mature. These buyers are about owning and controlling real estate that can not be replicated. Although these buyers sell domains they typically sell at a much higher return than traders or facilitators because the sales are driven by buyer demand instead of required turnover to make a profit. The driving forces for these buyers is not how many domains they can sell, its how many qualified domains they can buy. Typically financial buyers are more corporate and have greater restrictions that make inclusion of potential trademark issues, unqualified traffic domains and “sin” category domains difficult to include in purchase transaction.

Consolidated Traffic Affiliates – These domain owners will buy largely on traffic value and very rarely sell. They rarely are interested in buying domains without the portfolio deal representing an accumulated value over $1 million. They prefer deals that are $20 million or greater and few are interested unless the domains are purely generic. Domains for these buyers need to pass the “stockholders” test of visibility. If a domain would be an embarrassment in a press release they will almost always pass on purchase. They also prefer to only deal with financial buyers that have already accumulated domains into large portfolios with critical mass. Small portfolio deals will likely never be a direct option for these buyers as financial buyers reduce their risk of acquisition by pre-vetting domains for them.

Vertical Portfolio Owners - Consolidated traffic affiliates can also successfully create strongly targeted portfolios on a much smaller scale. The key to their buyer success is consolidation of particular vertical markets like wine, agriculture, candy or machinery. Strong penetration into a single vertical market creates a level of control that facilitates greater returns on resale of both traffic and domain sales.

Advertisers / End Owners– The ultimate use of any domain is direct use by an owner that will fully develop a web site of value on the domain or directly sell products or services with its type-in traffic. The owner with the greatest use can also afford the greatest price of purchase. After purchase they can realize the full benefit of the domain and the life time value of the customers the domain traffic creates.

Where do you fit in this hierarchy of domain buyers and sellers?