Why your business needs a Domain
Taking your business online is now a necessity to keep up with the competition, to do that; you'll need a domain name.
More...
Choosing the Best Name for You
You've decided that you want to own a domain name. There's just one problem, you're not sure how to choose a good one.
More...
Direct Navigation
As the Internet matures, the number of potential customers online is growing and with it, the number of ways to promote your business online. More...
Reactive vs. Proactive Marketing
"Once the costs of running an effective business are paid there are few remaining
funds to proactively market and still make a fair profit."
Reactive marketing models are fundamentally flawed because they wait for the sale to "walk through the door". The current prevalence of reactive marketing over proactive is due to the commission value that most lead generators receive. Once the costs of running an effective business are paid there are few remaining funds to proactively market and still make a fair profit. This drives the current domain sales portals and sales agencies to be driven by efficiency and not growth. In short, it is not by any fault of the portals that they can not market - they don't have any remaining funds to do so.
It is not by any fault of the portals that they can not market -
they don't have any remaining funds to do so
Then how are sales created? Most of the sales that are generated in today's market are produced from buyers that are captured through the domain being sold. Potential buyers type-in the domains name to see what the domain is being currently used for and to ascertain if they have a chance of buying it. When they type in the domain they are either redirected to a domain sales portal or a landing page that contains a banner or link attract buyers. Most of this traffic is "donated" to the domain sales portals by the domain owners in an attempt to generate a sale.
When domain owners donate traffic to domain sales portals it fosters a belief that lead generation is of lesser value than traffic conversion (sales agency). It also offers no value to the domain owner's traffic that may actually end up selling another owners domain. When this happens, why would the domain owner who provided the sale as a lead generator not get paid for the sale of someone else's domain? This is a primary conflict with the currently established system and needs to be rectified.
The reason that marketing costs have historically been low for domain sales portals has been:
- Portals receive traffic that is redirected (donated) to the sales portal at no cost.
- Domain sales portals naturally attract search engine traffic because other websites link to them and they are full of domain content.
- Portal brands have been established for a long time which attracts return visitors.
- There are few domain sales portals leading to an under-competitive market.
However, domain sales portals continue to lose consumer traffic volume. This reduction is likely to have been caused by a number of factors including;
- Domain owners are moving their domain redirections away from sales portals and are monetizing it through paid search engine listings. This is starving portals of previously "free" traffic.
- Search engines are giving high content websites with relatively stale content (as occurs in domain sales websites) less "free" organic search engine traffic.
What little traffic was purchased by domain sales portals through affiliate deals and paid search engine listings has become too expensive to maintain. Sales portals work on very small margins with very little left over for "paid" marketing. As marketing costs increase there has been no change in commission rates to compensate, therefore they are unable to increase marketing volume. Domain portals are forced to almost be entirely reactive.
Proactive marketing is the art of creating new buyer interest. The means to accomplish this is only limited by the confines of creative thought.
A lot of the more traditional methods of marketing have already been employed. Buying search engine traffic, building branded websites and even telemarketing has been tried. However, these methods have failed to scale. The amount of consumer interest continues to be limited and aftermarket domains are not a natural mass market. However, if commission rates are increased to more substantial levels these more traditional methods of marketing may become profitable and more effective.
Consumer interest is limited and aftermarket domains are not a natural mass market
One of the most successful "open market" business models online is the affiliate model. Currently the affiliate model for aftermarket domain sales is drastically under-developed. This has been caused by the extremely low value of commission affiliates earn compared to their marketing costs. Aftermarket domain sales programs have not been competitive in comparison to other marketing programs and affiliates feel that the commissions they earn can not justify their efforts.
Direct Navigation
Direct navigation refers to the use of domain traffic that generates from internet users typing domain names into the address bar as a searching behaviour. This form of navigation is particularly useful when selling domains as they are actively using domains when they enter the website. If a user has an active interest in buying a domain and they have typed the domain into the address bar - this is the strongest sale opportunity for a domain owner. Secondary to selling their own domains, domain owners also have the opportunity to create revenue based on this traffic. If the owner of the domain encourages users to buy their domain and/or others through a banner, direct redirection or link the owner deserves the benefit of this traffic. As the owner is acting as the lead generator for their own domain sale, most of the costs of achieving that sale should be limited. In contrast, if the traffic sent by the domain owner becomes the lead generator of another domain sale not owned by the owner (i.e. domain portals) the owner should receive a strong component of that domains marketing commission
Currently most domain sales are generated by potential buyers typing in a domain
they have an interest I and finding that it is for sale
Web Development & Web Hosting
Domains are a form of virtual real estate. Even though the marketing of domains and real estate are fundamentally different, domains act as the real estate that websites are developed on. If you don't have a domain a website can not be created. Web developers and designers are closest to consumers who have an active interest in creating a new website. The first thing the consumer needs is a domain name which makes the web developer the best candidate to sell domains to their client. Currently this is a rare occurrence.
The most likely reason for this is that web developers frequently deal with clients that have a fixed or declared budget. The web developer has a business interest in capitalizing on the client's available budget as revenue for their company. Currently the lack of sufficient incentive (commission) for these developers leads them to discourage clients from buying higher value domains. If they were given appropriate compensation domain sales should become a natural value-add product that they can encourage their clients to buy.
Small Business Portals
Most of the major online business development services do not offer aftermarket domain names for sale. The very first thing these businesses should be selling is the domain. By buying the domain it crystallizes the commitment of the new domain owner to commit to the business. Is the value of the domain more likely to entice the new owner to spend money, become emotionally invested, and develop the business? How much will a furniture retailer from Denver spend to develop DenverOfficeFuniture.com (aftermarket) compared to BusinessFurniturePoint.com (suggested new registration)?
Development companies like Yahoo Small Business are natural resellers of aftermarket domains. Their product is designed to develop the real estate, what they are missing is offering the best properties as a foundation for development.
WhoIs Services
WhoIs searches occur when an internet user actively seeks out the details of a domain owner for a specific domain. Some of the reasons that encourage WhoIs use is when the user has a complaint for the domain owner, wishes to advertise on the existing web site, has a business proposition, or commonly that they wish to purchase the domain of interest. This is of particular interest for domain owners that wish to sell their domains.
As a means to generate domain sales interest domain owners commonly will include some indicator of that willingness to sell in their WhoIs details. One message used would be to include a (forsale) after their registrant name, this or other similar messages in the WhoIs details will generate some domain sales.
Most of the potential domain owners may have no wish to sell their domain. However, this does not negate that an potential interest in buying a domain has occurred. Some WhoIs services offer contextual domain sale advertising as a means to provide affiliate revenue to their website.
Contextual Advertising
Contextual advertising offers a good opportunity for aftermarket domain sales. Similar to search engine marketing CA can be a good source of lead generation. The key to this form of advertising is to have effective contextual targeted. Currently the existing commissions for domain sales make this form of proactive marketing untenable except at a small scale.
Registrars
Domain registrars are the most obvious example of an underdeveloped market for aftermarket domain sales. Registrars spend extraordinary amount of money to attract "hot buyers' to their web site. These pre-qualified buyers arrive at the registrar web sites with the intent to buy a domain and are faced with the reality that almost all of the good .COM domains are already gone. This is a classic example of the logical up-sell. The speculation of potential is based on the idea that "hot buyers" can't buy what they really want for $10 so they emotionally choose to buy one for $1,000.
Speculating on the size of the potential market is difficult. The actual numbers of new registrations for a registrar that are not transferred into a registrar and will not be dropped (domain tasting) in the 5 day registration finance period is difficult to ascertain. There also has been very little experimentation on how effective aftermarket domains sales will be via an in-line registration up-sell process. Due to this lack of direct research we will speculate for this paper that the potential market for up-selling potential registrants to an aftermarket domain is 1%.
A proxy for the number new registrations for a registrar is the net difference of domains under management over a year. The net change in domains under management for GoDaddy.com between September 2005 and September 2006 was 5 million domains. If you use this number as a guide for the number of new registrations and use the speculation of a 1% up-selling conversion rate - GoDaddy.com has the potential to sell approximately 50,000 aftermarket domains per year.
Registrars represent a significant opportunity to accelerate aftermarket domain sales
Once again we are forced to speculate on the average price per domain sold. From a functional perspective GoDaddy.com is unlikely to offer domains that are priced above $5,000 to their potential registrant customers using an in-line process. This artificial ceiling is due to the operational issue of credit card fraud. Historically the median sale price of domains is close to $800 using a reported aggregation of sales across all major retail networks. For the purpose of estimating we will use $800 for the calculations.
Although fraught will potential miscalculations and not having hard statistic on which to base the assumptions - the calculated potential revenue from aftermarket domains for GoDaddy.com would be estimated at 50,000 domains per annum producing revenue of $40 million. Using the GoDaddy.com published price of $8.95 their revenue, and their gaining registrations number of 13,000 per day (for new and transfer registrations after dropped domains) their gross registration revenue would be around $42 million per year.
The last calculation to be made is the potential net revenue of these alternative methods of user purchase. The cost of acquisition for all registrars is $6 per annum. GoDaddy.com handles the ICANN fee separately and charges that to the customer so this cost is not involved. This leaves a $2.95 gross profit (33%) per domain or $12.7 million per annum. This is compared to a gross profit of $2.8 million if the normal 10% commission were to apply and 3% were allocated to credit costs. Considering the marketing costs of a retail company like GoDaddy.com, i.e. Super Bowl advertising, clearing 7% of the domain sale price in gross profit is not likely to be enticing enough to stimulate strong internal support and marketing dollar justification. In contrast a 18% commission allowing 3% for credit costs will return 15% or $6 in gross profit for aftermarket domain sales.
GoDaddy.com controls 17.5% of all the primary market domain registrations. They are the largest retail user focused registrar and continue to grow. If GoDaddy.com were to actively enter the aftermarket domain channel as a reseller with an in-line registration process - they would potentially double their own revenue for domain sales, and more than double the number of domains aftermarket domains sold worldwide.
Similar results would be recorded if a more distributed network of domain resellers were fostered and paid appropriately for their marketing efforts.
The results of a diligent promotion of aftermarket domains through registrars and alternative channels could realistically increase aftermarket domains sales by $100 million per year and 100,000 new domain sales by retail buyers. This would increase the rate of sale for the domain aftermarket to be approximately 5% per annum and potentially double or triple the valuation of domain portfolios with quality focused generic domains.