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Old 23rd November 2011, 02:21 PM
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State of the industry

I was thinking about writing a blog post on this topic, and I still may - but wanted to get a few opinions first.

We get asked a lot to broker peoples names, and I have to say, that I have lost count of the number of times we have had to burst peoples bubble when it comes to expectations for what their names are worth today.

Let's look at the facts.. there is no underground IDN market, it is pretty much what we all see today, which can be summarised as follows:

Unlike the ascii market, you can't grade a domain into varying quality, an IDN is either top tier (i.e. top 50 keyword) or it's everything else.

Top tier names simply are not changing hands today, certainly not on this forum.

Everything else that isn't top tier, that doesn't already have traffic, struggles to get even $xxx, in fact some names as we see go for $xx or $x.

To an outsider looking in, this must look pretty grim, and paints a picture that IDN is worthless.

So if strong generic terms struggle to sell, what of the others?..

I assume that the reason strong generics don't demand huge sums, is because the market is not sure whether these domains will in future spring into life and generate traffic.

So my question...  what of the IDNs that already get traffic?

We never see these come up for sale, and I understand why that is, but I'm curious as to what they might sell for.

So here's 2 examples:

1) A Japanese product genre domain, perfect for selling said product online. Has been making $40 a month every month for a year parked.  Traffic is consistent, but low in numbers (a few dozen visitors), the $40 is generated from an above average CPC.

2) A Russian service genre domain. Been making $20 a month every month for over a year parked. Again traffic is consistent but higher (in the many hundreds of visitors a month), but the CPC is low as we know it is for Russia.

Using the above 2 as an example, would they sell based on purely a multiple of existing revenue, or would there be a factor applied for the "what if traffic explodes" ?

what multiple do you think is realistic?
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Old 23rd November 2011, 02:34 PM
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Re: State of the industry

Quote:
Originally Posted by alpha View Post
I was thinking about writing a blog post on this topic, and I still may - but wanted to get a few opinions first.

We get asked a lot to broker peoples names, and I have to say, that I have lost count of the number of times we have had to burst peoples bubble when it comes to expectations for what their names are worth today.

Let's look at the facts.. there is no underground IDN market, it is pretty much what we all see today, which can be summarised as follows:

Unlike the ascii market, you can't grade a domain into varying quality, an IDN is either top tier (i.e. top 50 keyword) or it's everything else.

Top tier names simply are not changing hands today, certainly not on this forum.

Everything else that isn't top tier, that doesn't already have traffic, struggles to get even $xxx, in fact some names as we see go for $xx or $x.

To an outsider looking in, this must look pretty grim, and paints a picture that IDN is worthless.

So if strong generic terms struggle to sell, what of the others?..

I assume that the reason strong generics don't demand huge sums, is because the market is not sure whether these domains will in future spring into life and generate traffic.

So my question...  what of the IDNs that already get traffic?

We never see these come up for sale, and I understand why that is, but I'm curious as to what they might sell for.

So here's 2 examples:

1) A Japanese product genre domain, perfect for selling said product online. Has been making $40 a month every month for a year parked.  Traffic is consistent, but low in numbers (a few dozen visitors), the $40 is generated from an above average CPC.

2) A Russian service genre domain. Been making $20 a month every month for over a year parked. Again traffic is consistent but higher (in the many hundreds of visitors a month), but the CPC is low as we know it is for Russia.

Using the above 2 as an example, would they sell based on purely a multiple of existing revenue, or would there be a factor applied for the "what if traffic explodes" ?

what multiple do you think is realistic?
Very interesting and definately something to think about Alpha. Great discussion question. Its hard to say what is better. I know personally i would get both just to avoid kicking myself later (assuming they are within my budget). However if I had to choose, at this point i think I would go with the russian, higher traffic name, and hope that the pay per click would eventually rise. Reason being, in my opinion, it is a lot easier to sell a name with high traffic then a name that has little traffic although it might have higher pay per click.
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Old 23rd November 2011, 02:40 PM
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Re: State of the industry

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Originally Posted by IdnHost View Post
Very interesting and definately something to think about Alpha. Great discussion question. Its hard to say what is better. I know personally i would get both just to avoid kicking myself later (assuming they are within my budget). However if I had to choose, at this point i think I would go with the russian, higher traffic name, and hope that the pay per click would eventually rise. Reason being, in my opinion, it is a lot easier to sell a name with high traffic then a name that has little traffic although it might have higher pay per click.
But what about the multiplier?
Interested to hear opinions from "buyers"

Last edited by alpha; 23rd November 2011 at 02:41 PM..
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Old 23rd November 2011, 03:07 PM
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Re: State of the industry

There has to be some sort of multiplier. The reasons:

1) The markets we invest in are far from saturated. Unlike in western countries user numbers (potential traffic), budgets for online advertising (potential ppc) and in some cases even GDP are growing at double digits.

2) IDN awareness and (full) IDN support are not really in place yet. Names receiving good traffic despite these obstacles must be really great.

3) We're all waiting for IDN.IDN. Russia has shown that there is huge demand for it. We don't know what that means to our traffic but it can only get better.

That's why no one is selling his traffic IDNs at this point.
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Old 23rd November 2011, 03:25 PM
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Re: State of the industry

I'd need more information about the keywords or markets for those two examples in order to comment on their value.

Pesonally I think current traffic is highly overrated. Markets in most of these countries are still developing, and at the moment the user profiles are mostly kids interested in games and chat. That will change, least of all because the kids will grow up at some point.

The other thing is not everyone is looking for traffic and revenue. Some are waiting for the day when corporate players come to the party and bring in the serious money, and they value other things too like product relevance and brandability. Some of the names they'd be interested in might get little traffic.

Last edited by Jay; 23rd November 2011 at 03:27 PM..
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Old 23rd November 2011, 03:36 PM
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Re: State of the industry

Quote:
Originally Posted by Jay View Post
I'd need more information about the keywords or markets for those two examples in order to comment on their value.
Sure, and I was vague with my question, expecting an equally vague answer.

Quote:
Originally Posted by Jay View Post
Pesonally I think current traffic is highly overrated. Markets in most of these countries are still developing, and at the moment the user profiles are mostly kids interested in games and chat. That will change, least of all because the kids will grow up at some point.
I wouldn't call Japan "still developing".

Quote:
Originally Posted by Jay View Post
The other thing is not everyone is looking for traffic and revenue. Some are waiting for the day when corporate players come to the party and bring in the serious money, and they value other things too like product relevance and brandability. Some of the names they'd be interested in might get little traffic.
But if you're not talking traffic & revenue, then we are back to where we started, which is essentially selling based on a formula of dreams and maybes, and that of course isn't tangible, hence where we are today.

Still interested to hear your thoughts on what multiple you would offer as a buyer; feel free to be vague, I'm just curious what ballpark you're in.
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Old 23rd November 2011, 03:39 PM
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Re: State of the industry

Personally I've never been a fan of set multipliers. To me all domains are unique and must be valued individually.

That equation for me is something like 1/3 the name itself, 1/3 revenue, 1/3 traffic.

That said, for your above Japanese domain example in today's market I think most "buyers" would feel comfortable paying 4X to 6X of the annual revenue.

Care to test my hypothesis?
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Old 23rd November 2011, 03:42 PM
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Re: State of the industry

Alpha, may I ask you a question:

Do you believe that part(and most) of the current traffic to IDNs is due to certain browsers appending dot com to single keyword typed in the url bar.
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Old 23rd November 2011, 03:46 PM
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Re: State of the industry

Quote:
Originally Posted by idn View Post
Personally I've never been a fan of set multipliers. To me all domains are unique and must be valued individually.

That equation for me is something like 1/3 the name itself, 1/3 revenue, 1/3 traffic.

That said, for your above Japanese domain example in today's market I think most "buyers" would feel comfortable paying 4X to 6X of the annual revenue.

Care to test my hypothesis?
Good answer.

Last part of the question... Your 4x to 6x annual rev valuation sounds like a fair number to me in ascii land, so has your valuation over 4-6 years assumed that a) nothing interesting will happen to traffic levels in that time b) traffic will increase by a factor and its built into your numbers or c) you didn't consider it ?
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Old 23rd November 2011, 03:56 PM
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Re: State of the industry

Quote:
Originally Posted by squirrel View Post
Alpha, may I ask you a question:

Do you believe that part(and most) of the current traffic to IDNs is due to certain browsers appending dot com to single keyword typed in the url bar.
Most of my data is in relation to Japanese domains, and all of the traffic is trending up, and with a fairly consistent internet penetration, it can't be explained by just more people making the same error as you explain.

Also in this particular example I am thinking of, a large majority of traffic comes from the SE, as namedrive is displaying a bunch of searched phrases that match the niche of my domain.

But yes, I take your point, I am talking about a parked domain and because its not on my server I don't have all the answers regarding traffic source, but I can see it trending up
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Old 23rd November 2011, 04:11 PM
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Re: State of the industry

Quote:
Originally Posted by alpha View Post
Good answer.

Last part of the question... Your 4x to 6x annual rev valuation sounds like a fair number to me in ascii land, so has your valuation over 4-6 years assumed that a) nothing interesting will happen to traffic levels in that time b) traffic will increase by a factor and its built into your numbers or c) you didn't consider it ?
My valuation was based on what I personally feel comfortable with at the current state of the industry. Like squirrel noted traffic levels could actually go down if the dot com is not appended to the keyword or if iphone functions change or for other reasons depending on the language (no need to get into all of that). On the other hand, traffic and revenue could increase substantially. This is where a speculation factor must play a role and that factor would most likely depend on one's current holdings, appetite for risk and/or financial position.

In short, the future is built into my 4X to 6X multiple.
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Old 23rd November 2011, 04:33 PM
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Re: State of the industry

here is what it all boils down to me:

something that's very illiquid and is concentrated in few hands with little to none price discovery and information advantage, which i think pretty much sums it up the current IDN market - pricing something like that based on multiples or whatnot you can pretty much throw out the window!!

one thing if i want to buy a generic like diapers.com in english i mean or whatever else in more developed market like US will command multiples and formulas.

it aint gonna work in this IDN market given my description above. here is how i value and based on that i bought: top 20-30 names in every language command at this point XX,XXX - XXX,XXX. There it is more about supply demand. I.e. buyer will have to pay that much since getting those names due to their limited nature will be tough. Also, "recovery value" on those names will be higher than other crap. What i mean is auto.com in russian will be worth money even if IDN.IDN gets delayed, unlike the rest of the crap.

Now back to that crap: again - 1 guy wants to sell cause he got a bunch of renewals and the other will buy cause 50-100 bucks is better investment than just laying around in your bank account and/or betting on black half drunk in atlantic city.

Stuff in the middle: if name gives you $20, $40, or thereabouts a month, then, assuming you are believer in IDNs, will get me to pay more than 6, 7 or 8 years worth of annual revenue in case i believe in IDN and the name. Why? cause if you a believer than eventually $20, $40 will become $2000 and $4000 or something one day.

I am in finance and here is the bottom line and i believe in that more than I believe in IDN (or perhaps i believe in IDNs because of my strongest believe in the following): world has changed forever. Maing money going forward will be difficult. forget about double digit returns. Whole world lived on borrowed money and its time to pay. Deleveraging and low growth will be with us till our kids will start losing hair at least. Give you an example: recently 2 cab medallions in NY sold for 1$mm each. For those unfamiliar, you can rent it for ~$2000 a month. Thats $24,000 a year on a 1mm investment. ~2% a year. Crazy? not really if you believe what i believe: consistant return even low return will be worth a lot of money as again making money will be difficult.

Hence: domains rule. Pay up for them now before you can get them.
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Old 23rd November 2011, 04:42 PM
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Re: State of the industry

Trading is all about emotions.

Did anyone else buy Thomas Cook last night and flog them out this morning?
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Old 23rd November 2011, 05:02 PM
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Re: State of the industry

Quote:
Originally Posted by Emil View Post
here is what it all boils down to me:

something that's very illiquid and is concentrated in few hands with little to none price discovery and information advantage, which i think pretty much sums it up the current IDN market - pricing something like that based on multiples or whatnot you can pretty much throw out the window!!

one thing if i want to buy a generic like diapers.com in english i mean or whatever else in more developed market like US will command multiples and formulas.

it aint gonna work in this IDN market given my description above. here is how i value and based on that i bought: top 20-30 names in every language command at this point XX,XXX - XXX,XXX. There it is more about supply demand. I.e. buyer will have to pay that much since getting those names due to their limited nature will be tough. Also, "recovery value" on those names will be higher than other crap. What i mean is auto.com in russian will be worth money even if IDN.IDN gets delayed, unlike the rest of the crap.

Now back to that crap: again - 1 guy wants to sell cause he got a bunch of renewals and the other will buy cause 50-100 bucks is better investment than just laying around in your bank account and/or betting on black half drunk in atlantic city.

Stuff in the middle: if name gives you $20, $40, or thereabouts a month, then, assuming you are believer in IDNs, will get me to pay more than 6, 7 or 8 years worth of annual revenue in case i believe in IDN and the name. Why? cause if you a believer than eventually $20, $40 will become $2000 and $4000 or something one day.

I am in finance and here is the bottom line and i believe in that more than I believe in IDN (or perhaps i believe in IDNs because of my strongest believe in the following): world has changed forever. Maing money going forward will be difficult. forget about double digit returns. Whole world lived on borrowed money and its time to pay. Deleveraging and low growth will be with us till our kids will start losing hair at least. Give you an example: recently 2 cab medallions in NY sold for 1$mm each. For those unfamiliar, you can rent it for ~$2000 a month. Thats $24,000 a year on a 1mm investment. ~2% a year. Crazy? not really if you believe what i believe: consistant return even low return will be worth a lot of money as again making money will be difficult.

Hence: domains rule. Pay up for them now before you can get them.
Interesting. What's your take on Japanese IDNs given Japan's population has likely peaked and their debt to gdp ratio.


Alpha: we're on the same page. I asked the Q because I think it's more than unclear what an "explosion of traffic" means and how it will materialize on a domain per domain basis. We all have an idea on how things may play out as a whole for certain markets, but I believe it to be almost impossible to make assumptions for a single domain.

I'm a bit like Jay, I'm not much concerned about traffic. (Unless the domain I'm inquiring about has unusually high or low traffic.)
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Old 23rd November 2011, 05:29 PM
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Re: State of the industry

on Japan: if you are concerned with thier debt to GDP then you should be concerned with US as well

here in NY you can see a lot of Japanese people spending money, a lot of money. So thier ability to spend is still there, plus on margin they are more sophisticated if you will than Russians for example, like when it comes to online shopping.
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Old 23rd November 2011, 09:26 PM
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Re: State of the industry

Quote:
Originally Posted by Rubber Duck View Post
Trading is all about emotions.

Did anyone else buy Thomas Cook last night and flog them out this morning?
Trading is also short-term. Anyone buying IDNs with expectations of flipping within a year has already exited the market, likely at a loss.

Investing is about risk tolerance. I don't think a multiple of 10-15 years revenue would be unreasonable for IDNs if our political and economic landscape were what it was in 1999. Given the fact that there is little awareness and no sincere advertising for IDNs yet there is traffic and demand, 20 years seems more realistic.

While I agree with Emil's assessment of current circumstances, I also see trade wars as a very real possibility within the next ten years. Hence, while Japan is the prettiest girl at the dance, she's still a wart-covered pus-oozing ogre.

For me this is a hold market: not buying, not selling. Wait for the crash, then buy, or wait for the boom then sell.

With that in mind, to answer the OP questions:

Quote:
Originally Posted by alpha View Post
Using the above 2 as an example, would they sell based on purely a multiple of existing revenue, or would there be a factor applied for the "what if traffic explodes" ?
As a buyer, I think such a multiple is nullified by the very real risk that what's happening in the Eurozone repeats in Asia and then the States, with protectionism replacing globalization, which will make it very difficult if not impossible to monetize international traffic. As a seller, I'm not willing to entertain such dire thoughts.

Quote:
Originally Posted by alpha View Post
what multiple do you think is realistic?
If I were buying, 4-5x, maximum. If I were selling, 15-20x, minimum. That's why I'm doing neither.
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Old 23rd November 2011, 10:48 PM
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Re: State of the industry

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If I were buying, 4-5x, maximum. If I were selling, 15-20x, minimum. That's why I'm doing neither.
Just like everyone else. :D
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Old 23rd November 2011, 11:02 PM
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Re: State of the industry

Quote:
Originally Posted by clipper View Post
Trading is also short-term. Anyone buying IDNs with expectations of flipping within a year has already exited the market, likely at a loss.
To be honest, I am taking the Jim Walker view that a long-term investment is a short-term investment that has gone wrong. So I am just renewing and forgetting.

The stock market is where the action is right now. Last night I fluttered £1000 on Tom Cook and made 15% overnight. Last week I doubled my stake (rather more) on Premier foods. There are plenty of opportunities like that right now. My boss knows I day trade, but at the end of the day he knows I am only making half my wages working for him. And does he really want somebody to run his jobs that hasn't got that level of acumen?

Sure IDN are interesting but the turn round period is just way too long.
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Old 24th November 2011, 05:20 AM
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Re: State of the industry

Another thought is that the revenue multiplier and what-if-traffic-explodes factor might be relatively consistent within a language but different across languages. The former because some languages (like Chinese) are behind others in comparative revenue, though names (presumably) sell for around same amount as similar names in high revenue languages (maybe there's also a separate base language value factor, based on population and internet use/growth within that population). The latter because traffic growth percentage will probably be the same for high-traffic and low-traffic names in the same language.
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Old 24th November 2011, 08:28 AM
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Re: State of the industry

Quote:
Originally Posted by alpha View Post
Unlike the ascii market, you can't grade a domain into varying quality, an IDN is either top tier (i.e. top 50 keyword) or it's everything else.
I would say there is at least 3 tiers. Top 50 keyword, Anything with a heartbeat. (traffic), Future brandables. People are often derided here for asking about brandable domains that have proven valuable analogs in English. We haven't finished dealing with the second category yet so they get slammed and told to focus on something of value (the first 2 categories). If you believe in IDN's then you must also believe that someday, somewhere, someone will be lamenting that all the 4 character Katakana domains in .com are taken. Without doubt IDN's still have the most potential for a new domainer to enter the market and create a portfolio of value. The question is how long must he wait as echoed by others in this thread.

Instead of slamming the new IDN investor for buying a brandable domain, perhaps we should educate them on the timeline it will take for his investment to mature. Which brings me to the next point.

Quote:
Originally Posted by alpha View Post
Top tier names simply are not changing hands today, certainly not on this forum.
Take the number of top tier names in English (50 as used in this same thread) and multiply that by the number of languages. It should be obvious that the supply side of our equation is larger and more complicated than it was when the first domain market was created in English.

I watch for changes in the supply side (with a focus on Japan) and I am happy to report:

-I am seeing many more Japanese owners in the whois.
-Available names in the first 2 categories are steadily dwindling in all extensions.
-I am seeing more domain related sales sites, brokers, services etc. in Japanese.

For me this is all very exciting. In every significant market that I look at I see signs of a growing domain industry. History is indeed repeating itself.

I see many here lamenting at how long this whole process is taking. By now if you haven't learned that patience should be a part of your strategy than you just haven't been paying attention. I have seen a few valiant souls here work towards speeding up the process.

I still have hope that someone will leverage technology and IDN's and develop a sales platform that trancends language boundries.

Quote:
Originally Posted by alpha View Post
Everything else that isn't top tier, that doesn't already have traffic, struggles to get even $xxx, in fact some names as we see go for $xx or $x.
Ok, I see you need to think in terms of 3 tiers as well

The first two tiers don't exist on this forum for a few reasons but one of them is noise. There is no quick/easy/reliable way to differentiate them from all the rest. My time is worth more than $x or even $xx so I don't even read the sales threads.

I am already pretty happy with my portfolio so perhaps I am not your target market either.

Last edited by Clotho; 24th November 2011 at 08:38 AM..
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