Are Domain Names A Good Investment In A Down Economy?

Sedo just published their Secondary Domain Market Study for 2008 and the numbers are quite telling, so I figured I’d share the highlights here.

1. Nobody loves .org - except for everybody.

The .net and .info endings continue to maintain their position ahead of .org. We all know .com to be the most valuable and popular (76% of sales last year), but I continue to remain completely baffled as to why buyers are purchasing .net and .info over .org. While I can think of a slew of extremely popular .org domains, including Craigslist.org and Wikipedia.org, I can’t think of a single .net or .info superstar. I personally love .org - I think it automatically conveys greater trust to the visitor and - contrary to popular belief - it is NOT restricted to non-profit organizations (just “encouraged”). In fact, here’s an excerpt straight from the .org registry:

.ORG always has been — and will continue to be — an open and unrestricted domain. Anyone is allowed to register and use .ORG domain names.

In fact, one of the greatest online marketing firms in the business has even gone ahead and placed their domain as a .org - considering they charge as much as $1000/hour, I’m pretty sure they don’t qualify as a not-for-profit organization.

The only logical explanation I can think of for the greater volume in sales of .net and .info TLDs is that maybe - and this is a stretch - owners of .org domains aren’t as eager to sell them. But I’m guessing the main reason is simply that domain buyers are just not that into .org … yet. If you’re looking to purchase some domains as an investment, .org should definitely not be overlooked as they continue to appear undervalued.

2. Total domain sales appear to be reaching their peak.

From 2004 through 2007, Sedo’s Total domain sales grew by 59%, 40%, and 37%, respectively. Last year, sales grew by only 8%. With the crisis in full swing this year, you can bet that figure will be in the negative by the end of the year. But will it stay there?

3. The average sales prices for global TLDs dropped a LOT across the board.

Straight from the report:

The average sales price has decreased for nearly all gTLD’s in 2008,

starting with .com (-50%), .net (-18%), .org (-36%), .biz (-30%) and .info (-23%).

These are HUGE drops in price. I would attribute much of it to the ever-growing choices domain buyers have when it comes to gTLD’s (remember when it was .com, .net, .org, and that’s it?). With more and more countries opening up their registries to the general public, these options are only continuing to dilute the value of premium gTLDs. Expect these prices to drop further over the coming year.

4. ccTLD’s are where it’s at.

Country-specific TLD’s (like .ca here in Canada) appear much healthier than the gTLD’s. From the same report:

The average sales prices for the .de, .at, .fr and .us have

increased while the average sales prices of the .es, .co.uk and .eu have decreased.

Considering the overall downward trend in the industry, it’s clear that these modest increases signify a major advantage to ccTLD’s. Add to that the fact that Sedo’s highest priced domain sale involved a ccTLD for the first time ever (kredit.de sold for $1,176,672), and there is little doubt that ccTLD’s are coming on very strong.

I’ve thought for a while now that this would happen since it just makes sense. Because they are so much more localized, ccTLD’s tend to instill more trust in the visitors, which in turn leads to better performing websites.

Conclusion:

If you’re looking to invest in domain names, proceed with caution. The industry is still very young and highly unpredictable as a rule of thumb. It’s entirely possible that domains continue to lose their value over the next little while - at least until the economy picks back up. That said, if you absolutely must jump in, I would take a good look at ccTLD’s as they can be had at a fraction of the cost and are most likely to increase in value as countries continue to increase their internet penetration.

If you’re looking to purchase a domain for a website you plan on developing, however, this is a great time to buy. Due to the decrease in sales activity and sales price, you can get some great premium domains at a fraction of their cost just 1 year ago.

Being a development shop, we’ve recently purchased a few domains for upcoming internal projects at prices that were far lower than we expected to pay. These include HollywoodAgent.com, Barranquilla.org (large coastal city in Columbia), and Auto.com.es. In each of those cases, we were able to aquire the domains at costs that were much less than half what we expected to pay. Since we’re developing those sites, the ROI won’t be a problem to cover. If we were looking to resell them, however, we’d be in for a long battle.

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