Domain Economics

Dan WarnerFabulous.com

Who is Dan Warner

Chief Strategy OfficerChief Operations Officer

•Australian Public Company•Premium Google Partner•Aftermarket Distribution•We own 600,000 domains•World’s 12th largest registrar•Major Domain Buyer

Creator of - Domain Distribution Network (DDN)

Economics: Financial Inter-Relationships

Emphasis Outcomes

Strategic Choices

Growth – Where does it come from?

• Revenue Sources• Traffic• Sales

• Growth Factors• Development• Consolidation

Growth

• Traffic Source, Quality, Sustainability

• Sale Rate of Sale, Price, Distribution

• Development Cost, Time, Scalability

• Consolidation Finance, Risk, Rarity

Development: What is rare, valuable, and sustainable?

Threshold Technology & Services

• Web Development• Web Hosting• Open Content• Domain Parking• Registration Facilities• Data Services• Optimization Tools• Web Design

Threshold technology andcompetitive services in profitablemarkets drive prices down to

minimalprofitability.

Semi-Rare & Valuable• Domains• Original Content• Usership (transient/residual)• Community

Critical Mass: Thicket of Marketing

Semi-Rare Factors

• Domains • Original Content• Usership (transient/residual)• Community

Critical Mass is Rare

• Majority of high value domains in vertical

• Majority of well written and fully original content

• Majority of consumer mindshare

Case Study – Organic Network

Critical Mass of Domains• Organic Premium Domains (30+)

• OrganicShopping.com• OrganicProduce.com• OrganicFarms.com• OrganicCertification.com

• Supporting Domains (2,500+)

Critical Mass of Content:• 3300 pages of well written original and edited content will be written• Content for each topic will be resident on the appropriate domains at the

primary level• Domains can be sold and replaced using the original content again

Critical Mass of Usership: • A community will be developed with forums, blogs, jobs, books, travel• Traffic will be purchased to develop brand

Guidelines

• $1 domains = $1 in content = $1 development

• $100,000 in domains

• 3,300 pages of original content ($30 per page)

• $100,000 in web development, purchased traffic, and community building

• Total Cost = $300,000

• Value Created: Traffic + Sale Value - Estimated $3 million

• Concept will work for lower value verticals

Costs

• Reduce registration costs

• Don’t hold dead stock

• Measure the outcomes of activities1. Human Resources2. Domain Assets3. Development Costs

• Outsource Non-Critical Activities

• Consider the value of your own time

Finance

• Understand the time value of money

• Realize the opportunity costs of investments

• Borrow money only when absolutely required

• Seek investment at optimal rates

• Understand the fundamental relationship between Finance and Risk.

Risk

Risk

• The internet is a high risk environment

• Minimize risk by understanding the risk factors of the domain industry and internet

• Assign realistic risk impact adjustments

• What is the chance that revenue will go down by 20% this year?

• What if we lose a major distribution channel for domain sales?

Classification

• All domains are not created equally

• White domains are worth more than grey or black due to risk:• LondonDailyTours.co.uk White• LondonDallyTours.co.uk Grey• LondonTimesNewspaper.co.uk Black

• Why? Grey and Black -• cannot be developed• cannot be sold as retail domains• Legal and regulatory risk is substantially greater• Poison pill for most legitimate investors

Hard Risk Factors to Mitigate

• Regulatory• Legal Challenge• Legislative• Public Opinion• Revenue Concentration• Channel Access• Substitution• Technology

Market Forces

Domain Industry Market Forces

Risk Mitigation Strategies

Risk Mitigation

• Regulatory ICANN Representation• Legal Challenge Test Case Defence• Legislative Lobbying• Public Opinion Public Relations• Revenue Concentration Diversification• Channel Access Increased Distribution• Substitution Ownership / Anti-Marketing• Technology Innovation Think Tank• Can the Internet Commerce Association (ICA) be

the answer?

Strategic Choices

Why do we care?

Why do I need to worry so much about growth, costs, finance and risk?

• When you sell domains, domain portfolios or businesses –

• You don’t get paid for what you didn’t do or the value you didn’t add to the process!

Additive Valuation Formula

+Traffic Revenue – Commission+Retail Price X Rate of Sale – Commission- Registration Costs- Operations Costs- Minimum Return on Investment- Risk Discount= Additive Domain Value (to investor)

Major Factors

• Traffic Volume +/- gross revenue• Traffic Quality +/- adjusted revenue• Traffic Commission +/- net revenue• Sale Price +/- rate of sale• Rate of Sale +/- gross revenue• Sale Commission +/- distribution• Distribution rate of sale

Sale Price & Rate of Sale Relationship

Some factors that may affect ROS

• Sale Price, Search Engine Count, Bid Price, Length, Word Count, Registrar Search Count, Extension, Year Registered, Hyphens, Numbers, White List Status, Location Specificity, Traffic Volume, Traffic Revenue, Grammatical Order, Contextual Category

How do you know you got it right?

• Check Rate of Sale

• Play domain games!

• How many domains with “X” factors sold in an annualized period compared to the number of domains for sale with those metrics?

• If group “Y” of a metric category is selling at a 1.7% rate then decrease price until it sells at 2.0%

• If group “Z” of a metric category is selling at a 2.7% rate then increase price until it sells at 2.0%

• What if “Y” and “Z” share factors? Play other games to clarify dominant factors.

• Calculate a matrix of metric factors with their rates of sale. Look for stand out reasons that domain classes do not meet target rate.

• Manage domain sales to TARGET ROS!

Rate of Sale is feedback from the market• Adjusting sale prices to a target rate of sale is listening to

the consumer when they vote with their dollars.

• The target ROS is up to the domain owner. If you only want to sell 0.1% of your domains then set very high prices.

• If you want to sell 10% of your domains this year then prepare for severe discounting!

• Waiting to sell later only forces you to sell at lower prices

• Sell all the time at the target rate of sale to realize your maximum asset value at resale.

“Don’t” Valuation Issues

• Don’t expect retail rates of sale higher than 5%• Don’t put off selling domains!• Don’t use gross revenue to measure domain valuations.• Don’t add up all your retail prices as your portfolio

valuation.• Don’t add in mystery factors!• Don’t believe in anecdotal sales as being the norm!

Just because MrToiletBrush.com sells for $150,000 does not mean your portfolio is worth $5 billion!