CircleId Post Rips The Domain Name IDNX Pricing Index

Alex Tajirian, CEO of DomainMart in a post on CircleID.com just ripped into the IDNX domain name index backed by Thies Lindenthal and Sedo.

“The index is intended to be a benchmark for domain owners and investors. “

“But it’s out of line with other studies and the common sense of how a market operates. A much better barometer to follow is average prices for groups of domain names with similar characteristics.”

“Using a single index would have dire consequences. ”

“Other problems with Lindenthal’s single price index:

1. It’s based on information taken from just one market, Sedo. But other studies reveal that sale prices for similar names vary across marketplaces.

2. The reported index-price correlation with the NASDAQ 100 is grossly misleading. Why would prices of domain names of large companies move in synch with those of small and backdoor domains! One would expect that different groups of domain names would be correlated with different indexes depending on their risk characteristics.

3. The methodology is not robust to the presence of outliers in domain name price data.

4. The model does not identify risk factors driving domain name prices, such as the number of a domain’s key word searches, the cost per click (CPC) of the key word, the popularity of the key word as shown by uses of it on Web sites, etc.

5. The model ignores evidence of a nonlinear relationship between prices and the explanatory variables.””

Of course we have spoken at TheDomains.com about the inaccuracy of automated models to value domains in the past and feel there is no substitute for the human element.

Someone by virtue of having a huge amount of experience in buying and selling domain names over the years.  Extremely long term domain investors  have developed a gut feel for what a domain name is worth.

We saw just the other day once again basically 50% of all domains that sell at Sedo.com sell for $500 or less and only 5% sell for $5,000 or more.

Over at MostWantedDomains.com we have a $2,500 stated minimum but in actuality rarely sell a domain for less than $5,000 and our average sale is closer to over $20K than to $500.

There are other large portfolio owners like Mr Schilling, Mr Schwartz, the Ham Brothers, and Scott Day just to mention a few who wouldn’t even bother to respond to a $500 offer much less sell a domain name for anything under five figures if not six figures.

The IDNX relying on Sedo sales data is maybe a good measure for what a domain would sell for on Sedo but certainly is not a overall representation of the domain resale market.

DnJournal.com publishes a weekly list of all published or public sales, that would give reader a much better understanding of the domain name aftermarket.

Comments

  1. says

    Well Sedo is stil pushing .eu domains even though the ccTLD went negative over the last two months and the German registrations stopped being the engine of growth for the ccTLD. Being utterly cynical about things, Sedo is in the business of auctioning and selling domains. Reliance on a single source of data is deadly. If you look at .co or .eu ccTLDs for example, there is substantial registion volume (>1M). However reliance on registration volume alone gives a very, very misleading view of how well either ccTLD is doing in the market.

    Active development is low (<15%) and holding pages and PPC parking is very high in both. The primary market for .co (apart from its home country) is the USA and there are probably more .co domains parked on Godaddy's PPC landing page for undeveloped domains than actual developed domains. More of .eu ccTLD would be redirecting to company websites in other gTLDs/ccTLDs than there are actively developed .eu domains. The high value sales are the outliers in these TLDs and very high value sales should be considered unreliable indicators of value in the TLDs. The real indicator for future value in a TLD is the rate of website abandonment.

  2. jose says

    @John McCormac, your rationale seems sound but you have been bearish on .eu at least since 2008 and nonetheless registrations have increased and several relevant sales have been made.

    as for the IDNX, what if the creator said it correlated to nasdaq composite instead of nasdaq 100? the fact is we are in a big asset mania and every asset class is synchronizing their movements. when you have money flooding a major the stock market you can expect money flooding real estate, commodities, and whatever asset you may think about. domains are no different. A rising tide lifts all boats.

  3. says

    Yes Jose,
    But I have been running monthly web usage surveys of a sample of .eu domains (approx 9700 domains in the latest survey. It is more than Eurid’s own 5000 domain survey and more frequent. More importantly, I’ve got sufficient data to meaure website abandonment. The usage patterns point to .eu being a gateway TLD where more domains point to sites in other TLDs than are developed in that TLD. The problem with .eu as a market is that the engine of growth, German registrations (and they represent approximately 1.3 million of the .eu domains) ground to a halt late last year. Other countries (and languages) are picking up some of the slack but without the German registrations driving it, .eu is in trouble. Think of .com without high levels of US registration volume. Registrations also have a higher than usual brand protection level so it is not ordinary TLD growth in that these brand protection registrations may never even be set up in DNS or developed. They are incredibly sticky registrations that keep being renewed for the life of the business.

    The danger of using a property market style model for domains is that it may ignore the very real pairing effect where a .com domain is registered at the same time as a ccTLD domain by the same registrant. The non-core gTLDs (biz/info/pro) are being affected by a consolidation trend (where registrants are focusing on com/ccTLD). The .info gTLD has been falling now for at least a year.

    For many new gTLDs, there will be no rising tide. For some, there may not even be a boat.

  4. Sieben says

    With all due respect, concerns 3-5 raised by Alex Tajirian are pretty much off. He hasn’t really read the study, it seems.

    OK, every index is a gross over-simplification of reality. But is there any better approach? Taking average prices is definitely NOT a smart approach.

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