Some Numbers and Reflections

Let us consider a few numbers regarding the supply and demand for domain names.

1. The number of aftermarket domain name sales publicly recorded in the NameBio database varies a bit from day to day, but averaged over the past year is about 220 domain name sales per day on NameBio.
   
2. Clearly there are sales that never get reported on NameBio, either because of privacy agreements or because the sale happened on a venue that do not report, or they are below the $100 price cutoff for sales reported by NameBio. Some estimate that 20% of all sales over $100 are NameBio reported, suggesting perhaps 1100 domain name sales  (over $100) per day in total over all marketplaces.
3. The total number of domain names for sale on the Afternic network is somewhat over 13 million, on Sedo about 19 million, and on Undeveloped just over 2.7 million.  Now clearly there are other marketplaces and sales privately, but not all of the above are unique listings, so probably the total number of domain names actively for sale is about 30 million. I accept that really more than that are in some senses for sale, but I think this number  reflects those actively listed somewhere.
4. The number of new domain names hand registered average about 8800 per day (across all extensions).
5. The global number of new businesses that start each day averages roughly 50,000.  I obtained this figure from the about 10,000 per day reported as starting in China, and then scaled by the fraction of the world's population that China represents.  

I accept that all of these numbers are uncertain to some degree. See my notes below for links and reasoning.

What Seems Obvious

The demand for domain names should be significantly higher than it is.  Even not counting non-business uses for domain names, the number of new businesses is about 5 times higher than the sum of new registrations plus domain market resales. 

These data suggest that some new businesses are either not online, using resources such as Wix or a Facebook company page that do not require a second level domain name, or using an existing domain name (as opposed to buying or registering one).  Another possibility would be if a significant number of businesses are using the 'free' domain names that are not included in these numbers.  The fact not many domains are being reported sold (at least in NameBio reported venues) shows us that the answer is not that new businesses are using domain names first registered some time ago and held by domain name investors. 

For every domain name resale there are at least eight times as many domain names that are being newly hand registered.  This implies to me that there is a disconnect between many business owners and the domain name industry, resulting in many companies choosing to register the best available name instead of buying a better name on the resale marketplaces.  Another valid interpretation is that speculation in domain names by domain name investors is responsible.  Undoubtedly both factors contribute. See the following section for additional commentary.  

We have not considered supply and demand for non-busines uses of domain names, but clearly that is important as well.  In a previous analysis I estimated that non-business  applications account for nearly 20% of the demand for domain names. 

Opinion

I believe that the numbers suggest a significant mismatch between the domain name industry as it currently stands and potential end users.  What are possible reasons why companies are choosing to hand register a domain name rather than buying a better one on the resale market, or run a business with no domain name at all?

1. They are not convinced of the value of a better domain name. I think more work needs to be done, using research evidence, educating that a premium domain name yields significant economic benefits. This information needs to find its way into schools of business. A stronger scholarly trend in the domain industry will help with coverage of domain names  become a more important part of university and college curricula.  
2. It is technically much easier to use a service like Wix rather than finding and  purchasing a domain  name, a hosting service, developing a  website, etc. The situation is easier when they can purchase the domain name via a company that will also provide web hosting, and I think the GoDaddy and Namecheap Marketplace have advantages for some purchasers. The fact that they are buying from the company that has registered the domain name also helps with trust issues (see next point). Wordpress and site builder software have made web development easier and less costly, which helps. 
3. They would like a better name, and are even willing to pay the price for one, but they have trust issues with the domain resale business.  The publicized cases of stolen  names have hurt our entire industry, as have, to be honest, impolite rhetoric from a tiny minority in the domain name industry.  Now with the GDPR induced Whois changes it is even harder to confirm genuine ownership of a domain name.  I am surprised how many domain sellers hide their real identity.  Would you buy a car from a salesman wearing a  mask who would only tell you his or her nickname and would not give you any idea of the car price to start with? Read this from Undeveloped regarding the importance of real identity in domain name extensions. 
4. They find the process of finding a domain name on the reseller markets confusing or complex. Misuse of the word 'premium', silly pricing of a few names, the plethora of domain name marketplaces, lack of attractive presentation of names, inefficient categorization making it hard to find the right name,  the  lack of provision of buy it now (BIN) pricing or at least minimum offer, etc. have all weakened our industry. To those familiar with domain names, it is trivial to see what is available, but it is a far different experience for someone who has never accessed the domain sites before. If we ever evolve to a single integrated global market,  like the blockchain powered DAN proposal from Undeveloped, I think the number of aftermarket sales will pick up. It will be good for end users and for domain name investors.
5. The plethora of new extensions has caused confusion for end users. Some of these extensions, and how they were 'promoted' with initial discounts, has cheapened and weakened the entire industry, as have some of the extension choices. Like seriously, why were singular and plural extensions approved, or an extension like .sucks? Who thought it was a good idea to approve so many extensions all at once? (These are intended as rhetorical questions for emphasis; I do know who, I just disagree with the decisions!)
6. The variable renewal rates on some premium new extension names have scared some away from domain names in general.  I think that the industry would be stronger if a universally enforced policy required all extensions (legacy, country code and new) to commit to suggested retail price renewal rates for a 5 year period.  I am not saying fixed at current levels, but price increases should be known - e.g.,  2% per year, or whatever.  I am  not arguing for uniformity, and registrars should be able to sell for less, but there should be a maximum renewal rate for years 2-5 for each extension that the buyer knows. Also, premium renewals should be outlawed. Period.  I am glad that the .icu extension, while having premium initial prices, has committed to standard renewal rates for all.
7. Volatility in value of domain names, in particular of .mobi, have caused some to fear a domain name they paid a lot for will go out of vogue and become worthless.  I think the persistence of .com owes much to this one factor. Businesses feel more confident that if they pay a large price today, it will have at least much of that in two years time.  Of course as the NameBio daily report shows, even many .com prices do drop by 90% or more on resale.
8. Independent Fair Market Value of domain names needs to be available through more reliable domain name worth estimates.  I am not as critical as many of GoDaddy GoValue and Estibot, and  do consult both regularly, but I feel that they could be much better.  I like the approach of using extension specific, or niche specific appraisals.  Ultimately we need the process of appraisal of value being separated from those who could profit from high valuations. Whether those appraisals are automated, by humans, or mixed mode,  is not really the point I am making.  The point is that as a potential purchaser I need to be able to go to an inexpensive and  trusted source and learn that the worth range for a domain name is between  $x and $y.  That does not mean that to me it is worth only that, or that much, but for those working in corporate environments we need that information.
9. We need to move the domain name business from a speculative model of holding assets until they appreciate, into a service oriented model where we help consumers make a good domain selection and through the steps of acquiring it.  I am not saying  that this is not being done currently by some, but it needs to become the standard within our business.

These are my thoughts.  A lot more could be written on each point, and some I do plan to develop into individual blog posts.  I am simultaneously both optimistic and pessimistic.  As it stands now, I am convinced that most domain name investors are not making significant money (but that is a future post!) and at the same time end users are frustrated and underserved.  However, I feel that the fundamental data supports the possibility that a much higher percentage of domain names held by investors could potentially be sold. 

Please let us know what you think through the comments section!

Notes:

(1)    I obtained the first number by taking the reported number of new businesses per day in China, and then scaling by the fraction of the world population represented by China.  While there is considerable uncertainty, this number is probably not less than one-half this figure.

(2)    The new registration data is from standard domain industry sources and is the number of new registrations, not the net increase that is much less when expired domain names are taken into account.

(3)     The domain name sales per day was obtained by multiplying the average daily number of NameBio reported sales (220) by a factor of 5 to represent sales not reported there.  Clearly this factor is uncertain, and some would suggest that it should be higher.  I don't think it can reasonably be argued that it would be high enough to make the arguments of this post invalid, however.

Links:

• NameBio
• Verisign domain report Q1 2018
• How Many Domain Names Does the World Need?
• Undeveloped Blog
• GoDaddy GoValue
• Estibot
• Wix
• NameStat (statistics on registrations, use, etc.)
• nTLDs site (statistical data on new extension registrations)
• Freenom ('free' domain name provider)
• Our site NamesThat.win - thanks for visiting
• Permanent link to this blog post

Original post Aug 6, 2018.

Fine Print

This post is offered for informational and educational purposes only, and should not be considered domain name investment advice. While an attempt has been made to be accurate, there is no implied or explicit warranty, and you are responsible for verifying any information of importance to you.

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