Domain Economics

1
Domain Economics

• Dan Warner
• Fabulous.com

2
Who is Dan Warner

• Chief Strategy Officer
• Chief Operations Officer
• Australian Public Company
• Premium Google Partner
• Aftermarket Distribution
• We own 600,000 domains
• Worlds 12th largest registrar
• Major Domain Buyer
• Creator of -
• Domain Distribution Network (DDN)

3
Economics Financial Inter-Relationships
4
Emphasis Outcomes
5
Strategic Choices
6
Growth Where does it come from?

• Revenue Sources
• Traffic
• Sales
• Growth Factors
• Development
• Consolidation

7
Growth

• Traffic ? Source, Quality, Sustainability
• Sale ? Rate of Sale, Price, Distribution
• Development ? Cost, Time, Scalability
• Consolidation ? Finance, Risk, Rarity

8
Development What is rare, valuable, and
sustainable?

• Threshold Technology Services

• Semi-Rare Valuable

• Web Development
• Web Hosting
• Open Content
• Domain Parking
• Registration Facilities
• Data Services
• Optimization Tools
• Web Design
• Threshold technology and
• competitive services in profitable
• markets drive prices down to minimal
• profitability.

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

9
Critical Mass Thicket of Marketing

• Semi-Rare Factors

• Critical Mass is Rare

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

• Majority of high value domains in vertical
• Majority of well written and fully original
  content
• Majority of consumer mindshare

10
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

11
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

12
Costs

• Reduce registration costs
• Dont hold dead stock
• Measure the outcomes of activities
• Human Resources
• Domain Assets
• Development Costs
• Outsource ?Non-Critical Activities
• Consider the value of your own time

13
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.

14
Risk
15
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?

16
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

17
Hard Risk Factors to Mitigate

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

18
Market Forces
19
Domain Industry Market Forces
20
Risk Mitigation Strategies
21
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?

22
Strategic Choices
23
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 dont get paid for what you didnt do or the
  value you didnt add to the process!

24
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)

25
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

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Sale Price Rate of Sale Relationship
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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

28
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!

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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.

30
Dont Valuation Issues

• Dont expect retail rates of sale higher than 5
• Dont put off selling domains!
• Dont use gross revenue to measure domain
  valuations.
• Dont add up all your retail prices as your
  portfolio valuation.
• Dont add in mystery factors!
• Dont 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!