Domain TLD Guide: Understanding Inherent Value

Domain TLD Guide: Understanding Inherent Value

Hello friends and fellow domainers, I wanted to write a follow-up piece to my 2016 trends article (see Bibliography #1 below) to discuss, in greater detail, the issue of the seeming rise in value of TLD’s that are not .com and the challenges that .com is currently having.  In order to understand what is going on we need to understand the inherent value of each TLD to see where good investments can be found and places to best avoid.  There is a lot of fear, misunderstanding and misinformation out there and my goal is to offer an unbiased vision of the market backed by logic and facts.

Before we go into detail I would like to explain the acronyms so that beginners can understand what is contained in this article.  TLD stands for Top Level Domain, basically it can be understood as any extension (e.g. – .com, .net, .biz, .de, etc).  gTLD stands for Generic Top Level Domain.  They are used either as a generic replacement for some of the traditional TLDs or they can be used for very specific business purposes (e.g. – .org, .biz, .club, .xyz, etc).  ccTLD stands for Country Code Top Level Domain.  They are used as specific regional extensions for end users in a particular country (e.g. – .cn, .de, .uk, etc). In addition to speaking about what the acronyms stand for I would like to add a disclaimer.  In the guide below when I am speaking about a domain investment for specific TLD’s please understand them to be short, liquid domains (2L, 3L, 4L, 2N, 3N, 4N).  Now that we have that out of the way we can move to the guide.

So let us start with .com since the market for this TLD is retracting and there are a lot of doomsday predictions surrounding the .com market in particular.  Last year, we in the domain aftermarket community saw an unprecedented rise in the value of  .com investment domains.  The demand for .com’s far outweighed the supply last year due to an influx of new investors into the domain market, especially coming from China, which drove prices up significantly.

Additionally, .com is the default TLD on the internet with 120.1 million .com’s registered, out of a total of 299 million domains registered worldwide (see Bibliography #2).  .com has a market share of 41.4% of all domains registered.  There was a 3.4% increase in the registration of .com/.net year over year so we are seeing continued growth in this sector.  What does this tell us as investors?  It tells us that  .com is still perceived as the most premium, prestigious and valuable of all TLD’s.  In addition, it tells us that 41.4% of domain owners have a vested interest in maintaining the value of the .com TLD.

Many businesses have paid a significant amount for their .com domain name and typically you will find domain names listed as company assets in their financial disclosures.  If you look at the facts, .com is not going away and has the most inherent value of all extensions.  There are just too many businesses and individuals that rely on .com for it to be replaced.  If you want some analogies .com in the domain market is the same as the US dollar in the financial market.  In terms of real estate (and what are domain names if not virtual real estate), .com would be your mansions in the affluent part of town.

You may be asking yourself, well if the numbers show that .com is the most valuable TLD then why are the aftermarket prices for .coms dropping?  This is simply a case of supply and demand as investors are wanting to liquidate their .com assets in order to invest in other areas of the market.  Many buyers have started to target other investment gTLDs as many seem to be undervalued.

There is a general feeling that as an investor you can make a higher percentage on your investment in TLD’s that are not .com.  This is due to the fact that more people are entering the domain investment market yet .com’s are so expensive that these new participants are priced out of that market segment.  So owners of .com’s are trying to sell yet the buyers are not there.  More and more .com’s are being exposed in the aftermarket yet they are not being purchased as the investors that are in a buying mode are spending their money in other segments of the domain market.

So what do you get when you have too much supply and not enough demand?  You guessed it, a price drop.  Now that we have a price drop, the investors that were not trying to liquidate some of their .com assets to move their money into new investment opportunities and frankly don’t understand what is going in the market, began to panic.  They added more supply to a market with already limited demand increasing the severity of the drop in value.

Where does it end you may ask?  Well, we are already seeing some savvy investors picking up highly discounted .com domains and as these savvy investors pick up these names for cheap and pull them off the market you will ultimately see the supply dry up and then the demand will once again rise.  It’s hard to say when this shift will occur as we don’t know when domain owners will start pulling their supply off of the market but you can bet that smart investors are poised to make lots of money off of this downturn.

Recommendation: If you own .com’s either sell them today at competitive prices and move your investment into some of these other gTLD’s that are poised to break out or take them off of the market and hold them long term.  Absolutely do not leave them out on the market at unreasonable prices.  This will only work to further devalue your assets as your action will contribute to the supply/demand problem.

Now we discuss other gTLD’s beyond .com.  These types of domains can be broken up into 3 distinct groups: Recognized and established gTLD’s, broad use gTLD’s and specific use gTLD’s.  There are over 350 gTLD’s available for domain name registration (See Bibliography #3).

The recognized and established gTLD’s are extensions that you are already very familiar with, .net, .org, .info.  These were the first “new” TLDs to be introduced after .com and are seen as viable and high quality.  There are roughly 15 million .net’s registered, 10 million .org’s and 5 million .infos.  If .com’s are the mansions of the virtual real estate world then .net’s and .org’s are large homes in upper middle class neighborhoods, followed by .info.  The value of these names are fairly stable and have shown a nice uptick in value recently.  Many investors have recognized that these TLD’s are a bit undervalued in comparison to .com and therefore there has been some nice movement of investment to this sub segment.  The price of these names is such that regular investors can still play in this market without having to spend tens of thousands of dollars, yet the extensions are so well known that the risk of the TLD collapsing completely is not there.

Recommendation:  .net’s and .org’s are a good buy.  They are desired worldwide and have broad applications.  .info is more limited in it’s application and we have yet to see Chinese investors seriously desire .info.  I anticipate a steady rise in value with the possibility of a huge jump in value similar to what we saw with .com in 2015.

Broad use gTLD’s are the real up and comers in the domain investment world but the challenge is to understand which ones are desirable and which ones are just noise.  A few of these gTLD’s are close to joining the ranks of the .net and .org and poised to show a significant jump in value.  When determining which broad use domains are the cream of the crop I looked at trade volume, exposure on aftermarket sites and level of interest of investors.  .biz, .club, .xyz, .top, .wang are the only broad use gTLD’s that I would recommend investing in at this time.

.biz, short for business has broad appeal because any business can utilize this extension, in fact, it was created to give relief to .com.  It is one of the 8 TLD’s that are tracked by the Chinese domain investment site Chaomi.cc.  .biz is easily found on all of the aftermarket websites and right now are trading for far less then their inherent value.

.top and .wang are also 2 of the 8 TLD’s that are tracked by Chaomi.cc but their appeal is less broad as .wang is more of a regional Chinese extension and .top doesn’t represent anything, it is just a general extension although beloved by Chinese investors.  .club is a fantastic gTLD with broad reaching value for groups, clubs, etc but has less appeal for business.  .xyz has been marketed extremely well as a general TLD and there has been a lot of investment movement within this extension.

Recommendation:  Invest in .biz, .club, .xyz, .top and .wang before it is too late.  These are the gTLD’s where you can make the best return on your investment and they are stable enough that you don’t have to be too concerned about the extension failing.  At this time, I would not recommend any other general gTLD’s.  There just isn’t enough movement and desire to think that any outside the 5 listed above will emerge as a good investment at this time.

Specific use gTLD’s are extensions that have a very specific use such as .lawyer, .museum, .careers, etc.  These extensions typically only have investment value if paired with a single word or something meaningful in front of the extension.  For example financial.careers or JohnDoe.lawyer.  Many of these TLD’s cannot be registered unless you prove that you are using the extension for it’s specific purpose.  For example, you can only register a .museum if you are a museum.

Recommendation:  If you can pair a single word with the appropriate extension then there is money to be made from an investment perspective but outside of that these gTLD’s should be avoided.  Certainly do not register short, liquid domains with these types of extensions.  It isn’t clear which of these gTLD’s will survive or become popular so right now they aren’t a strong investment for the most part.

Finally, we move to ccTLD’s as these represent 137.8 million domains registered or 46% of all domains registered.  ccTLD’s have a registration growth rate of 4.3% year over year.  The majority of these figures are made up of the top ccTLDs such as .tk, .de, .cn, .uk, .ru, etc.  In total there are over 250 ccTLD’s.  .tk is a bit of a strange case as it is the ccTLD for Tokelau .  Needless to say it is a free extension managed by Freenom where the expired domains are reabsorbed and the residual traffic is sold to advertising networks (see Bibliography #4).  As such they are not monetized in the investor market.  There are also some challenges related to this ccTLD as .tk is infamous for being used for phishing.  I bring this up because there are over 25 million registered .tk domain names accounting for over 8% of the total number of domains registered (this is the second largest block after .com).

.de, .cn, .uk, etc have a certain amount of inherent value as they are very desirable within the region that they serve yet because they only serve one region, they have limited value.  ccTLD’s as such seem to have more inherent value in terms of end user usability but are limited in the worldwide investor market.  For example, it is hard to convince someone from China that a German extension like .de has any value to him or her.  Also, many ccTLD’s are regulated by the government of the region so you have to be aware of the volatility and risk associated with investing in a region with a less than stable government.  As you can see, the regionality of these types of domain assets has a unique set of pro’s and con’s.

Recommendation:  If you want to be a regional investor or want to target a specific niche in the domain investment world then ccTLD’s can be strong investments.  It is a must that you do in depth research into any ccTLD that you wish to invest in as each are governed very differently and the rules can change unexpectedly.  Specifically .cn is an excellent ccTLD to invest in as China has been the driver of investment domain value.  Chinese investors also like .cc and .ws.  The European ccTLD’s are strong investments as they have stable governments and most businesses in those regions need an online presence.  .io and .co have emerged as ccTLD’s that are also being used as gTLD’s giving them added value to investors.  As speculation investments .br (Brazil) and .in (India) might have some strong long term value as those regions with huge populations and landmass more towards an online economy.

Right now your head might be spinning or you may have blacked out for the last few minutes, hell, I bored myself to death writing this piece but I feel that it is very important to inform investors out there.  There are just too many people shamelessly promoting TLD’s that don’t have much value to the investor.  If you skipped to the end then the summary of the article is the following: don’t worry about .com, it will always be the most valuable and is here to stay.  Invest in .net, .org, .biz, .club, .xyz, .top, .wang, .cn, .de, .cc, .uk, .io, .ws, .co and that is it (for now).  And as I wrap this up I leave you with this.  Only 299 million domain names have been registered and there are over 7 billion people in the world.  As the entire planet moves to the virtual world, additional domains will be needed.  If you are reading this then you are entering the domain investment world when the human race’s transition to the Internet is still in its infancy.  Keep the faith, understand that investing in domains is a long term prospect and enjoy the steady gold rush.

Bibliography:

  1. http://qlq.com/2016-domain-investor-market-trends-and-predictions/
  2. http://www.verisign.com/assets/domain-name-report-december2015.pdf
  3. https://en.wikipedia.org/wiki/List_of_Internet_top-level_domains
  4. http://www.businesswire.com/news/home/20131216006048/en/Freenom-Closes-3M-Series-Funding#.UxeUGNJDv9s

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Jason Mcardle

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Jason McArdle is a highly successful businessman, from owning his own real estate business to being a multi-million dollar producer for AT&T to now being a well known domain broker and trader, he has well over a decade of success across multiple markets. He is now dedicated full time to his post as President of Sales at QLQ, designing winning sales strategies in today’s domain marketplace by taking a consultative approach to brokering. He believes that an educated investor is a good business partner, therefore taking time to write about the domain market and educate those in the market, he believes, is paramount to his company’s success.

{ 2 comments… add one }

  • gobuy March 18, 2016, 12:58 am

    Hi Jason,

    Very good article, I would add to the buy ccTLD the .us since I have seen many companies using it. So two construction companies yesterday using .us outside a very large condo project. Also if you look at the registration numbers on https://research.domaintools.com/statistics/tld-counts/ you will see that there is 1,694,943 registrations. That makes it 25th in the world in total registration. I think it is growing and you can still find great keywords.

  • gobuy March 18, 2016, 12:12 pm

    Here is a great example of a purchase this week of a .us, Switch.us sold for $6,000 number 11 on the list of country code sales on http://www.dnjournal.com/domainsales.htm and what is great about this sale is that if you go to Switch.us it is an Agency website. Vey good looking website business using a .us domain. This shows that the .us are being purchased by small U. S. businesses.