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LIVE DOMAIN AUCTIONS - BOOM OR BUST FOR DOMAINERS?

July 3rd, 2008 Posted in Aftermarket, Domain Auctions

The photo at left shows a domain in the exhilarating process of selling for $400,000 at a Live Domain Auction. I won’t reveal the domain name, but I can tell you that the handsome guy with the final bid sign (416) is Donny Simonton from Parked.com. (Ignore the redhead guy posing with a peace sign in the front). The seller of this domain slept very well the night after this Live Domain Auction (LDA). However, how many other domain sellers were smiling after the LDA was over? Thus, this question is the subject of my article (but not based on this particular LDA’s results):

Live Domain Auctions - “Golden Road to Financial Shangrila or Rocky Path to Major Regrets?” These two possible “results” from selling a domain at an LDA create contradictions for many domainers. I will try to dissect the LDA process here, and hopefully educate you on how to proceed in presenting your domains for an LDA. (An LDA does NOT include established online auction websites such as Snapnames, TDNAM [whatever the hell that acronym means], Bido, Pool.com and Namejet). An LDA is a specific event held at TRAFFIC, GEODOMAINS, DOMAINFEST, DOMAIN ROUNDTABLE, and other domain conferences that physically hold a “live auction”, complete with a barking auctioneer, booze, lots of guys pointing into the “crowd” of bidders and pushing the aura of “immediacy” in buying the domain (we’ll talk about this “marketing” effort by the LDA later).

THE DOWNSIDE OF SELLING A DOMAIN THROUGH AN LDA: The truth is, many domains are being sold at LDA’s for “single bid” reserve prices. This means, as a seller, if you post a low reserve amount on your domain, there may be only one bidder for that reserve amount, and there isn’t a crowd of bidders slapping each other with their wallets, trying to pay big bucks for your domain because they need your domain. Result = you get paid the lowest value of your domain that you indicated, minus the 10 - 20% commission paid to the LDA.

The lone bidder on an LDA domain doesn’t happen because the domain sucks (usually), but because most LDA’s market their auction mainly to other domainers. Although domainers are a logical buying demographic for the LDA’s, most smart domainers’ main psychology behind purchasing a domain is the mantra we all follow: “Buy low, sell high”.

“Incest is best,” for LDA promoters. (This doesn’t remove the responsibility for established online auction sites like Snapnames and others I mentioned above to promote their sites to the proper potential buyers of their clients’ domains - the END USER. But we’re talking about LDA’s for the moment because they get the most publicity when they occur.)

Here’s the misconception: A lot of domain sellers think that an LDA will present a plethora of bidders who will be slobbering over their domains because the bidders are physically “in the zone, cocked and loaded.” Domain sellers think they have a great domain that will generate some interest among domain investors based solely on the fact that their domain makes sense, and meets much of the “canned automated appraisal milestones” used by some domain appraisal sites to remove cash from domainers who want to know what their domain is worth, and the domain name was… hold your breath and get ready to jump for joy… accepted into the LDA!!! YAY!!! (Granted, we’ve all seen a humungous amount of hideous domains featured in some LDA’s, calling into question both the LDA promoter’s domain appraisal expertise in selecting these domains, and the domain seller’s mentality when they bought the domains. I’m not addressing those obvious roadkills in this article. I’ve bought many a roadkill, and ate a lot of them. Some didn’t taste too bad! (I made five times my investment in the sale).

CAUTION SIGN: Unless you have an obvious premium “natural” common one-word “.com” domain, (which the LDA promoters will advertise incessantly to enhance their “legitimacy and reputation” of their LDA event - shamelessly using the domain sellers’ top-notch domains that the LDA, THANK GOD FOR THEM! has been able to secure for the auction), your very decent mid-range domain name in an LDA can be bought for very cheap because the LDA promoters failed to bring in the “relevant audience of bidders” for that domain. There isn’t the “big name” domain sale news releases sent out for your $30,000 or $10,000 domain. In other words, LDA’s don’t spend much of their profits to promote ALL of their upcoming LDA domains to seek out the best potential “enduser” buyers across the relevant range of their listed domains. These domains are usually in the $1000 - $25,000 range of value. This is the domain value range most common of all domain seller submissions, and I’m worried most about when they’re accepted into an LDA. Their sales seem almost as afterthoughts to the LDA’s. These great mid-range domains usually sell to another domainer who sees the potential of the domain, the lack of bidders and best of all, no attempt was made by the LDA promoters to contact relevant businesses that might want to sink half their year’s ad budget into a domain name that will work for them for as long a they renew it. If I’m wrong, you LDA promoters know how to contact me so I can set the record straight.

Bottom Line: LDA promoters can achieve a much higher sell-through ratio of their domain list if they invested in contacting END USER SOURCES. The LDA promoters can define those end user sources by selecting specific category domains for their auction, and then contacting each of those industries’ association groups and publications. So a “category-specific” LDA, promoted to the relevant industry associations, could reap huge profits for both the domain seller and the LDA promoters. It’s a no-brainer, but it takes some balls and a more focused vision on future domain sales on the LDA promoter’s side to invest in solving this simple marketing problem.

Finally, from many domain sellers’ past experience, they get convinced by the LDA reps to list their domain’s reserve lower than the seller wants so the LDA can at least “get some bids” on the domain at a “bargain value”. Why? Because the LDA will get their commission when the domain sells, regardless if the domain is sold far below its true value. (True value of a domain can only be determined by an domain-educated enduser, usually a marketing director or saavy business owner). This has created a lot of heartache for domainers who sold domains on LDA’s for 1/10 their true “enduser” value. I personally saw a client of mine be encouraged to lower his domain reserve in order to “make it into the LDA”, and then watched his face sadly when only one bidder triumphantly bought up his best domain for the lowest price.

PROFIT-BASED FACT: It’s not in a LDA’s best interest for a domain with even a reasonably high reserve to receive no bids. “Fair reserve price”? That’s not the LDA’s concern. They’ll make something off the sale of your domain when it’s posted at low reserve prices. Do they want a bid war to happen when your domain pops up? Of course! But - financially their strategy is really logical. You can figure it out yourself. If you’re going to make 15% commission on a domain sale during your LDA, would you rather get at least a guaranteed bid for a domain with a low reserve of $1000, and sell the domain to take your $150 commission, or would you rather cross your fingers and hope that some smart “end user” will come into the LDA and pay a higher reserve price of $5000 for the same domain? The LDA promoters know this is a lopsided bet. The latter option most likely will FAIL for you as an LDA promoter if you haven’t done what you’re supposed to do, and that’s invest some money, hire a publicist, and market your LDA to the enduser (The business sector).

FINAL SOLUTION FOR PLAYING THE LDA GAME: I recommend my clients not to put their domains up for sale on an LDA with a reserve price they can’t live with if their domain sells at that price. If you have a great mid-range domain and you believe, as one LDA promoter stated erroneously a year ago on his blog, that “domain buyers will push the domain price up to its true value,” think again. The LDA has to prove first that they’ve invested in promoting their LDA to the proper “end user” channels, and have at least ten to twenty buyers interested in your domain (that’s a lot, but it sure sounds like the endgame success for domainers, doesn’t it!!)

Live domain auctions aren’t usually marketed to “endusers”, who are the real bellwethers of a domain’s value, and the buyers who will pay you the most for that domain. My experience shows me that none of the LDA promoters spend ANY money publicizing even their best and mid-range domains to the endusers who would benefit the most from buying those domain at their true value.

THE BENEFITS OF PARTICIPATING IN A LIVE DOMAIN AUCTION (LDA): If you list your domain at a decent reserve price that you feel comfortable with, and your domain is actually a decent, common generic phrase less than 15 characters and a .com, you’re going to most likely get more than a few bids on the domain at an LDA, especially one held at a TRAFFIC, GEODOMAINS, or DOMAINFEST auction. Most of those LDA’s are produced by Monte Cahn at Moniker, and he knows how to pull the auction together, select the best high and mid range domains, and promote them, even if only to other domainers, to get a final bid price that you can be happy with. So in reality, LDA’s aren’t your enemy, they can give you tremendous profits for your domains. Your part in working with them is to KNOW what your domain’s minimum value is worth, and not present a reserve price below that, no matter what the LDA promoters ask you to do. Stay tough.

Now, as a final note, if you are a domainer that has many “nice” or “mid-range” domains, especially those that make at least $25 - $50 a month in PPC revenue, there are two specific online companies I personally recommend you use to sell those domains.

One of them is an old standby, now using new tactics to sell private domain portfolios, and doing it well. Snapnames.com. Great team of people, great system, reputable, reliable, and fairly easy to use. If you have domains you’re clearing out of your portfolio because you want to focus on a shorter list of niches, this is the best way to go. The first step is to get them transferred over to Moniker.com. From there, any Moniker domain you have can be presented to Snapnames for listing on a private domain auction. This system is run aptly by Jonathan Stanfill and Michele von Tilborg. I’ve sent over domains I would have sold cheap or just let expire, and I was surprised to find that I made about $6,000 on sales of 34 domain in three months. Remember, these are domains I didn’t want anymore and would have let expire. Plus, the domains sold for low prices, but each sale was still a significant profit for me, so all you domain buyers wanting a good domain can pick up a lot of great deals at Snapnames.

Last but not least, I’m putting my money on Bido.com, the innovative “one domain a day” broker service that is capturing many domainers’ interest. Some people have stated their domain list was weak starting out of the gate two weeks ago (http://www.domainnamenews.com/domain-sales/bidocom-domain-sales-in-june/1686), but this is only a “testing” process to see how domain buyers react to each type of domain listed. It’s helping Bido understand the value of domain “types”, domain by domain, day by day. Trust me, these guys know what they’re doing. They only charge an 8% commission, and Jarred Cohen, Sean Stafford, Dan Kimball, Sahar, Jude Augusta and the rest of the gang at Bido and DNZ are having a blast building out and studying this system, and I personally am seeing a lot of promise in their format for truly getting the most value out of a domain. Here’s another jump Bido has on other domain auction sites…with 20+ domain appraisal experts rating each domain as it comes up for auction, a buyer can not only assess each domain’s value, but also LEARN INVALUABLE ADVICE FROM THESE EXPERTS’ OPINIONS. So the value doesn’t just come from buying or selling a domain at Bido, but by also going to the Bido.com website and reading the appraisals from the talented domain experts commenting on each daily domain. If you haven’t signed up yet for Bido’s daily newsletter, every day you wait makes you just another day dumber in the domain name investment community!

Everybody have a great holiday weekend, and let’s get to work promoting domain values when we get back to work next week!

peace