Making Money with Domain Names, Revisited

I wanted to revisit a topic I first wrote about almost three months ago, How to (Really) Make Money with Domain Names.

Before I wrote that, and increasingly since then, I’ve seen public admissions by a number of domainers that the potentials for growth by just buying and holding domain names isn’t what it used to be. 75% of domain industry professionals may expect domain prices to increase this year, but even Andrew Allemann from Domain Name Wire sees new difficulties with the buy-and-hold strategy:

On the flip side, parking revenue is falling. A lot of domain investors use domain parking revenue to buy new domain names. The source of their capital is drying up. This is exacerbated when these investors bought domains with leverage. Leverage is a great thing when asset values rise. Itís bad when asset values decrease (witness the current subprime mortgage mess). Some of these buyers arenít getting the pay-per-click revenue they expected from domains and are reaching into their pockets to cover payments. Iím starting to see a handful of domains purchased at auction over the past couple years being listed for sale at about the same price they were purchased for.

That’s not at all to say that money can’t be made. I just believe it’s much harder than it used to be, and just as Frank Schilling had to use different methods to make his fortune in domains than Yun Ye before him, domainers today have to use strategies different than Frank’s.

Hard Numbers for Buying and Holding

The foundation of the previous article was my claim that developing good domains was a much higher-payoff, much lower-risk strategy than just buying and holding. I wanted to revisit that for a couple of reasons — the first being to look at some hard numbers for the buy-and-hold strategy.

Let’s suppose you wanted to invest in this business by putting $20,000 worth of domain names on your credit card. Here’s what that would buy you, and what your expected payoff would be at a range of purchase prices and sale prices. The area in gray is your profit under each scenario:

For me, buying 20 domains for $1,000 each and selling them later for $5,000 each seems like the most likely scenario, but you’d have to do that every year in order to make just $80,000/year. Admittedly not a bad salary at all, especially considering the lifestyle you could lead while doing it, but you’re not going to retire on that.

I’m sure we could easily find someone to argue very persuasively for each of these 16 scenarios, though, so I’ll leave it up to you to decide which scenario you think is most likely. This just puts some actual numbers to situations I had only discussed in general previously.

For me personally, though, I have no doubt that I could buy a single really good domain for $20,000 (rather than 20 for $1,000 each), develop it, and then sell it a year later for far more than $80,000. That’s why I like a development strategy so much more than just buying and holding. (And I’d actually probably hold it much longer than a year as the value grows at a steeper and steeper rate.)

My Blindspot

However I told you there were two reasons why I was revisiting this topic.

The second reason was to admit that I have a huge blindspot when it comes to development. For me, it’s easy to look at a domain, determine if you could quickly build a valuable site under, and then go do it. As with anything that’s easy for you personally, though, you tend to forget that it’s not anywhere near that easy for everyone.

Let’s Test It

So let’s quit talking about it and find out how hard this really is by actually testing the theory.

If you have a domain in your portfolio you feel could probably be bought for $10,000 to $20,000 today and would like help developing it, let me know within the next 2 weeks. I’ll pick up to 5 domains and work with the owners to develop them along the lines of how I normally build sites — the goal being to establish whether development is something that most people could learn how to do on their own, or whether development really is a skill that involves a not-insignificant level of inborn abilities that can’t just be taught.

I’ll go into detail about how I personally determine whether a domain is worth building out, how I get traffic flowing, how I monetize that traffic, etc., and I’ll document those things all along the way so that everyone can see it. Obviously that also means that you won’t want to take part if you don’t want all that made public about your domain.

If you don’t mind that, though, and you want some absolutely free help developing one of your good domains, let me know! Let’s figure this out this development question once and for all.


Comments


  • Peter Askew

    April 27, 2008
    at 8:37 pm

    got a few to toss at you during lunch tomorrow : )

    -peter


     
  • […] the next few months, though, more and more domainers began admitting that there was less and less money in “domain ownership and PPC.” PPC revenue was […]


     

  • Donna B.

    September 14, 2008
    at 1:32 am

    Hey Shane, did you ever test this out by developing domain names? I’m curious what happened with this!


     

  • Shane

    September 15, 2008
    at 4:29 pm

    Yes, it was very interesting. Thanks for asking! I’ll do a whole post on the results of this soon.


     

  • Jim

    April 20, 2009
    at 6:12 pm

    Where can I find the results of this test? Very interesting.


     

  • Shane

    April 20, 2009
    at 6:36 pm

    Regrettably, I’m not at liberty to share them right now since they’re all still very early stage. Hopefully some day I’ll have some great stories to share, though!