More Downward Pressure on Domain Name Prices

Andrew points to a Wall Street Journal article today about how Google is looking into a number of ways to maintain profitability during tough economic times and speculates:

As Google struggles to keep its earnings growing, another place the company will look is to squeeze its content partners. All it has to do is dial back the revenue share it provides to content publishers. That includes domain name owners. Since Google has essentially killed off most of its competition, it’s difficult for publishers to threaten to jump ship.

He’s right, of course — at least about them being able to reduce the revenue share without publishers being able to do much about it.  If AdSense is a major revenue source for you, there’s simply nothing to put in its place that would work exactly the same way and provide comparable income.

The Impact on Domain Name Prices

So “JS” takes it a step further and writes in the comments section of that post:

What happens to domain values when you decrease the major source of monetization?

I think I have an answer…

Two primary components of the extraordinary rise in domain name prices over the past few years have been the rising prices themselves — people were sure that they could make money by doing nothing but buying and holding for a little while — and the easy revenue in the meantime from just parking the domains and enjoying the PPC income.

It’s clear now, though, that prices are no longer rising.  Premium generics may still be a great investment (I’m buying, so I hope so), but prices in general are down.  As Rick Latona said about his domain name auction back in September: I’ve told everyone on my team that if we do 1 million in sales we would have done 3 million if the auction was last year. Add that to the fact that every month seems to bring more bad news like this about parking revenue, and domain name prices just continue to fall from their peak a year or so ago.

What’s the Answer?

Obviously, the answer — whether you’re talking about domain names specifically or websites in general — is to diversify away from a single revenue source.   For domainers, that means starting to build out sites under their domains or partnering with someone who can.  For website owners, that means expanding beyond AdSense.

It can definitely be a challenge, but what’s the alternative?

Oh, the Irony

As a side note to all of this, don’t miss this great irony in the Wall Street Journal article:

But revenue growth has slowed dramatically over the past year. Products such as Google Checkout, a Web payment service, and Google TV Ads, which sells television advertising time, haven’t generated significant revenue, leaving online ads still accounting for 97% of revenue.

That’s right.  Google — who created such a great, easy revenue stream that has made it difficult for publishers to generate revenue any other way — is itself struggling mightily to diversify beyond those exact same ads.

Think you can get diversified faster than they can?