Sometimes a comparison can confuse more than it can explain.
One of most common is domain names are "21st century real estate". A quick search of Google reveals nearly 2 million results for the phrase, coming from companies as big as Yahoo, USA Today and Fox News.
That the phrase was just plain wrong hit me while reading Tropical SEO’s recent claim that there’s a slump in the domain market … just about the same time as old-fashioned real estate sinks in the United States.
Why Domains Are Nothing Like Real Estate
- Most domains aren’t worth as much as a toy car. Following on from our 80% / 20% rule of last week, I’d wager that 80% of domains aren’t even worth the 7 dollars that people paid to register them. The vast majority of domains need to be thought of as toys rather than investments.
- A great domain is much better than real estate. A small percentage of domains make a profit every year, earning more than the $7 they cost to register. Those names are better than real estate. Domains require zero maintenance, zero tax, zero haggling with bad tenants and zero repairs. Domains can also be far more exclusive. The top names such as CreditCards.com can completely dominate their industry. Even places as valuable as Central Park are surrounded by thousands of properties competing for buyers. Any competitor to CreditCards.com has to start with a very considerably weaker name.
- $1000 to $3000 is the sweet-spot for most sales. Unlike Real Estate, most sales happen at the low $XXXX level. Those are mainly the names that have a clear business use but don’t aren’t obvious generic names. Example names sold on Sedo today are itsmysport.com and loankings.com.
- Unlike Realtors, the domain industry is new and sellers have yet to target buyers accurately. I’m not sure that its fair to see the recent Domain Tools auction as the start of a slump. Most names on sale should be valued in that sweet-spot meaning that they have more chance of selling to an end-user rather than the professional domainers who attend auctions.
- A domain slump is unlikely now. A real estate slump is inevitable. My feeling is that large domain sales won’t only continue in months to come but will likely increase. Auctions may get more picky about the names they include, but Pay-Per-Click revenues are continuing to climb and plenty of domainers have a lot of money burning a hole in their pocket. All in all, I’d rather have my money in domains than real estate over the next two years.