Domaining 2.0
Here are a few thoughts on the state and future of domaining.
1. Domains Sustain Brands
The primary use of a domain is to build or to sustain a brand. The primary goal of a brand is to drive sales.
A generic domain such as Candy.com is an instrument for a business to advertise them as category leader and to ingrain them into the mind of consumers as such. A brand thrives on resemblance, and a common word with ".com" at the end is easier to remember than an artificial name. Therefore, the more "common" a domain is (generic, .com), the more value it has for the brand. The less common it is (artificial names, less known TLDs, potential typo TLDs like .co or .cm), the more money has to be spent in marketing and advertising to achieve brand awareness.
2. Type-In Traffic Is Dead
In the early years, domains had type-in traffic - people typed generic names into the browser address bar and the browser appended the ".com."
If you type a generic keyword into the address bar today, IE will try to go to http://keyword, Firefox will go to the first Google search result, and Google Chrome will search Google for the keyword.
Even if you consider direct navigation traffic as type-in traffic, users only type domains they remember very well (twitter.com, google.com) directly into the browser, and they do so at an decreasing pace. Many users default to using a search engine even for direct navigation. Some studies say such navigational traffic is 15% of all searches.
On most large websites, direct traffic is less than 5%. Anyone with a nephew who is half skilled at SEO can produce more targeted search engine traffic than even the best undeveloped domains get.
If you have a domain portfolio with thousands of targeted names, type-in traffic will obviously amass to decent, yet shrinking traffic numbers - a thousand drops will form a puddle eventually. Money with type -in traffic is only made at scale.
For anyone else, type-in traffic is just not a relevant factor anymore.
3. New TLDs Need Branding
If we believe that the goal of a domain is to sustain brands, new generic TLDs will have to become brands themselves. If nobody recognizes "newyork.restaurant" as a web address, marketing money spent promoting it is in vain. This is a factor in favor of .brand TLDs (such as .canon), which, together, may change consumer adoption at a faster pace.
4. Applications Before Brands.
What makes the Internet interesting are its interesting applications. If you have a great idea, like Twitter or ChatRoulette, and can execute it well, the brand will be built virally and the name and domain don't matter. It's advisable that you don't get a really stupid domain like flickr.com or you will waste millions of visitors on flicker.com. But that's about it - you don't need a category killer, multi-million Dollar domain if you have the idea and can execute well.
5. Domain Investing Is Here To Stay
There always was and always will be money flocking to marketing and branding. Since good domains are finite, they will stay valuable assets and continue to attract money in the secondary market.
6. Domain Values Will Continue To Rise
Since domains are part of branding and marketing, it's ridiculous what amounts of money we are talking about when we look at most domain sales. In a corporation's marketing budget, $100,000 is a rounding error. Even private people blow $50,000 or $100,000 on a new car, Small businesses spend hundreds on letter heads, business cards and USB stick gifts. Yet a domain that can make an entrepreneur's marketing life so much easier is not seen to have value by many. The actual value of the fundamental structure that a domain can be to the branding process cannot be overestimated.
Much of the increase in value will come from end user sales, though, as established domainers continue in a wait and hold position, or even sell select names. Auctions and insider aftermarket will continue to be weak.
7. Parking is Bad, But It's Nearly Dead
Fortunes got built on parking, but really, a parked page is as useless to a consumer as a one way street plastered with billboards. Today, parking only makes decent money on typo and trademark infringing names. That's not going to get better and even large portfolio holders are moving away from parked to slightly more useful models such as Demand Media's or Epik's.
8. There Is No Such Thing As A Developed Site
Domainers talk about developing sites but in reality you need to develop businesses. Cash-earning, income-producing, profit-making businesses. This is actually quite hard and many domainers simply have skill sets (analyzing, collecting, investing) which are not natural fits for starting a business. Even worse, the curse of easy money from parking got many domainers lazy and unwilling to invest in learning new business development skills.
9. The "Domaining Industry" Will Remain Stagnant
Actually what calls itself "domaining industry" is composed of 70% run-alongs who couldn't tell a good name if it was delivered to their house with a gift wrap, 30% domain squatters who live off typo and trademark domains, 5% people who try to find real investment opportunities and 5% professionals. Probably there are less than 250 professional domainers in the world who live from pure domaining income. Conferences in the industry are ridiculously small with 200-500 attendees at best - compare this to SEO or affiliate events, heck even with gaming, adult, or geek conferences, all of which draw larger crowds regularly. Not to mention that half of the domain conference attendees are sponsor employees.
Unfortunately, for every one of the 70% wanna-be-domainers who leaves to greener pastures, there are five others who come to try their luck at domaining. The barrier to entry to this market is the $10 reg fee.
Most of these gamers have no real purchasing power, so they are not even influencing the secondary market. Further, there is minimum correlation between purchasing power and where you fit in the industry (the 70% idiots end or the 5% pro end), so often money is spent on non-assets like trademark domains in land-rushes (like $7k on porsche.me, subsequently lost in UDRP).
Most of those 5% with a significant interest in finding opportunities will move or at least get more involved in other web marketing industries (SEO/SEM/affiliate/tech).
What actually makes up the bulk of the real domainining industry is registries and registrars.
10. Registries, Registrars Will Remain Cash Cows
While nobody knows at this point how successful the new TLDs are going to be, one thing is for sure: those who will make immediately money of them are the registries themselves and the registrars. Those who already distributed 200 million domains will continue to do so in new TLDs. Registrars don't particularly care which TLDs are in demand as long as their absolute sales increase. Registries on the other hand will continue to suck the money out of domainers with creative land-rushes and auctions.
