this is another brief article, which, I hope, can help new gTLD investors (mainly those who are just starting) to get some unbiased overview of investment opportunities, but also investment traps which one can face when investing in new gTLDs. Today I will discuss differences between various investment approaches people have when it comes to new gTLDs, particularly we will learn why it is not always best to be first. Articles here are short extracts from my book "new gTLDs - investment mistakes and opportunities", which will be ready Oct 30, 2018 and you will be able to get it at www.brands.international.
Disclaimer: all ideas here are just my personal opinion. This is not an investment advice of any sort. My opinions might prove wrong, as, despite the fact that I tried to understand things I describe here the best I could, I might fail in that in some instances. You must, therefore, do your own due diligence before making any investment. I am a private investor and I have no ties to any registry or registrar (except the fact that I am a client of several registrars, where my domains are stored).
Part 3 - big guys, flippers, and builders
Investment timing - what is the best time and best way to invest in new gTLD domains?
This is, of course, the million dollar question. Different investors approach this differently. As per my observation, there are basically 3 main groups of new gTLD investors: I will call the first group "Big Guys", second group "Flippers" and a third group "Builders". Following text is an only very rough approximation of what is going on, as almost no new gTLD investor belongs purely to one of those groups - some people combine two of those styles, and some try to combine all three. Anyway, here we start:
New gTLD investment style no. 1 - "Big Guys" :
People in this group generally have a lot of money to invest. They are either professional domainers who earned a lot in a .com era, or simply rich investors without much of previous experience. Because of a large amount of money they spent, registries, registrars and other domain investors just love them. Big guys are investing usually $50k-100k+, some of them invested in a range of hundreds of thousands of dollars.
They are in general not afraid to buy premium-priced domains, sometimes the premium renewals for domains they hold are in thousands of dollars, although most typically those renewals can be anywhere between $100 - $1000. As they tend to buy directly from registries, they are able to get various good deals (usually it is 1 larger payment when they purchase domains, and then registry agrees that it will remove premium pricing from the domain name and renewal will become just a standard renewal - this type of deal is pretty common).
Big guys in many instances invested very early, just after first new gTLD extensions went live. Many large purchases were made in years 2014/2015. Particularly when we speak about .com era "old school" domainers who decided to invest in new gTLD names, we can see some very early investments, as those investors usually know their stuff well. They also understood that to be first means to be able to get best names. They usually hold few hundreds/few thousands of very good names. Of course, when someone holds, let's say, 1000 names and average renewal per name is $200, a total renewal fee of a portfolio is somewhere around . $200 000. That means this style of investment is suitable only for a very limited amount of domain investors, particularly for those who are well-funded. and not much risk-averse.
Advantages which this style of investing usually bring:
You can get best possible names available to private investors in new gTLD space. In case value of some new gTLD names will rise significantly in future, your profit will also rise significantly in future. Potential profit is very high, but associated risks can also be seen by many investors as higher.
Main problem which this style of investing usually bring: no or smaller aftermarket
One thing is obvious. Domain names need time, when it comes to their value growth. We all know stories when someone bought fantastic keyword .com domains in 1997 and sold it in 2010 or in later years for millions of dollars.
It is clear that if the hero from any such "success story" would try to sell the domain in 1998, he might get some profit, but because the aftermarket for .com domains was just fraction of what it became years later, the profit would be not comparable to what was achieved with huge patience. Simply said, in most cases, you need to wait years to sell domains for large profit. This is valid for .com, and this is valid for new gTLD domains as well.
As many of "big guys" bought in their investments very early, and for large premium renewals, some of them found themselves in a situation when they needed to pay high renewals every year, while aftermarket for their domains was still developing. Thus, in many cases, they got into red numbers. Based on individual luck and investment skills, some big guys sustained the pressure succesfuly and are already profitable, while some of them are still in loss.
You can then ask: so why they have invested so early when no aftermarket (or just a small aftermarket) have existed? The answer is, of course, the competition. Domain registrations usually work on "first-come, first-serve" basis. Good names will not stay unregistered forever, and those investors are smart enough to know it. You can basically get in early and get best names, or you can wait until aftermarket is formed, but then no good names are available anymore to register (maybe only those with high renewals).
So is the "big guys" investment style profitable?
Honestly, no one knows at the moment. New gTLDs started massively in 2014, and we are now in 2018. It would be illogical to expect that we buy good quality premium-priced domains, and we can sell them for multiples of purchase price just within 1 year or two. But this was the same situation with very early .com as well. And the actual lack of stronger aftermarket for some of the new extensions is further emphasized by a number of new extensions (we have several hundreds of them). On the other side, the fact is that those investors are holding now some of the best names available, the names which can make large sales in next few years. We have already seen large new gTLD sales like those of home.loans or vacation.rentals which were around $500k each When such sales happen more frequently (and in my opinon we have every reason to believe that), some of those early investors will suddenly start to be very very profitable
Patience - is it a virtue, or not ?
A lot of investors who invested very early and in good quality names with premium renewals are now in a very good position value-wise, but they still need to pay renewals.
Well, many "big guys" started to complain after a year or two that new gTLD names are not profitable. Some of them stated publicly that they use profits from their existing .com portfolios to offset losses they have in new gTLD area. For those people I personally think the big guy's style of investing is not suitable - they should shift more to "builder" style, which I describe in next paragraph, and they should also start thinking more about how to manage those renewals. And this is what is indeed happening now in large part - many investors who did not care about renewals now learned that they need to care.
There is, however, another group of those investors, who invested cleverly and have enough funds to maintain their portfolio. Many of them also understand how to park their names or to create some affiliate solutions, and they can offset some renewal costs doing so. I have seen examples when new gTLD name with very high renewal was parked, and income from that fully offset renewal cost, giving its owner even a tiny profit each year. This is a case of fantastic investment - name pays for itself, and because of its quality and a large pool of end user, it is just a matter of time when it will sell for big profit. I have to admit I do not know if this is a common case or not - almost no domain investor is willing to share details as of which names and in which particular extension is suitable for parking income. But this is definitely one way which can be used to make renewal costs easier in case you go "big guys" style of investing. People who can do that generally do not complain about new gTLDs, as they accumulate high-quality names all the time, make good sales, and will probably do even better in years to go.
New gTLD investment style no. 2 - "Flippers":
Flippers are people, who buy and try to sell domain names for a profit within a short period of time, ideally within 1 year, prior their first renewal fees are coming.
Some of the new gTLD investors - flippers were in early, and studied the market since 2014, therefore they are very knowledgeable, can use registration promotions, and are well aware of various domain marketplaces. They can be therefore profitable, as usually they buy names for $1-5 and flip them to other domainers for $25-100.
When names are carefully selected, that actually works and is profitable. Overal profit for average flipper with few hundreds of domains is not high, but few thousands of dollars/year is a nice income addition for some people, so it is worth doing for them. Beying in profit is possible when we speak about experienced flippers, which are usually domainers with years of experience.
Another category of flippers are people who are new to domaining. They tend to buy a lot of names using various promotions. Those names usually are not of high quality, and often they drop their whole portfolio when first full renewals are coming, as they find themselves without any sale. It again depends on the particular person: there are clever people who learn quickly about various promotions, and selling venues, while there is a large group of people who just register whatever nonsense keyword1keyword2keyword3.gTLD and try to flip this to another domainer, many times without any success.
Basically, when it comes to new gTLD names, I do not personally think they are the most suitable asset to be used for flipping in 2018 for people without any domaining experience. Only people who really learned a lot can be profitable with new gTLDs and flipping these days, as it requires spending a lot of time to learn about this topic. Complexity of new gTLD investment is quite high, as there are several hundreds of extensions and they differ very much. Therefore a lot of flippers prefer to stay in .com realm, where rules are established already for years, and once you learn them, you are basically good to go. New gTLDs requires extensive additional learning, plus not everyone is willing to adjust to new times and rules.
Important not only for flippers - the existence of aftermarket!
Flipping is particularly hard for extensions which went just live: there are many people who buy good names in brand new extension and try to flip immediately. This usually does not work, as aftermarket is naturally not present yet. Still, some of those people then complain loudly that it is new gTLD fault - they want to register a new name for $5 and flip it immediately for large profit. This is, in most cases, unrealistic, unless they manage to flip to another domain investor, in which case the profit is not usually large.
New gTLD investment style no. 3 - "Builders"
Builders are investors whose aim is to build larger new gTLD self-sustainable portfolios, which can be carried into future without additional external investments. They believe that new gTLD domains will be accepted more and more in future among end users and the general public, and that their value will rise in years to come. Their investment horizon is long term, 5 - 20 years. I am not hiding that I am one of them.
What builders do
If you believe that new domains will become more accepted and more valuable as time goes, your objective is to hold as many good names as is possible for you. This is also what big guys do. The difference between big guys and builders is financial - while big guys can basically buy what they like (while some profitability calculations are often well present too), builders can usually spend just a few hundreds or few thousands of dollars initially, and are trying to build their portfolios from there. As they do NOT wish to fund their renewals from external sources (or they maybe would wish, but simply they do not have those sources available) they try to make their portfolios self-sustainable and profitable from year 1. This means, their yearly sales must offset the renewal cost of their portfolio, and if there is any profit, they are using it either to buy additional names, or to renew their existing good names few years into future. Therefore I will call such new gTLD investors "Builders" - they are patiently building the value in their portfolios.
Of course, when they are doing a lot of smaller sales and using the money also for their personal needs, this shifts them more towards style 2 - flippers. Boundaries between those 2 styles are not solid, there are a lot of domainers who try to flip their worse names, and to keep their best names in hopes of a larger future sale, which is perfectly logical. But still, if you are a pure builder, you use profit of the sales to make your new gTLD portfolio larger.
(Btw, why you should renew your domains for years ahead? Are you not just locking your capital which you could utilize maybe somewhere else? A short answer is you should, simply to save money. You do not do it always, you do it ONLY when there is a good renewal or transfer promotion available - it will really save you lot of money, when done properly).
I would say that builder investment style is hardest of all styles to execute properly. Being pure flipper, you will never keep in your hand's anything really valuable for future, but you can instantly enjoy money earned from domains, and buy something nice to you, or to your family. Being a builder means constantly reinvesting profits of your sales to your portfolio. It requires lot of discipline, patience, and a lot of work. Plus strong confidence, that investment asset you invest into, in this case new gTLD domains, will have bright future.
Happy investing :)