Frequent reader of this blog (Hi Mom!) will know that I place a lot of value on domain names. In Decembers past, I have made end-of-tax-year "big-ticket" (ie low 4-figure) domain name purchases. This year is different. That's partly because 3 sales I pursued fell through (1 person wanted $200k for a domain that I was willing to pay $1500 for; Sedo had another domain listed, but it turned out that the person listing it had already to sold it to someone else; and Rick Latona advertised a name in "Daily Domains", but it turns out that they didn't bother to check whether the person selling it actually owned it.)
But there's a bigger trend going on. Despite some really large domain sales this year, domains as an asset class have substantially declined in value. The biggest factor is Google's decision to dramatically cut payments for parked traffic. Perhaps that was a strategic decision on Google's part -- they certainly have no interest in propping up the business models of (competing) type-in traffic or spammy "made-for-adsense" companies. Perhaps it simply reflects advertisers taking advantage of the ability to segment parked traffic out from search traffic, and deciding that search traffic is more valuable. Either way, it's harder to justify buying domains when the opportunity to earn parking revenue has evaporated.
A second factor is that (at least from the tests that I've run) "mini-sites" are a complete and utter failure. I purchased 3 mini-sites from AEIOU in 2008 (Ski-Hats.com, Cross-Country-Skis.com and Landscape-Designer.com), promoted them for several months in 2009, and then watched to see what happened. The answer, unfortunately, was "nothing". When AEIOU announced that they were no longer supporting this business, I gave the Ski-Hats.com domain to SkiHats.com, moved Cross-Country-Skis.com to my own server, and I still haven't figured out what to do with Landscape-Designer.com.
Where does that leave domain investing? It seems to me that there are really only two options left -- "buying to flip" (at which I have failed repeatedly and miserably) and building domains into real businesses. While I am a big fan of the latter strategy, it doesn't scale! Buying a new domain name makes your job harder instead of easier -- you now have to develop content, functionality and links for more sites! So, at least in the short term, you're worse off than you were before you bought the latest domain.
Domain owners: wake up! Unless you have a truly premium domain, it lost half of its value in 2009, and will lose more in 2010. End users have less money to spend, and fewer ways to make money on the domains that they do buy.
Domain buyers: wake up! There are higher value assets to buy for organic SEO than domains. Invest your money in real content, real functionality, better business relationships, and assets that make it easier to attract editorially-chosen links. Although these assets are more difficult to manage than domains, they are (much!) more valuable.
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