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Domains Are *Not* Commodities

Posted on 13 March 2014 by Andrei

The Internet Domain Name Index (IDNX) is an interesting idea (Sedo as well as the person behind it, Thies Lindenthal, definitely deserve credit) but as a domainer, it’s important to know how to interpret it.

If you treat it as a tool that gives you an overview of let’s say the domain transaction situation as a whole then yes, it can be and is quite useful. If however you are treating it as a tool that gives you specific information about one of your domains or about a portfolio, you are making a mistake in my opinion.

You see, domains are *not* commodities.

A good example would be gold, which is a commodity for one simple reason. Let me just put it this way: if George has one ounce of gold and John has one ounce of gold, none of them can say “my ounce of gold is better” or “my ounce of gold is worth more” because an ounce of gold is… well, an ounce of gold :)

It’s interchangeable, which means that if George gives John his ounce of gold and John gives George his ounce of gold, none of them lost or gained anything. They’re in the exact same situation as before, each person owns one ounce of gold.

Domains on the other hand are not commodities and I will try to explain why. Let’s assume George owns MNA.com (random example of a triple premium LLL dot com) and John owns NMA.com (another random example of a triple premium LLL dot com). In our case, despite the fact that both domains are LLL dot coms with 3 premium letters, they don’t have the same value.

For example, what if there are 10 times more companies with the acronym “MNA ” than there are companies with the acronym “NMA”? That would be a great argument in favor of the fact that MNA.com is worth more as well as for the fact that the two domains are *not* interchangeable.

For example, let’s assume a company is called My New Automobile and wants the domain MNA.com. Could that company use NMA.com instead just because it’s also a LLL dot com with 3 premium letters or even more so, because it has the exact same letters as the other domain (just in a different order)? Of course not because “New My Automobile” doesn’t exactly make all that much sense :)

As can be seen, even domains which may appear interchangeable at first sight actually aren’t.

Therefore, it’s fairly safe to say that domains are not commodities.

For that reason, an index cannot tell you if your domain is worth more or less than last year because there are a lot of variables involved. For example, maybe the LLL.com market will go down in value this year (I’m not saying it will, it’s just an example) but if a new technology/concept called “MNA” will appear, then the domain MNA.com will most likely be worth considerably more than it was last year.

As a conclusion, I’d say that IDNX represents a very interesting tool when it comes to let’s say the domain market as a whole but it cannot and should not be used as a tool that tells you how much *your* domains are worth.

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8 Comments For This Post

  1. Mikey Says:

    “For example, what if there are 10 times more companies with the acronym “MNA ” than there are companies with the acronym “NMA”? That would be a great argument in favor of the fact that MNA.com is worth more…”

    Disagreed! There may be one NMA company that has 10x higher valuation than any of MNA companies. Therefore NMA.com may be sold for much higher. Using stats of probability has nothing to do with value!

  2. Andrei Says:

    @Mikey: as mentioned in the post, the fact that there are 10x more companies is a great argument in favor of the fact that MNA.com is worth more. Your example (that there might be just one company which wants NMA.com but that it’s so well funded that the sales price would end up being huge) is a great example in favor of the fact that NMA.com is worth more.

    You are actually reinforcing the point I tried to get across: the fact that domains are not interchangeable and therefore not commodities. Maybe MNA.com will ultimately sell for more, maybe NMA.com will ultimately sell for more. We won’t know for sure unless/until both sales take place but the bottom line is that as my example as well as yours illustrates, domains are not interchangeable.

  3. Mike Says:

    …and these arguments also apply against those “domain investors” who claim that some letter are premium, other are tier-2 category, and rest is non-premium. What a BS! I really hate when value of domain name is generalized by stats or CPC parameters. Silly and stupid!

  4. Miranda Says:

    Andrei-

    I agree with what you are saying about no two domains being equal in value (like gold), but I do think it is fair to say that anything.com is better and has superior value over anything.gtld.

    Would you accept that?

    To me, it seems obvious that the gtld’s are the waste receptacles of the internet, with little chance of ever becoming successful or valuable.

  5. Domenclature.com Says:

    @Andrei,

    I agree almost entirely with your post.

    You did not touch or comment on where I believe the problem lies with the domain markets.

    Let’s use your example, “what if there are 10 times more companies with the acronym “MNA ” than there are companies with the acronym “NMA”? That would be a great argument in favor of the fact that MNA.com is worth more as well as for the fact that the two domains are *not* interchangeable”, what IF in this case you are to discover that Sedo had sold NMA.com for $50,000 where you had MNA.com listed for $10,000?

    What will your reaction be then?

  6. Andrei Says:

    @Miranda: if you mean “anything.com vs. anything.gTLD” as in the exact same term in dot com vs. the exact same term in another TLD then sure, fair enough. Not even the most optimistic new gTLD enthusiasts believe that dot com can be dethroned and the success of a new gTLD doesn’t depend on something this dramatic. If however you mean “anything.com vs. anything.gTLD” as in “any dot com is better than any gTLD” then I don’t agree because for example Insurance.web would be a lot better than HighQualityInsuranceAdvice.com, I’m sure you get the point :)

  7. Andrei Says:

    @Domenclature.com: it depends on a lot of things because on Sedo, end user sales as well as reseller market sales occur. So for example, the NMA.com deal might be an end user sale, whereas the MNA.com deal might be a reseller market sale, so we’d basically be comparing apples to oranges.

    I’d also like to refer to comparable sales in general and I’m glad you brought up this subject. Some comparable sales (for example comparable reseller market sales) are relevant/useful when it comes to helping you figure out how much your domain is *roughly* worth but since domains are not interchangeable, this is just one of the many variables that plays a role and even an extremely complex analysis cannot tell you with 100% accuracy how much a domain is worth.

  8. Domenclature.com Says:

    @Andrei,

    ” it depends on a lot of things because on Sedo, end user sales as well as reseller market sales occur. So for example, the NMA.com deal might be an end user sale, whereas the MNA.com deal might be a reseller market sale, so we’d basically be comparing apples to oranges”.

    That is exactly the key point: @Sedo both aspects of the market merge, that is end-user and reseller, both are at play. One a domain reseller sees that a certain name has sold for an impressive amount, there’s a rush to bid/buy up anything in that niche, or the alternate TLDs of the same name.

    Following that logic, it should be rare that anomalous things happen in any market, even if it’s commoditized or non-commoditized; but in the domain kingdom, the default is heteroclite!

 
 
         
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