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Should You Be a “Contrarian” Domain Investor?

Posted on 28 March 2014 by Andrei

Simply put, a contrarian is a person who doesn’t mind investing in things that most people stay away from. In other words, what the “crowd” says doesn’t influence contrarians all that much or actually, it might somewhat influence them but not like you’d expect: the more people stay away from certain types of assets (or certain types of domains in our case), the more tempted some contrarians tend to become.

So, should you be a contrarian domainer?

For example, let’s assume everyone says a certain new gTLD has no potential whatsoever.

Should you jump in?

Well, there are positives and negatives associated with this approach.

Let’s start with the positives. First and foremost, there will be little if any competition (since everyone else is staying away) and for this reason, you will be able to obtain the best possible terms for the extension in question.

Secondly, even if you are not the only person interested in that extension, there won’t be much of a market for those domains so if you really have confidence in their ability to do well, you will be able to buy inventory from the few sellers who do exists and have to liquidate at very low prices.

Last but not least, since you will be able to buy domanis at either the registration fee or at a very low price, the potential upside is theoretically higher. So if you are right and the extension in question will eventually start doing better, your returns might end up being very high.

Ok, now let’s move on to the negatives.

First of all, low or even no liquidity. This is a good thing if you’re a buyer since you can snag the best domains at very low prices but if you’re a seller, it’s an awful situation to be in.

Secondly, low or even no demand. Are you prepared to hold and hold and hold despite the fact that nobody comes knocking at your door?

Last but not least, the risks are higher because what if the registry operator in question ends up on the verge of bankruptcy before the extension even has a chance to gain traction?

As you can see, it’s a complex situation.

As an answer to the question that constitutes the title of this post, I’d say it depends on whether or not you consider that the potential upside justifies the high risk factor. If you think you’d “only” be able to double your money in a “best case scenario” and think there’s a 10% chance of that happening then there’s no way this approach makes sense.

However, if you think you’d be able to make 10x your investment and consider that there’s a 25% chance of things unfolding that way, the investment opportunity might all of a sudden start seeming tempting.

At the end of the day, there’s nothing wrong with taking on more risk in my opinion but the potential rewards have to be tempting enough to justify that risk because otherwise, being a contrarian just doesn’t make any sense.

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3 Comments For This Post

  1. Domenclature.com Says:

    @Andrei,

    First of all, let me give you my direct answer, yes, in many cases I am a Contrarian-Investor. In the the case of new gTLDs however, I am a Contra-Investor.

    On the remote part of your question, which is mainly about new gTLDs, let’s strip it down to the bones.

    Most domainers who have dived into the new gTLD name investment are now couching the debate like those of us who are against did not qualify objections.

    If you recall during the debate phase of this thing, people such as Rick Schwartz stated clearly that “there will be winners and many losers”, his take was that each Registry should make the case why anyone will invest in their particular extension; Schwartz believed that many of these extensions will die on the vine; while some will throttle along; unlike me, who is against ICANN expanding the name space by hundreds, Schwartz was being rational, while I am basing mine on principle. So Contrarians are not monolithic.

    Many issues are playing out simultaneously. Many domain investors who purchased dot guru, dot ventures, and early launches for example, did so thinking that they would have flipped them now for thousands of dollars; do you remember dot estate, dot bike, dot plumbing, dot lighting, dot equipment, dot photos, dot camera, dot whatever? Many of those are hoovering around 10,000 registrations. Many domain investors who bought the premiums, with high renewals did so thinking that Schwartz was wrong, and that they will flip the names to end-users as soon as the momentum and euphoria of the new era set-in. They will NOT admit it now, but that debate is over, and they LOST. We are all on record.

    It will be wrong trying to shift the debate to mean that all these domainers who bought those names did so for long term, and we should wait to render the verdict.

    Schwartz also indicated that his followers should wait a couple years and then buy these things for penny on the dollar. I’m not his follower(or anybody’s), but I believe he is right.

    So, a lot of the debates are over, and many have already lost the debate.

  2. brand Says:

    Good comment.
    I bet next year, the sites that offer expired domains will be flooded with these new extensions.
    Like you said the renewals on most of these are very high and to keep them until the business community catches on to what a .sexy and .guru is, many will go broke.
    I knew from the start of this that the only people that would know of these new extensions would be domainer’s and the only way to make anything now would be a quick flip to another domainer.
    I said on a few other blog’s, that when i see a commercial on t.v where a company has spent big dollars on advertising on a .guru or a .tips then i will think they might have a chance. But this will take a few years.

  3. Jay Says:

    If it works do more of it, if it doesn’t work change strategy.

    Right now the only thing working on a large scale is dotcom.

    New gTLDs might start working long term or then they might not.

    Even if new gTLDs start working long term there is a big if on whether domain investors can make profits because of the carrying costs of their new gTLD portfolio.

    How many years will it take to get to critical mass?

    In my opinion critical mass is 10 million registered new gTLD domains and 1 million developed websites on new gTLD domains.

    How many years will it take to get to critical mass?

    The only strategy I can see working on new gTLDs without critical mass and aftermarket where end-users are buying new gTLD domains in the thousands is building highly searched searh.term type domains with unique and useful content for Google to chew on.

 
 
         
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