A lot of domainers are pissed off because (in their opinion) auction houses are not willing to do whatever it takes in order to attract end-users and that’s just plain wrong. Let’s crunch some numbers and find out why:
Let’s start by analyzing the following scenario and take it from there: auction company “blabla LLC” charges a 10% commission and organizes an auction. They accept 300 domains and 10% of them end up being bought for a total of $30,000. Their profit? 3 grand.
Sounds familiar? It probably does because something like this happened with the LuxuryNames.com auction which ended yesterday, with one important exception: they didn’t even ask for a commission aside from the regular SnapNames one.
One of my readers complained and I immediately remembered other reactions to past auctions (given the fact that I blog about domaining, I force myself to browse through the 2 main forums every now and then). A lot of people blame auction houses for not trying hard enough, especially when it comes to attracting end-users.
I have nothing against the reader who had something negative to say about the LuxuryNames.com auction and I have nothing against people who have something negative to say about online-only domain name auctions in general. They’re entitled to an opinion but since I own a blog and everything, I’d like to take advantage of this opportunity and explain why (in my opinion) trying hard just wouldn’t be worth it.
Let’s crunch some numbers! Let’s assume that blabla LLC wants to attract as many end-users as possible and sends 200 personalized emails for each domain:
1) Let’s assume that compiling the list takes 3 hours
2) Let’s assume that sending the 200 personalized emails takes one hour
3) Let’s assume that replying to emails and even talking to potential end users over the phone when necessary takes another hour
The result? An investment of 5 hours for each domain.
Now multiply that by 300.
The result? A total investment of 1,500 hours.
The average hourly wage of a person from the US was $18.72 in October 2009. Auction houses would definitely have to hire a few talented people in order to make things happen.
The result? A total investment of $28,080 (1,500 hours at $18.72/hour)!
Now ask yourself: would doing everything by the book really be worth it? Let’s assume that after trying hard to attract end users, blabla LLC would sell domains worth $150,000 instead of $30,000.
The result? A total loss of $13,080 (they invested $28,080 and made $15,000)
$150,000 for an online-only auction would definitely be decent, wouldn’t you agree (I’m not going to refer to live events since it’s a totally different ballgame: other expenses, another level of involvement and so on)? Let’s take things one step further and assume that they would manage to bring in $300,000 and not $150,000 instead of $30,000. Their auction would be considered a huge success in that case, wouldn’t it?
The result? A profit of only $1,920 (they invested $28,080 and made $30,000), almost two times less than they (blabla LLC) have made back when they didn’t reach out to end users at all!
I’m sure it’s obvious why reaching out to end users just isn’t worth it for the auction house. The same people who are complaining about issues related to end-users would probably be even more vocal if auction houses were to charge let’s say 40% – 45% instead of the usual 10% – 15%.
Two conclusions:
1) When it comes to online-only auctions, assume that companies will not reach out to end users: seriously, it’s just not worth it in their case!
2) Do you want end users to find out about your auction? Great, contact them yourself! 😉
November 25th, 2009 at 6:11 pm
Online auctions are for people who want to liquidate domains, I’ve never understood the complaining either. Why would auction companies do all of the work for you and only expect 10%?
November 25th, 2009 at 6:51 pm
I didn’t even know luxurynames did this auction without a fee yesterday. That’s nice of them, congrats!
November 25th, 2009 at 9:57 pm
Well said!
November 25th, 2009 at 11:37 pm
What are auction companies getting the 10% for if it’s not for marketing/promotional efforts ? There’s more automation and simple things that can be done.
November 26th, 2009 at 12:13 am
@Adam: they’re getting the 10% for providing a platform and, aside from that, most companies advertise on sites which cater to the needs of domainers (most auctions are won by domainers, let’s keep that in mind). What did LuxuryNames.com do? First of all, they offered some decent prizes via a contest. That always encourages people to spread the word.
The folks from LuxuryNames.com also advertised their auction quite a bit, they did more than enough to justify charging a commission IMO (and again, they didn’t even charge anything aside from the regular SnapNames commission this time). When it comes to contacting end users, there’s a huge difference between doing it right and simply contacting people for the sake of it (a waste of time in most cases). And that’s the main problem: doing it right just isn’t worth it in their case 🙂
November 26th, 2009 at 1:30 am
Hey Andrei yea 10% just for platform seems high to me. I get that LN efforts were active on promoting to domainers. They probably took a lower profit or even a hit on this one after expenses. One way that makes promotional cost/efforts more likely to be worth it in the end is to include more premium (5-6 figure) names and to have names that are attractively priced to sell. I think it’s fairly safe to assume that Moniker, Latona etc don’t spend the same amount of effort promoting a $100 reserve name vs the 6 figure domains, but maybe I’m wrong there. And they’ll surely promote a premium name that has no reserve vs the premium that has a high reserve because they know one will be far more likely to have a positive return. Anyway, I think efforts should be expected, that’s just part of the game if you are playing auctioneer. . .that’s the job you get paid to do.
November 26th, 2009 at 5:43 am
@Adam: let’s refer strictly to LuxuryNames for a moment. In this case, they didn’t even ask for a cut but let’s assume that their commission would have been 10%. Do you think that asking for 10% would have been justifiable? Do you think that they would have deserved let’s say 10% for organizing the auction and advertising it to domainers (I’m sure we both agree that this auction has received some decent exposure when it comes to the domaining community)?
Now I understand where you’re coming from with the “only pitch gems which are priced to sell to end users” part. In theory, it makes perfect sense but let’s face it:
1) How many domainers are actually willing to go with a low reserve model when auctioning their gems (5-6 figure domains)?
2) How many auction houses are actually willing to invest 5+ hours per (reasonably priced) domain? Would you rather take matters into your own hands and do things by the book or take a pretty important risk by letting an auction house which may end up doing a half-assed job take care of everything?
3) The folks who are auctioning top dollar domains are usually NOT the ones who end up complaining, as strange as it may sound. Again: why would a person who wants to sell a domain for 6 figures rely on the auction house when it comes to all of (or most of) the work? Wouldn’t it be too much of a risk?
4) Let’s assume that you want to work closely together with the auction house in order to make sure that you won’t be contacting some of the same end-users and so on. How many auction houses are actually willing to be 100% transparent by sharing their approach to contacting end-users?
November 26th, 2009 at 9:56 am
This is an interesting post.
Andrei hit it with “most auctions are won by domainers, let’s keep that in mind”. We sell names to end users quite often but one must keep in mind who an end user is.
Most domainers believe an end user is a Coca-Cola or GM however this is rarely the case. Many of the end users at this moment in time are developers and small business where average selling price is somewhere around 5-10k (an area where Name Media and Fabulous have excelled for years).
We are also at a point in time where many “domainers” (where I use this term to define only those domain investors who park domains and/or genuinely have had little skill in development) have already collected great portfolios and no longer have to pay 10 or $20,000 for a domain since market conditions exist where really good alternate names can be found at great prices.
The landrush or race for expiring domains is not a “take anything we can get” mentality anymore since the largest portfolio owners have what they need and many middle tier domainers are feeling crunched by the size of the portfolio coupled with their inexperience at monetization outside of Adsense and/or parking. These two elements alone have caused the most drastic decrease to domain values over the past couple years, then factor in the global economy. We will see the domain market improve and domains are very worthy investments but people can not expect $100,000 for a second tier name. This is like winning the lottery. Some will but most will dream.
Every domain owner thinks a GM, Ford, Microsoft or Google-like company should buy their name but in reality most of the domains people are suggesting these companies buy are usually poor to begin with. If the name was really that good and the price fair an end user, even within the domaining world, is not that hard to find.
When we requested submissions we received somewhere around 5,000 domains and what we choose was the best of what we got (of course, subject to our valuation methods). Out of those 5,000 there may have been a few hundred worth considering with the remaining 80% +/- containing terrible keywords, trademarks, celebrity names and more. This math is not unique to us. Every auction house gets the same level of quality when you break down the numbers.
So think … if auction houses are getting 80-90% terrible submissions containing domains which have trademarks, typos, horrible keyword structure and more what does this tell you about opportunity in this industry?
It could mean that only 10-15% of domain investors actually know what they are doing so the question of “how can so many people complain about not selling a name to an end user where only a very small percentage can register or buy names with meaning” could also be asked. This is not an opinion but a theory for thought.
What makes a good name is one of the largest obstacles in our industry moving forward imo since so many variables exist which makes it harder and harder to judge domains as a group versus quantifying them individually for value.
You can only move one mountain at a time but end users are all around – they just might not be GM or Coca-Cola.
D
November 26th, 2009 at 3:43 pm
I had a couple of names in LuxuryNames’ auction. I just wanted to say they did an outstanding job. Their communication was first rate… the best I’ve experienced with any auction company. They even paid the transfer fee for me to move one of the names to Moniker (for an easy push after the sale). Outstanding job LuxuryNames!
If the complainers think it’s all automatic and an easy way to make a buck… start your own auction house. But than they would be complaining about domainers and their overly optimistic values on their shit names; about how they can’t make a living on 10% or 20%; blah, blah, blah.
November 26th, 2009 at 5:25 pm
So Mitch, they didn’t charge commission, spend money marketing, and paid your expenses? I say keep using them. They are obviously not here to stay so take advantage of it as long as it lasts !
November 26th, 2009 at 10:11 pm
>>> didn’t charge commission, spend money marketing, and paid your expenses?
True, true, and true.
I say they are here to stay. They obviously are taking the long term approach.
By not charging a commission they got a lot of good marketing and good will out of it.
November 26th, 2009 at 10:59 pm
Andrei, I’ve got no problems with how LN conducted their auction but to answer your questions. Yes 10% is justifiable given they put marketing efforts in to the event. I wasn’t saying otherwise. My issues were about the idea that 10% was a fair amount to pay for the platform. I thought I made that clear.
For your other points :
1) I’ve known very few domainers who’ve needed to liquidate the 5-6 fig names they hold. It’s just not usually a problem for a domainer to need to do that. The ones I’ve seen do it (Cleaning.com, Trumpet.com, etc) have been successful so it’s something that domainers with this level of name should look to as an example of how domains can be liquidated through an auction.
2. I can’t answer that question but I’m going to say I know several put a great deal of effort in to promoting the high dollar domains from what they’ve told me. Again this is their job so if they aren’t doing it than they’re negligent imho. If I auction a domain I do my own level of marketing yes, but again one of the most important jobs of an auctioneer is to get the crowds to the venue. It’s what they’re paid to do. If they’re doing a 1/2-assed job then you’ll see the results and the market will gravitate toward the company doing it right.
3. Yes. I agree it’s mostly the lower tier names that get grumpy about their name not being featured or promoted but I already agreed that they shouldn’t have an expectation that their $100 domain is going to get the same effort as the $1m domain. The reason why a person would sell a domain for 6fig+ at auction is because they know it will sell (it’s priced right) and they trust the company the are working with is going to drive in more bidders so that the price is maximized.
4. I think the auction house would welcome a joint effort on promotions. In fact it should be encouraged and all promotions should be transparent. Again I can’t speak for others. I have helped in promotional efforts for several auctions and I believe the efforts were all made public.
I think we’ll see a flood of people doing these sort of DIY/white-label auctions in the near future and the ones that will be successful will be the ones who can do the best marketing.
November 26th, 2009 at 11:00 pm
woops sorry andrei .. .copied your post by accident in that comment. could you fix ?
November 28th, 2009 at 8:06 pm
Fixed 🙂
December 9th, 2009 at 4:04 pm
Well said!
December 17th, 2009 at 2:10 pm
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