The word of the week in domaining this week was liquidity. There were two really good discussions that took place on Domain Name Wire and Acro.net.
Domain Name Wire has had 90 comments on the topic, commenters include the likes of Frank Schilling, Michael Castello and many more. The comments show how everyone looks at domain investing in a different light. Some want to own names they can get in and out of day or night, 365 days a week. Not many domains fit that definition. I own some names in alt extensions that I like very much, but I can’t find buyers willing to offer me something decent for those names at 3 a.m. on a Wednesday. The four letter .com domains that I own afford that opportunity. Now of course the offers are not going to be in the amounts the perfect end user would offer, but that is part of the business.
Several domain owners own zero “liquid domains” and find themselves very frustrated. Someone said well every name has a liquid value, just put it up for auction no reserve and there you go. That is true in one sense but the bigger reality is that a lot of those names have zero liquid value. That auction would result in zero dollars coming back.
Theo made the point in his article and comments that you need to be prepared to take a loss, that is true a lot of the time. It is those that equate liquid with profit that are off in their thinking. The 5N.com you own is liquid compared to BlueWagon.com, but you may not get what you paid for the name especially if purchased at auction in a heated battle for the domain.
Here was a good back and forth between Theo and Frank Schilling:
Acro says:
Great discussion everyone. Personally, I believe domain liquidity is a misnomer.
Although not as bad as the depreciation witnessed by consumer products, e.g. cars or iPhones, domain assets should be acquired with a clear plan in mind: to park for their traffic and reap revenue, to develop and build a business, or to resell at a ROI that justifies the initial investment.
If you buy domains for “liquidity” reasons, save your cash for a low yield bank account.
Frank Schilling says:
Hi Theo.. liquidity is indeed what everyone is after .. You want more 10k sales, not more sales that equal 10k. In the mix everyone wants the same thing, a greater velocity of deals and for more money. I think everything that is happening right now in the domain name industry is a catalyst for getting us there.
Now the one thing overlooked is you can have both, I would not agree with Theo on picking a low yield bank account over a liquid domain. A liquid domain provides both short term flexibility, with the ability to hold for the long term and the perfect buyer.
3L.com domains were “liquid” 10 years ago, you didn’t have to sell and could still wait for the right price. It is nice knowing you have the flexibility that a liquid domain provides.
There’s some margin between (A) wholesale value and (B) retail value. For domain resellers – assuming you buy at A to sell for B – that’s gross profit.
The bigger the perceived uncertainty among buyers, the bigger the gap between A and B. Liquidity depends on consistent predictable values accepted by a wide audience. With liquid domains, you gain the ability to resell at a higher wholesale price. But because that wholesale price is higher relative to retail, your profit margin is much thinner.
Contrast that with obscure TLDs, less dominant languages, poorly understood industry niches, or names with too much individuality for quick price comparison. These have poor liquidity. Not enough people agree on the retail value for wholesale prices to rise confidently up to 40-80% of retail.
Nevertheless, these illiquid domains – if they’re quality – have bigger potential profit margins. And that’s BECAUSE they’re illiquid … BECAUSE the wholesale price is depressed relative to retail.
Nobody buys a car for $100 to resell it for $10,000. Since cars are liquid assets with easy-to-reference consensus value, they sell for X plus or minus a narrow band. They’re liquid. And profit margins are thin.