Thursday, June 23, 2011 Macro View

In this post, we will try to address the broader space, and where this might be headed in the future.

As it stands, about 99,400 of these domains are currently registered, and the remaining 600 appear to be being registered at a rate of 10/day.  The 10/day rate is a little below the historical rate of 13/day, so registration may be slowing as these domains get close to being bought out, as the worst quality domains are the last to remain.

Marchex (MCHX) owns approximately 40% of these domains as US zip code domains, and while it is not clear what their development or sale plans are for the domains, they don't seem to be letting them drop or dumping them en masse.  For a company with a $300m+ market cap, the registration fees on these are probably not a big expense item (although they also own the .net's so that makes it about 2x as expensive).  In Marchex's annual report, they state that they own "more than 75,000 U.S. ZIP code sites."  Based on past surveys, it appears that another 10% of's are used as non-zip code websites, either for products, organizations, Chinese sites, foreign zip code sites, Word Dial sites, or other uses.  Hopefully we will do some updated surveys to see if these numbers have changed significantly.

That leaves about 50,000 domains left.  Most of these are owned by Chinese domainers, for their numerical qualities it appears or possibly traffic depending on the domain.  There are on average approximately 45 drops per day of domains.  Annualized this is approximately 16,000 domains dropping in the year.  This suggests that 2/3 of holders that do not have a use for their domains (other than parking/holding for resale) renew their domains. 

So what does this mean for the future?  If the current registration trend continues, these domains may all be registered by August or September of this year.  At that point, it is anybody's guess.  There may still be 40-50 domains dropping per day, of varying qualities.  Right now, many quality domains drop every day, domains that start with a "1" or that contain nice number sequences and do not have a "4".  It is quite possible that after a buyout, the number dropping each day will go down as current holders think twice about letting above-average's drop.

What prices could's fetch after a buyout?  This is unclear.  The previous buyout failed spectacularly, so that should certainly lead to caution for anyone expecting a huge price spike if they are bought out again.  Then again, this time we may not have the market collapsing at the same time, and the whole buyout being built on speculation.  Nearly 20,000 domains were registered in a few weeks in early 2008, whereas this time the buyout has been approaching at a steady pace over the last couple years,  so it is possible that the a new buyout would be more sustainable.

In determining what prices might be following a buyout, it may be instructive to look to's, which are selling for high $xxx even for the worst domains right now.  So assuming's could maintain a resale price ratio of 1/10, 1/20, or even 1/30 compared to's, they could easily sell for above registration fees.  Right now,'s fetch between 1/10 and 1/15 the price of's for the lowest quality, and have 1/10 the rarity.  So those prices line up easily.  However,'s fetch about $4,550 currently, whereas's fetch about $20 as a general low resale price.  So, whereas's are 26x rarer than's, their prices are 175x lower.  So a strict 1/10 ratio of price between's and's based on rarity is not necessarily going to result.

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