Does IDNX spoil the sales pitch to investors? — A response.

IDNX is an excellent benchmark for the domain industry and investors endorse more transparency.

Last week, I had the pleasure of announcing that my Internet Domain Name Index (IDNX) was added to Bloomberg and Reuters. I received support and a lot of positive feedback from the domain community. The overall sentiment is that this is a great step forward in terms of visibility and transparency in the market for virtual space. Nevertheless, some reputable industry heavyweights also voiced concerns, which I would like to address.

Concern 1: “IDNX is based on too small a dataset to be representative”.

The data used by IDNX are one of its core strengths. It is the only index for domains that is exclusively based on market data. In fact, it relies on more than 200,000 real transactions. Real sales are much more reliable than opinions or estimates, since a buyer and a seller not only agreed on a price but also made the trade happen. An opinion only talks the talk—a sale also walks the walk.

IDNX is also very transparent with regards to the underlying data. Unlike many other projects, you really know what you’re getting. The database includes a broad variety of TLDs which represent the distribution of TLDs in the market fairly well. Admittedly, it draws only from sales at Sedo.com, but no other marketplace can currently offer a higher number and a better variety of domain trades. Nevertheless, I am open to and looking for other reliable data sources to have a broader foundation.

Furthermore, I agree that very expensive domains do not occur in the data very frequently, which could indeed mean that the high-end segment of the market is not well represented in the index. But neither are the millions of low quality domains that never get sold. You can compare it to a house price index that is geared towards the bulk of single-family homes: it does not focus on villas, palaces, deserted shacks, but it is nonetheless representative of the market as a whole. The only way to improve this representation would be adding more data on these high-end sales, and estimating the share of domains that will never be sold and that only bloat renewal fees. Asking people for their opinions about price changes of individual domains is not a solution.

IDNX does not calculate average prices but tracks changes in sales prices for individual domains. So returns are not artificially depressed by having the bulk of transactions in the mid- and lower price range. Admittedly, if high value domains rose faster and fell faster in value than mid- and low-priced domains, IDNX would not be a close benchmark for this subset of domain. But as long as the high value sales remain unpublished, nobody can track their prices in a more reliable fashion.

Concern 2: “IDNX makes domain investments look bad”.

Another line of criticism suggests that IDNX discredits domains, showing them as a bad investment with low returns, high risk, and a strong correlation to other asset classes. This perception is dead wrong.

IDNX shows that domains have a solid economic foundation. They are not part of a “new economy” where fortunes can be made without hard work and substantial risk-taking. I trust the majority of domain investors share this perception of the market.

The high correlation of IDNX with other financial indices is also a good sign, since it documents that both real and virtual economy are driven by similar fundamental factors. Common sense and economic reasoning suggest that domains are not detached from the economy in general. Denying a link might sound appealing in a pitch to investors, but the numbers tell a different story. Despite the substantial correlation to other economic sectors, domains still offer a great diversifying potential. Just do the math: even with positive correlations, the overall efficiency of an investment portfolio will increase if domains are included in the asset mix.

Does IDNX suggest that buyers should walk away from domains and search for other investment opportunities? Not at all. For the skilled investor, domain markets offer rich opportunities to prove their adeptness at picking and pricing their assets. With experience, the availability of solid numbers on which to base a judgment, development skills, and a handy bit of luck, money can be made. We will see many more people grow wealthy through domain trading. On the other hand, it is not an alchemist economy that provides money for nothing. The same critical distance that makes us question any of the “make 10K a week from home” job offers in your inbox should be applied to too-good-to-be-true online investment promises.

IDNX increases transparency and accountability

Summing it up: IDNX is a good benchmark for large domain portfolio holders and for the market in general. It is based on a well-documented methodology and good data. It is not only transparent but brings transparency and accountability to the industry. Snake-oil sellers, beware.

Bloomberg! Thomson Reuters!

For those among us with access to a Bloomberg or Thomson Reuters Terminal, the universe of financial data at their fingertips has become a little more colorful: IDNX, my Internet Domain Name Index is available now through these leading data vendors. The listing is part of a broader cooperation with Frankfurt-based index specialist Structured Solutions AG, who have successfully launched and developed variety of innovative financial products in the last years.

For the broad public, the data remains freely available at http://idnx.com/idnx.csv

All Quiet on the Virtual Front: Why Domain Investors' Fear of the Feds is Irrational

When a sniper ends the life of soldier Paul Bäumer in Remarque’s “All Quiet on the Western Front,” a laconic situation report from the frontlines recounts an unusually quiet day. In the grand scheme of things, nothing worth reporting has happened. Reading David Kravets’ recent article in Wired brought this upsetting ending to mind. U.S. authorities taking down individual domains based on copyright infringement charges is the online equivalent of Remarque’s allied snipers: picking off the occasional domain — for better or worse — has little effect on the overall situation….

Read full blog post on CircleID

Domain prices are back at pre-crisis levels: Will the upswing continue?

The February update of the Internet Domain Name Index IDNX shows a continuation of the strong and steady recovery of domain prices. Prices paid for domain names at secondary markets are almost back where they were before the financial crisis left its mark on the ‘virtual land’ values as well.

Domain prices climb back to pre-crisis levels

Will these high prices for domains last? Or is this just a bubble that will bust sooner or later? Dividing the Internet Domain Name Index (IDNX) by the NASDAQ100 or an index for online advertisement revenues sheds light on the relative over- or under-pricing of domains. Long-run ratio between domain prices and stock prices are not “out of balance”. If there was a bubble in domain prices, then it is a bubble not only for domains but for the IT industry as a whole.

Furthermore, advertisement spending in the US outgrew increases in domain prices. Domains are likely to catch up further to reflect this better business climate. Compared to ad revenues, domain prices are rather under-priced and definitely not too expensive right now.

Ratios of Domain Prices over Tech-Stocks or Ad-Spending are not out of balance

Fine wines and Internet domain names go together well

Fine wine and Internet domain names seem to be worlds apart – but they are not so distant anymore when it comes to valuation: The price of a sought-after bottle of Bordeaux and the value of a catchy .COM domain follow very similar paths, as a comparison of the Liv-ex Fine Wine 100 index and my Internet Domain Name Index (IDNX) reveals.

Overall, prices for both goods depend on the world economy and on consumers’ disposable income. When connaisseurs have money to spend on the fine sides of life, the advertising industry and (subsequently) domain prices flourish as well. The correlation of monthly changes in the the Liv-ex 100 and IDNX is a high 0.36, while the correlation in levels is 0.82.

Maybe one should think of wine as a great natural diversifier for domainers: When your domain net worth decreases, so does the cost of a comforting glass of nice French red.

Cheers to that & Happy 2012!

Wines and domains: a good combination?

Data: http://idnx.com, http://liv-ex.com

In search engine world, domains become brands

A colleague sent me an impressive white paper on domains’ role in guiding search engine users. Samuel Ieong et. al. show that domains convey trust: When users are presented bits of information in a search result list, they tend to click on links to well-known domains even if more relevant results are presented very close by. They claim: “Viewing content on the Internet as products, domains have emerged as brands.”

Quick Dutch summary: “Wat de boer niet kent, dat clicked hij niet”.

The paper can be downloaded here: http://ilpubs.stanford.edu:8090/1021/1/wsdm12-domain-bias.pdf

Guest Blog Post on Scientific American

On Rushes and Riches: The “Wild West” Era for Internet Domain Names Is Over as Efficient Markets for This “Virtual Land” Have Emerged

On April 22nd, 1889, large areas of what is now Oklahoma were officially opened up for homestead settlement. At high noon, thousands of pioneers raced from the territory’s borders into pristine land, claiming lots on a first come, first serve basis. Within hours (!), first cities emerged around railroad stations or at other well connected spots, quickly establishing local governments, basic infrastructure and property rights. Despite opposing laws, land claims were directly sold off in secondary markets.

Read my full blog post at the Scientific American website – klick here.

Proudly presenting IDNX, the first Internet Domain Name Index

Today, my newest project will launch: IDNX is the first high quality price index for internet domain names.

  • Each month, it calculates the latest trends in domain prices.
  • It is the appropriate benchmark for estimating changes in the value of your domains.
  • IDNX is based on data for more than 200,000 domain sales today, more to come in the future

For the full story, check out the project’s website idnx.com or the brand new working paper.