Well the Stock Markets have defied the odds of late and most indices have recovered by about 15% or so. Although this is good news, if you look a little closer into the numbers you’ll see the buying volume is very low and it seems like the more savvy investors are using this as an opportunity lessen their exposure or close their positions altogether. So I think this rally will be short lived and is merely a bounce in the long painful path to the bottom.
So what does this mean for the domain market and will we be going in the same direction as stocks? Well although it’s not good news I don’t think domains will follow stocks down as dramatically as some would have you believe. Sure the market is struggling and some areas such as LLL.com’s have seen significant falls. But in these cases I don’t think you can put this down to the overall economic picture, as these areas had previously experienced incredible run ups and a correction in values was on the cards no matter what the economy was doing.
Other segments are also struggling such as meaningless LLLL.com combinations and I wouldn’t be surprised to see them fall near to or at Reg fee again. The problem is that in times of economic hardship there is always a flight to quality, so whatever the investment be it stocks, commodities, real estate or domains, investors put their money in investments they feel are the safest store of value. And in the domaining world that’s premium and generic .com’s, and to a lesser extent .net’s and .org’s.
Apart from the faddish elements that are struggling there has been an overall decrease in the prices being achieved both at the reseller and end user level. (although the latest DNjournal report certainly looks encouraging.)
Volumes have dropped off the board and some brokers I know that have been in the business for years say they have never known the market to be this bad.
So just how bad can it get. Well none of us has a crystal ball, but I really don’t think we are going to see a massive decrease in prices and there are a number of reasons for this:
1) The market is relatively new and this means that most people involved have only been here for the good times and have only known prices to go in one direction. This is why they aren’t dropping their prices as the reality of the situation hasn’t hit home. And the thing is I ‘m not sure that it will and I’m not convinced they will reduce their names to very low levels to secure a sale. The reason for this is explained below.
2) Renewal prices are so cheap. At $7 a domain it really doesn’t cost much to keep your renewals going on your top 50 names.
3) Domain portfolios aren’t subject to leverage like other financial instruments out there (it’s the de-leveraging and margin calls that are worsening the current situation in the financial markets.)
4) The Internet is still growing. Tens of thousands of new surfers are coming online every day and hundreds of new businesses are setting up shop as they attempt to increase their customer base and access a global audience. And every one of these businesses needs a domain name.
5) This is nothing like the dot com bust, where the internet was mainly hype. It is now a proven medium for business and communication and it will only grow in popularity.