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Auction Data
Can Be Misleading!
Outlined
below are some of the limitations
associated with domain-name prices
derived from auction bids and their
implications as a source of domain
appraisal. Following that is a recommendation
for a better source of domain-name-price
data.
A
large number of domain-name
auction listings end with no bids.
Unfortunately, there is no simple
inference that can be made about the
value of such domain names. Here are
some reasons for a particular domain
name not selling:
(1)
The seller’s asking price
is too high.
(2)
The price of the domain name
is zero, i.e., no one wants the
domain name.
(3)
Buyers interested in the
domain name are not aware that the
domain is being auctioned off.
(4) An interested
buyer does not place a bid because
she is also negotiating the purchase
of another domain. She cannot afford
to win the bid while waiting for
the outcome of negotiating for another
domain name. The inability to negotiate
the terms and timing of an auction
can deter some bidders from participating
in that auction. This can
be called the “non-synchronicity”
problem of demand and supply.
A good
way to understand this problem is
to compare auctions with the real-estate market. In the latter,
you can place a bid on a house with
the contingency that you first sell
your house. Auction markets don’t
allow such side arrangements.
Even
if a domain name is sold, issues
(3) and (4) above may still apply.
Thus,
there are three main drawbacks of
auction data derived from closing
bids: (a) inability to distinguish
between outcomes (1) and (2), (b)
buyers lacking of information about
timing of sales, and (c) non-synchronicity
of demand and supply.
Implications
Even if
a domain name is not sold, such outcome
cannot be simply ignored, as it contains
relevant information. Under such circumstances,
sellers tend to re-list their items
at a lower price. Tracking prices
of a domain name over time can potentially
discriminate between outcomes (1)
and (2) and improve the quality of
domain-name-price data.
Prices
obtained from bids on domain names
sold at auctions can be biased downward
as a result of scenarios (3) and
(4) above, i.e., the price would
be lower than the true price of
the domain name at that particular
time. The non-synchronicity associated
with auctions also puts a damper
on bidding. Uninformed buyers could
have bid a higher price had they
known about the auction. Thus, raw
auction-listing data need to be
carefully scrutinized before they
can be used in any meaningful manner
for appraisal.
Improved Data and Auction Listing
A
better source of domain-name
values can be obtained by combining
auction data with data from privately
arranged escrows.
This gives the major domain-name
escrow companies,
such as DomainMart, a considerable edge in valuing
domain names.
To
better disseminate knowledge about
domain names being listed for sale,
there are at least two actions that
can be taken:
(1)
A domain-name owner,
directly or through a domain-name broker/agent,
can market the domain name to a
small group of potential buyers, informing them of an upcoming auction.
(2)
The domain-name owner can
gain easy access to domain-name-sale
information from DomainMart, which is currently developing
a globally networked system to provide
this service.
A
buyer can use the “Wanted” listing
to provide owners information about
her potential interest in their
domain name.
Alex Tajirian, President & CEO
DomainMart
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Opinion