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Thursday, February 20, 2014

The Great Domain Flood of 2014.

By Duane J. Higgins, ceo

Will (ICANNs) pouring of upwards of 1300 new gTLDs (domain name extensions) onto the open marketplace have the effect of devaluing domain names? Will the billions of new domain name possibilities available disincentivize domain name investing? Those are two big questions that domain name investors and buyers and sellers alike have been wrestling with as we witness this massive/unprecedented expansion of the domain name system.

ICANN's main argument for flooding the marketplace with the new domain name extensions (to upwards of 1300 new extensions this round) from the current 22 was to create more choice for consumers of domain names. To make domain name ownership more accessible. More available. More reasonably priced. The common argument had to do with all of the good domain names (of existing extensions) already being taken.

However, as if often the case some funny things happen along the way of the path to good intentions. I had already started writing this blog post when another blog post appeared today titled:

"What if Domain Investors Buy the Good gTLD domain names?" 

It's a good article and I think that Mr. Silver is probably right.

It is likely true that most of the good domain names of the new extensions will be taken by investors, and trademark and tradename owners. That will still leave alot of names. However, ICANN could end up in the exact same situation that they started before the onslaught of new extensions. With limited choice of freely available names for domain name buyers as time goes on. And so goes the law of supply and demand and the prices of the good names (with the new gTLDs) will go up, and up and up over time.

I have a few other points that I would like to make. I did hear an argument early on that ICANN was hoping to a "dis-incentivize" domain investing or even de-value domain names to a certain extent. The analogy would be to make the commodity of domain names similar to vanity telephone numbers or vanity license plate numbers. Where you might be a slight increase in cost for preferred combinations, however not that exorbitant prices that have been attached to alot of domain name sales to date.

There are a few other interesting things happening along with the release of the gTLDs that I wanted to mention.

First of all the prices of the existing gTLDs  and ccTLDs are basically holding up. I don't have numbers to back that up. However I base that on observation. There are still a significant number of 5 and 6 figure sales of existing gTLDs each week. Values (prices) are not going down. If so, not much.

If anyone thought that the process of "flooding the market" with the new domain extensions would devalue the existing extensions or the new extensions that does not appear to be happening either. If any intention was to dis-incentivize investors from investing in domain names (such as the new extensions) that is not happening. If devaluation does happen, the normal economic process if that even if the values/prices do go down temporarily they are likely to go back up over time. That is the law of supply and demand. Look at land values over time in just about any location throughout the world. Too much land and the prices go down. As demand increases the prices go up. That will happen to nearly all of the new (and old) gTLDs that survive.

The prices of all of the new gTLDs that survive will likely go up over time and likely from the starting levels. People buy what they want to buy and they pay what they want to pay. This is happening in the housing market right now and the prices are going up. Everytime that someone overpays for a particularly domain name that they want the overall market (for that extension) will rise and the values of many other domain names will go up as well.

So I do agree with Mr. Silver and his article that domain name investors are going to take the day when it comes to the new gTLDs.  Domain names are basically low hanging fruit. Domain name investing is too temping with the prospect of registering a domain name for a relatively small amount with the potential for significant appreciation and sometimes wild appreciation of the asset.

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