Valencia, Spain. 2 in the morning at the Domaining Europe conference. Discussing about domain values over a few drinks, one of the attendees mentions he owns a 3 letter domain he just bought on auction that he wants to sell for $3,500. I remember saying to myself: wow a three letter .com domain for $3,500 – what a great price. I immediately pulled out my phone and quickly sent an email with the sell request to my team. Unsurprisingly, the domain got sold shortly after.
Unfortunately, those days are long gone. It is becoming increasingly difficult to find a LLL.com under $5,000. Considering that the last Domaining Spain was only 8 months ago, something changed in the aftermarket that caused a 30-40% variation on the floor price of these assets. But besides for the fluctuation in price, what amazes me is the amount of buy requests we have been receiving for these assets. When European, Chinese and American clients are asking for LLL.com on daily basis, you know something is up.
But why are LLL.com so valuable and, above all, how can you profit from this?
There are three reasons why these assets are so in demand:
1. Rarity (supply/demand)
There are only 17,576 (26*26*26) of these domains on the market. If PriceWaterCooper owns PWC.com and Apple owns MAC.com, there are thousands other companies that have a budget big enough to purchase the acronym of their brand/product. And it is just a matter of time – sooner or later they will.
As I mentioned in my other article about numeric domains – the ability to quickly cash in on an asset considerably increase its value. There are only a few domains that have this attribute, namely numerics, LL.com, LLL.com and CVCV.com.
3. End User Value
Differently from numeric domains, LLL.com, since they can be used as acronyms, can be easily allocated to specific end users. If you were the owner of MCD.com, can you name a company that might be interested in buying your name? There you go.
LLL.com AND VALUE INVESTING
Last weekend I visited one of my mentors, a real estate developer, at his beach house in central Portugal. While the worst storm of the year was hitting the coast (with incredibly big waves), we stayed in and had a chat about the status of the real estate in Portugal and how these lessons could apply to the domain market.
A very true saying is that perception equals reality. What generates a crisis is often a large number of people who share a negative perception of the market. Think about it – Portugal (and the US) still hold the same amount of debt per person since last year. What has changed? One of the reasons the real estate and the domain market have bottomed out during last summer is because people simply got bored of thinking that we are under a crisis and decided to allocate their money back on the market, which is now trending up again.
We all know that the market is not driven by logic and but by emotions, especially greed and fear. I recently read a thread started 6 years ago saying that the minimum wholesale value of LLL.com was quickly heading toward $10k. Compare it now to the $5k floor price: some people say that LLL.com are becoming too expensive, but are they really?
As Warren Buffett would say, the intelligent investors focuses on the value, not on the cost of the asset and understand how the price relates to long term market fluctuations. There is a beautiful little site that reports the floor price of LLL.com for the past 8 years. If you insert the values in a spreadsheet and pull out a graph, this is what you get:
As we can see from the graph starting in 2005, the LLL.com quickly rose in the first years just to reach a peak in 2008, right before crashing to 2007 level. Since then, it has been steadily growing until hitting the $5,250 mark in November last year.
So, is this a good moment to buy LLL.com? Given the market activity and the previous market fluctuations, I would definitely say yes. It seems we are in an accelerating phase of the market and prices are likely to continue increasing – at least for the coming 6 months.
At the same time, more people are getting aware of market valuations. Blogs, marketplaces and brokerage houses are making the market more and more efficient, therefore with less opportunities to close great deals. Remember – in any market where there is perfect information there is no possibility for profit. Nevertheless, the domain aftermarket is still far from that and I have personally seen a few clients doing very well in the space and making substantial profits.
But let’s say you own a few LLL.com and are unsure about pricing, what is the best way to appraise their actual value?
The most common criterium that has been used until today to appraise LLL.com is their letter composition. The “book” says that there are 3 type of letters that increase or decrease the value of a specific acronym:
- Premium letters: A, B, C, D, E, F, G, H, I, L, M, N, O, P, R, S, T.
- 2nd tier letters: J, K, U, V, W.
- Low quality letters: Q, X, Y, Z.
The retail value of a LLL.com composed only by premium letters is closer to $25k/$30k. Any combination of premium + low quality letter is valued somewhere between these two extremes. From my experience, any 2nd tier letter increases the value of the domain of 1-2k. And any premium letter increases the value of the domain by 3-6k.
Then there are the less obvious rules:
- Letter structure – Specific letter structures might increase the value of the domain. For example any palindrome (symmetrical letters – e.g. PTP or LKL) usually has a higher value.
- Couple of letters repeated like FFQ, PPO, etc, also usually hold a higher valuation.
- Word meaning – a combination of 3 letters often. One of the example is fix.com that recently sold for $850,000. Whenever the combination of three letters has a specific meaning in the natural language, that increases the price considerably.
- Potential buyers – you heard what the old domainer’s saying – the value of a domain is how much somebody is willing to pay for it. While this can be an easy way out to appraise a domain, it also beholds some truth: the value of a LLL.com corresponds to the budget for domain acquisitions of the richest company/person with a legitimate interest in purchasing your domain.
What about selling to End Users?
Yes, but how can you know what are these companies and how much is their budget? Well, it is not easy, but you can get there. This is what we do on a daily basis at Domain Holdings and we have an awesome team only dedicated to that!
You can always contact me at [email protected] if you are looking to invest in a LLL.com – we have over 200 for sale at the moment with some great investment opportunities.
Next week I am going to attend DomainPulse in Salzburg and later on in May I will be participating in a panel about domain evaluations at Domaining Spain in Valencia – Dietmar and Jodi always do an amazing job of making everyone have a good time and I encourage you to sign up for the event. I would love to see you there and meet you personally!