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Buying domain names is a topic I’ve been thinking a lot about lately. Not only because I’m looking for a couple generic domains to purchase myself, but because I think we’re having quite an interesting market situation right now that is especially advantageous for buyers.

Yes, I believe that currently it is a very good time to acquire domain names. There is one obvious reason for doing so, which is that the value of domains has steadily been going up for years, and I don’t see any reason why this should stop. That’s one long-term argument for investing in domain names sooner rather than later.

But there are a few other arguments I’d like to point out, too.

ECONOMIC SITUATION

First of all, the US (and maybe even the global) economy is slowing down and I’m sure we’re on our way to a serious recession, if we have not arrived at that point yet. Therefore, investors are more choosy about what they spend their money on; buyers are less willing to invest while, at the same time, many sellers are looking into possibilities to turn their holdings into cash. During periods of economic downturns people feel better if they save their money instead of spending it on consumption or investments.

Although domain prices have continued to rise during the past months, I have the impression that the rate at which prices are climbing has slowed down recently. I believe this is in part because of the fear of a recession mentioned above.

Just look at the recent domain auctions. There were some great domains up for sale, but many of them were sold at relatively low prices. Sure, some were not sold due to reserves that were too high, but many buyers were able to get some steals. Definitely to a greater degree than in past auctions. I was lucky enough to purchase a few generic domains at prices well below what I would consider market value myself. I’m absolutely positive I will rake in a nice profit from those investments not too far down the road. Overall, one can only observe that the recent domain auctions did not go as well as last year’s auctions.

There are probably different reasons for this, including the current economic situation, but it is also because of more and more domain auctions being held throughout the year. It is getting increasingly difficult for individual buyers to look through the vast amount of domains being thrown onto the market and to spot good domains. Many generic domains are overlooked or only found by a small number of bidders, which is why you can find steals if you’re willing to go through the domain lists just a couple of minutes longer than the other buyers.

USD CURRENCY

If you’re based outside the United States, you can buy domains even cheaper. For example, the US Dollar has significantly fallen in value and it is at a low compared to the Euro. So, if you have Euros to spend on domains, you can get a good domain and save money at the same time.

European domain investors who are going to buy a $1,000 domain today can get it for less than €650. Just a few years ago you would have had to spend close to €1,000 for the same domain.

DOMAIN PARKING CHANGES

A third reason why you can find more domains for cheap are the changes in domain parking as of late.

Firstly, domain parking companies and feed providers have changed their rules. Parked.com killed arbitrage, Yahoo introduced its quality score and Google added a new option for its AdWords clients to opt out of domain parking sites. All this makes it harder for domain owners to monetize their domain names’ traffic through domain parking.

Secondly, parking revenues are declining, too. Personally, I have seen a hefty decline in earnings per click, which resulted in a much lower revenue-per-mille (RPM). My average RPM during the first three months of 2008 has been about €5-10; I was getting €20-60 portfolio-wide with different portfolios about one year ago.

All this will also lead to a larger number of expiring domains, in my opinion, as domains are less likely to cover their registration fees.

CONCENTRATE ON QUALITY, NOT QUANTITY

You cannot blindly buy domains, of course. I think that today it is more important to focus on quality rather than quantity than before.

Even some large portfolio owners with lots of money on their hands have decided to sell off some of their domain names in order to reinvest in better domains or to get rid of the bad names. Rick Latona, for example, is selling generic domains through his website at low prices on a daily basis. Most other domain owners interested in selling list their domains in auctions. Even Rick Schwartz, who is known for being a buyer and not a seller, put his domain Widgets.com up for sale on eBay.

The domain landscape has changed once again in 2007 and during the first months of 2008, which requires a new strategy for everyone in this business. You cannot continue to buy domains as reckless as before. But if you take the time to go through domain lists hunting for the best domains on that list, if you research them and narrow the short-list down to the domains with the potentially highest returns, you have very good chances to buy domains at low prices today and get a high return on your investment in the near future.

I conclude that domains have gotten riskier as an investment than they used to be a couple of months ago. But this development has driven prices down and presented good opportunities for buyers.

About the Author: Dominik Mueller has been a broker and investor in the domain business since 2003. He is also an occasional blogger covering the domain industry, web search and online marketing.

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