New Era of Domain Investing
Second Chapter: Chaotic vs. Structured Domain Portfolios
This is another of brief articles, which, as I hope, can help domain investors (mainly those who are just starting) to get some unbiased overview of investment opportunities, but also investment traps which one can face when investing in new gTLD domain names (which are domain names in extensions like .life, .world, .online, .store or .xyz). Today I will discuss why most investors should really avoid building what I would call “chaotic portfolio” and instead focus on building a nice (and probably also profitable) portfolio, which, in the following text, I will call “structured portfolio”. Articles here are short extracts from my book “New Era of Domain Investing”, which will be ready around Jun 2021.
Disclaimer: all ideas here are just my personal opinion. This opinion might prove wrong, as, despite the fact that I tried to understand things I describe here the best I could, I might fail in that in some instances. You must, therefore, do your own due diligence before making any investment.
If you have not read it yet, read the First Chapter here.
Second Chapter: Chaotic vs Structured Portfolios
What is a chaotic domain portfolio?
Today I will start with another great investment mistake, something that many new gTLD investors are already familiar with (or are slowly becoming familiar with, depending on the overall structure of their portfolio and when they have started). I have not found yet a term for that in the literature or forums, so I will create a new term now. The term is “chaotic portfolio”.
So what is it? We have now hundreds of different new gTLD extensions all available for us to invest in. Those are not only different extensions, they are also operated by different registries all around the world. They have very different standard yearly renewal fees, approximately ranging from 1$ to $120 000 (yes, $120 000 / year for some premium domains in particular extensions). They have also different TOS (terms of service), and therefore different conditions dictating who can register specific domain names and how those domain names can be used. In addition, some registrars support most of the extensions, while some are supporting only a few of them.
This is how you create chaos.
Now, when domain investors, who are totally new to this, start with their investments/purchases, they usually are not aware of all those differences between various new gTLD extensions. They browse their favorite registrar and see a nice, reasonable new gTLD name for reasonable renewal, so they register it. Then, they see another good domain name with reasonable renewal in another extension, and they register that too. Some of them can be very talented as far as it goes for the selection of good names (they can have 20 years plus of experience from .com domain investing at this point in time) and so they get hundreds of decent quality gTLD names.
Let’s now imagine that you purchased 1000 of such names. You have also used various registration promotions, which are now usual and available at many registrars, so you managed to achieve an average purchase price of $10/name. You have therefore paid $10 000 for your 1000 names. After you have organized them in an excel sheet, you noticed that you have around 100 different extensions (all this is just an example, but it is actually a very common case and scenario, as I personally know so many people who invested like this when they started). Most investors at the beginning do not mind that they have invested in a lot of different extensions, some of them even call that “a well-diversified portfolio”. What actually happened is that they have just created a “chaotic portfolio”, with all the negative consequences which will appear later (btw, not much later — 1 year is enough, as problems will become very apparent when first renewals will be due to be paid, as I will describe below).
So basically I will use term chaotic portfolio to describe a portfolio that consists of more than 10 different extensions, is large, and in addition, names are evenly spread across those extensions. The above-described portfolio with 1000 names and 100 different new gTLD extensions is an excellent example of the chaotic portfolio.
Main disadvantages of chaotic portfolio
Everybody will probably agree, that there are always two sides of the equation when it comes to the profitability of the domain investment. On the one side, we have purchase and maintenance costs. On the opposite side, we can have income from sales (if we are lucky). In domain investing our aim is that income from sales is larger than our total maintenance/holding costs.
To explain in more detail: when we acquire the domain name, we have purchase cost, which is a one-time cost, and then (and this is much more important), we have maintenance/holding cost (yearly renewal fees). We need to pay a renewal fee to registrar every year to continue our ownership (maybe it would be more proper to call it renting) of the domain name. In the .com era, it was not difficult to estimate what the holding cost for particular .com name would be — it was almost always around $10 (putting aside now the very beginning of the .com era). But when it comes to new gTLD investments, it is much more complex, and having your renewal fees under control is the most important thing. Luckily, with some information and knowledge, everyone can handle that task.
Problem is this:
Let’s use our example of 1000 good new gTLD domain names, purchased for the initial cost of $10 000, consisting of 100 various new gTLD extensions. Even when you purchased a particular name with a good discount, it is very often the case that the renewal price for the domain name for the second year (and all other following years) at the same registrar will not be that favorable. You could purchase the name for $1–10 initially, but the second year will be usually somewhere between $20-$50, depending on particular extension (in the further text I will discuss only domains with standard renewals, I am not even going to the topic of premium renewals, which I will discuss in future articles) So now, what to do? Suddenly it seems that to renew your portfolio for 1 more year after the first year of your holding, can cost you anything between $20 000 — $50 000. And combine this with the fact that in their first-year lot of people focus mostly on purchases (they build their portfolio), and so they neglect the sales…well, we can quickly see how that can become uncomfortable, and also unsustainable.
So what is the solution to the problem?
Luckily, the reality is, that this situation can be avoided with some effort. Let me now introduce you to two additional concepts which help to keep renewal costs under check: domain transfer promotions and the idea of structured portfolio
What are domain transfer promotions
You might be surprised to learn that there is a large number of various domain transfer promotions ongoing every moment of the year for a lot of different new gTLD extensions. How can such promotion look like? Few examples (the most important part of this article):
– I have used a promotion for an extension, which is usually with a yearly renewal fee of $40, and some registrars offered in 2016 to transfer names in this extension for a total cost of $4 per name. If you undertake such transfer, your domain name will be transferred to the new registrar (the one which offers this promotion), and your domain name will also automatically get renewed for 1 additional year (for the price of $4). Why some registrars would do that? Answer: the competition between registrars, of course.
– I have used a promotion for an extension, which is usually sold at $30, and some registrars offered to transfer names in this extension for a total cost of $2 per name. So again, if you utilize something like that, you get your domains renewed for 1 additional year for the price of $2, instead of the usual standard price of $30 at your current registrar. Imagine, if you hold 100 domains in this extension, you can pay $200 for their total yearly renewal, instead of $3000 which you would pay would you not use the promotion.
The list of various transfer promotions can go on and on.
It is important to know that your local registrar in your country probably does not offer the best prices possible for your domain names. There are literally hundreds and hundreds of registrars all around the world, and in many cases, there is no problem to open an account in registrar outside your country if you see the pricing for the domains you own would be better.
So you must be using transfer promos as much as possible— but can you?
We see now, that it is an imperative for a serious domain investor to utilize transfer promotions, as it can save as much as 90% (sometimes even more) when it comes to your yearly renewal costs. Of course, when you own a small portfolio of 2–10 names, you do not need to really care about it. But when you have several hundred or several thousands of names in your new gTLD portfolio, the ability to reduce your maintenance costs will become your second most important skill (just after your ability to purchase best names).
You are only a human being. As per my best knowledge, one person can manage 5, maybe 10 different extensions, and when you are a very experienced domain investor maybe 20. What do I mean by “manage”? Well, at any given year, you will need to learn which registry offers which promotion for which extension and in which time period. When most of your names are at 5–10 extensions, you can manage to follow that. When your names are in 100 different extensions (which is the case of the chaotic portfolio) there is no chance for you to manage that and you will end up paying full renewal fees every year for all of your domains (simply because you will technically not manage to follow and then utilize 100’s different transfer or renewal promotions). A lot of very experienced investors (but from .com era) unfortunately initially did just that, they created chaotic portfolios and after 1 or 2 years, they were not happy at all with their results. Some of them then became very vocal critics of new gTLDs. While I partially understand them, I would say it is mainly because of the way they managed their maintenance expenses (yearly renewal fees).
Structured portfolio — your best friend!
So now I will define a “structured portfolio” as a larger portfolio, which consists of 5–10 different extensions, 10 is maximum. For example, when you check my own portfolio: you can find out that I own dozens of domain names in extension n.1, dozens of domain names in extension no.2, lot of domain names in extension no.3, and so it goes (my portfolio is just an example of the structured portfolio — it does not mean that I say that extensions I own are the best investment options). The main idea here is that although I have domain names in some other extensions too, I do it only in a “per case” basis — in case the name is really very special or very good, or I have some future intentions with it. But as a rule, I purchase mostly names in extensions which I already own, and where I know that good transfer or renewal promotions are available for those extensions in many cases.
There are many other reasons for that, but the main reason is, of course, the sustainability and profitability of the investment portfolio. Unlike in a chaotic portfolio, when the owner of a structured portfolio notices there is a particular transfer or renewal promotion for, let’s say, .vip, the owner can simply batch-transfer his or her names to the registrar which offers this promotion. This allows us to achieve really massive savings. Because in the structured portfolio, we have only 5–10 different extensions, an investor needs to do this exercise only 5–10 times during any given year (which is, btw, not as easy as it sounds, but it is still much more manageable compared to the situation when we try to manage chaotic portfolio).
If you correctly and systematically use various transfer promotions, you can keep your 1000 names portfolio with the total cost of $3000 -$10 000 / year, or even less, depending on what promotions you use and for what extensions. If you do not use transfer promotions at all, you will end up paying usually around $20 000 — $50 000 each year (the exact amount would depend on the particular extensions you choose for your investments). The difference can be in some cases tenfold, or even more.
So where is the information about transfer promotions available?
The purpose of this article is definitely not to promote or de-promote any particular new gTLD extension. It is a fact though, that for some extensions we have transfer promotions which are more frequent, while for some other extensions such promotions do not exist at all. This changes every year, so nothing is really stable from this perspective. Everyone must do their own due diligence, look at different registrars to check the pricing, and read various domain forums where such promotions are usually vividly discussed among domain investors.
Another way to find out (my favorite one) is to look at portfolios of other domain investors: personally, when I see that someone holds a larger number of good names in particular extension, the first thing I do is to check in public WHOIS database where exactly their domain names are stored. After I learn the registrar details, I check its web page and try to learn whether there is some promotion available. It is also often the case I simply write an email and ask. In many instances, I learn that person simply holds a large number of domain names and pays full price for them, while there are also a lot of cases when I get information that yes indeed, there was a promotion 6 months ago for this or that price and then I know that it is, of course, the reason why the person transferred domains there. It is often the case that registrars/extensions which offered promotion year ago will repeat that in year cycles, at least this is what can be observed at the moment.
Be nice to your fellow new gTLD investors, registries, and registrars.
The ultimate way to get useful information is just to be nice and pleasant to others. If you are pleasant, many people will send you information which might be helpful to you. If you act like a mean person to others, people (fellow domain inventors) will gladly ignore you and will watch how you pay your full renewals.
When you finally find it, act swiftly!
It is important to keep in mind that most domain transfer and/or renewal promotions are time-limited, so when the window of opportunity for cheap renewals open, it is really important to act. It happened to me and other new gTLD investors a number of times that we were lazy to actually start our transfers, only to find out a few days later that the promotion has ended, and there is no promotion till the renewal time of our domains. This means we had to pay multiples of what we would pay if we would have acted more swiftly. Believe me, there is nothing more painful for the new gTLD domain investor than this.
You will find out, that even when you are maintaining a structured portfolio, you will not always act in the optimum way when it comes to renewals. But maintaining a chaotic portfolio is, in my honest opinion, a direct way to simply say “goodbye” to any of the possibilities described above. Just imagine that: you have to manage 100 different extensions, and to search for 100 different promotions during a given year — of course, you will not be able to do it. So think about it BEFORE you purchase your investment domain names.
Summary of this article:
Keep your portfolio structured — own your domain names at 5–10 different extensions at most. This is the number of extensions where you can keep your renewal costs at the best shape.
Learn everything about how promotions for domain transfers work in relation to particular extensions. Learn which are the best domain investing friendly registries, and which are the best domain investing friendly extensions, when it comes to renewals and transfer promotions. Remember, your savings can be more than 90% in some cases, and sometimes even more. There is a really big difference between $4 and $40 when it comes to the renewal of your domain names.
All the above information changes significantly in time. What is valid in 2020 can change dramatically in the following years. This is not a .com game with its $10 +- stable renewal fees going year after year: things in new gTLDs are changing very quickly, so you need to stay at the top of your own game.