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Reputation Killer – Backing Out of a Domain Deal

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Want to know one of the quickest ways to destroy your reputation? Back out of a domain deal, and you can be sure that people will think twice before doing business with you ever again. This is a small industry and word gets around very quickly. People want to do business with trustworthy people, and if you violate this trust, people won’t want to do business with you. Whether you deal with premium generics, trademarks, typos…etc – it doesn’t matter – nobody wants to do business with someone that is dishonest.

In the past few weeks on various domain forums, I have seen a number of cases where people backed out of deals after an email agreement was made. A couple even started escrow transactions but backed out because a better offer was received in the meantime. I think this is VERY shortsighted. Perhaps the seller made a few hundred dollars more on a particular transaction, but it is doubtful many people will ever do business with that person again. I had this experience once, and I won’t do business with the seller again.

As I said before, “honesty and trust is the most important thing” in the domain investment business. If an acquaintance or friend tells me about someone who backed out of a deal, I wouldn’t do business with that person. It’s not worth taking a chance that something will happen in between agreeing to terms and the domain name being transfered.

The one caveat to this is in the event a trademark claim is made on the domain name. One unwritten rule of the business is that you never sell a domain name while any potential legal issue is pending. In that case, and only in that case, is it permissible to back out of a deal – and only after explaining the situation.

Whether a contract is legally valid if its made via email doesn’t really matter for the purpose of this post. I am strictly speaking from an ethical point of view. If you happen to be someone that is contemplating backing out of a deal (or maybe recently backed out of a deal), I would strongly suggest you reconsider. This is a mistake that is made only once in this business. Usually the first time is the last and only time.

End of Year Checklist: Optimize Parked Domain Names

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Lately, have you checked to make sure all of your parked domain names are optimized for the proper keywords and images? While the year is winding down and things are slowing down, now might be a great time to make sure that all of your domain names are resolving the way you want them to resolve, and that the PPC links (if applicable) are targeted to your domain name. A domain name receiving targeted traffic is great, but converting that traffic is what’s important, and you can’t convert the traffic unless you are displaying relevant advertising links.

I spent a bit of time doing this yesterday, and I was surprised at the results. In March, I registered the domain name MountedHeads.com after watching a show related to hunting. Don’t ask me why I was watching it because I have no idea. Nevertheless, this name receives minimal traffic, but it has made much more than the registration fee over the past 9 months. Because of that, I figured it was already optimized.

Well, it wasn’t exactly optimized. When I tested it, there were a couple of relevant links, but four of the six were somewhat unrelated. I researched the stats from the past 8 months, and almost all of the clicks were related to hunting and mounting animal heads (taxidermy). I changed the keyword term to “mounted animal heads,” and now the links are almost all targeted. I also changed the images, as only one of the three were related to hunting.

My recommendation is for you to spend a couple of hours over each of the next few days looking through your names that receive traffic to test the keyword optimization. Even if they are making money, you might be leaving some money on the table by not fully optimizing your domain names. Intuitive programs that automatically optimize your names can be good and save time, but sometimes the human touch is needed, too.

End of Year Checklist: Renew your Domain Names

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With the final days of 2007 upon us, now might be a good time to review your portfolios to ensure your domain names have ample time before expiring. Many of us ignore the renewal emails that start filling our inbox with 90 days to go, figuring we will renew them with a few days to spare. Instead of doing that, I am going to log in and make sure that all of my premium domain names have at least a year before expiring so I don’t run in to trouble.

One reason expired domain name auction services are in business is due to the fact that some people don’t renew their domain names. I presume many cases are accidental non-renewals, which can be due to a multitude of reasons. Perhaps you changed your email address over the past year. Maybe your spam filter is preventing the renewal emails from reaching your inbox. Whatever the case may be, you should manually check the expiration of your domain names now to avoid any surprises.

Heck, maybe you can even count the renewals as a business expense against your 2007 profits (consult with a tax expert or purchase the Domain Tax Guide to see).

Jump the Domain Market

In the investment world, once a story hits the press, the price of the affected company’s stock is impacted almost immediately. In the domain industry, news travels less quickly, and because of that, you could possibly get a jump on news before price increases are made. Timing is everything.

One way to get a jump on the news is to review the list of domain names that are scheduled to be auctioned in an upcoming live auction. Do your best to determine the value for each live auction domain name based on the venue, comps, current market value…etc, and compare your calculations to the reserve prices. Should your valuation be significantly higher than the reserve price, there may be a strong chance the domain name will sell at auction.

When a domain name sells at auction for a significant price, the demand for similar names may increase as a result. In the week or so before the auction, if you are confident that a particular name is going to make a big splash in the auction, attempt to acquire similar domain names using Whois searches or via domain marketplace. If you don’t have the opportunity to do this quickly enough, you can do the same thing immediately after the auction. I recommend this strategy if you have a strong feel for the domain market and are willing to take a financial risk.

Of course, the caveat is that not all domain names are similar, even if they look the same. You need to know the market well enough to feel comfortable going out on these types of limbs. Also, the demand for similar names may be short lived, so this is a short term strategy.

Beware of Inflated Domain Prices

Investors were selling to one another, inflating prices. When the market figured this out in late 2005, it retreated with punishing speed.

While this quote from a New York Times article is in reference to the real estate market in Cape Coral, Florida, I think this should strike a chord with some domain investors. I believe some parallels can be drawn between the Cape Coral real estate market and the three letter .com domain market, where many domain investors speculate on these names by purchasing them for great sums from other domain investors.

As strong as the domain name market has been, the three letter .com market may be susceptible to dropping in value, and domain investors should use caution when buying at current levels. On average, three letter .com domain names have made incredible leaps in valuation over the past few years according to the price guide at 3character.com. From just a few hundred dollars a few years ago to several thousand dollars today, average prices for three letter .com domain names have seen extraordinary increases in valuation. In my opinion, we are in a period of inflated pricing, not really supported by any reasoning, other than the perceived rarity of the names (there are 17,576 in existence).

These short, easy to remember names might have tremendous value to a few companies, but many of these end user companies wouldn’t be willing to pay close to the current sales value for them. It can also be difficult to monetize these domain names. Frequently, consumers are looking for a particular product or company who may use that particular acronym officially or unofficially when they navigate to that domain name. If the domain owner uses the domain name for parking, and the parking company shows links for the company who uses the acronym, the domain owner may be at risk for a UDRP.

Inflated prices may also be affecting other types of domain names within the industry, however, it seems that this is one area where people are paying large sums simply because of the type of name, rather than what can be done with it, especially when the 3 letters don’t necessarily mean anything or stand for anything particular. In my opinion, this is like people buying houses in Cape Coral, Florida simply because the values continued to increase without a real impetus for the jump in perceived value.

I am not saying that all or most three letter .com domain names may be overvalued. I am merely suggesting that domain investors proceed with caution as the values of these names continues to increase. I would also say that like most nice generic domain names, I am a buyer if the price is right.

What do you guys think? As always, I welcome your comments…

Mike Berkens on the Biggest Threat to the Domain Industry

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Mike Berkens, owner of one of the most valuable private domain portfolios, touched on it in my interview with him, but he expounds on what he believes is the biggest threat to the domain industry on TheDomains.com blog. Mike feels that as an industry, we need to police ourselves or a governmental agency will step in and potentially impact more than just the trademark domain issue.

Here are a few suggestions that Mike makes in his post regarding what we can do:

1. Do NOT register, backorder, or participate in any auction containing these types of domains.
2. The drop services have to stop taking backorders for these obvious trademark infringing names.
3. Stop domain tasting.
4. Join the Internet Commerce Association (ICA)

Check out TheDomains.com to read more about this important subject.

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