I just read an article in the Wall Street Journal about a former UBS banker who recently started a wine fund. According to the article about former Wall St. banker Jorge Mora,
Mora joined with several former friends and clients to buy Italian Wine Merchants, an upscale New York wine retailer. He also is part of a new, four-man group that founded a $50 million investment fund, The Bottled Asset Fund, which will invest in “‘blue chip’ wines in inefficient markets,'” around 75% of which will be in Italy.
To me, the most interesting part of the article was the strategy of investing in inefficient markets. When I was in Italy, I saw first hand these inefficient markets. There are a ton of vineyards with great wines, but for someone (like myself) who likes wine but isn’t familiar with the different vineyards and various differences in the wine production, distinguishing a great wine from a good wine can be extremely difficult. I probably couldn’t tell the difference between a $40 bottle of wine and a $500 bottle.
This is very similar to the domain industry. There isn’t an MLS like in the real estate world, so the market is very inefficient. Unless you know the marketplace, it can be tough to tell the difference between a $5,000 domain name and a $50,000 domain name. Oftentimes, the main difference is how badly the buyer wants the name for a company or specific project. The wiser investor would own the more valuable domain name, while others would own the lesser valued domain name. This takes experience and deep pockets to make smart investments in various verticals.
Other companies have tried to create something like a domain fund, but more often than not, the domain names that were purchased were bought based on revenues that were generated from parking, and as parking decreases, the value of the domains and funds decrease, as there isn’t always value in the domain names beyond the revenue generated. Also, many large purchases have been riddled with domain names that have trademark issues. These are huge liabilities, as trademark holders see a company with deep pockets as a very large target.
If someone decides to start a domain fund like a wine fund, it won’t be based on PPC revenue. Like the wine fund, the value is in the actual assets rather than interest the assets are earning passively. Wines aren’t earning money as they sit unopened. They increase in value as people realize the value in the particular vintage. Domain names increase in value as people realize how important they are to businesses. Wines need to be marketed for people to realize the value, just as domain names need to be marketed or developed so people can see how they would help their business.
I see significant value in domain names, and this inefficient market could really be exploited if someone had the finances and time to wait to capitalize. It’s just a matter of time before an “under the radar” company buys the best domain names in the world for tens of millions of dollars. Perhaps that is already happening 😉
Very nice post 🙂 Wine and domains are really very similiar in this matter 🙂
Great post…you are an individual who truly understands the subtleties of domain values. A lot of people can’t get their head around the difference in value between VirginiaBeach.com and VirginiaBeachWeb.com for example, and even less clear cut situations like you mentioned in this post. I guess that is what gives skilled domainers their edge and opportunity though
Excellent post, well said. How do we invest in the/your fund? 😉
This is an excellent analogy. It would take real balls for a major fund to it on the best names and wait, but the rewards would be significant.
“people can’t get their head around the difference in value between VirginiaBeach.com and VirginiaBeachWeb.com”
Except in a blind “tasting”, 95% of the people would say “VirginiaBeach.com” is a better name than “VirginiaBeachWeb.com”, while in a blind wine tasting the “big gun” wines would fare much more poorly.
I own WinePriceguide.com Perhaps the Italians could use this to help you and others distinguish wines by price vintage etc?
just a note…I did say a “lot of people” not “people” which would mean everyone, big difference..obviously everyone knows that VirginiaBeach.com is better. But, not everyone knows that VirginiaBeach.com is $200,000 – $750,000+ better than VirginiaBeachWeb.com..meaning many, including big companies can’t help but buy a name for registration cost. Then they pay for it, knowingly or unknowingly..there is still a lot of opportunity for smart domaineers who understand value in the market.
Fund should probably offer ‘better returns’ to capture the market share from the existing conventional funds by being different.. I wrote something here a while back on such idea. http://america.edu/saipola/?p=4
I agree PPC is falling down but a good domain has type-in traffic always which is money imo..
ac – i was confirming your point and pointing out that wine is much more subjective than domains imo…
just to let you know, the Domain Developers Fund is now the first fund investing in Domains available to the public.