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After A Big Sale – How Do You Reinvest?

Elliot Silver
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Subscribe to Elliot's BlogAfter learning about Rick’s pending big sale, I am wondering what other domain investors do with the proceeds from a very large sale.   Personally, I almost always reinvest as much as I can in better domain names for development or for resale.   I would think that once you’ve sold a 7 or 8 figure domain name, you are less inclined to reinvest in lower value domain names. So I’d like to pose a question to those of you who completed large domain sales or anticipate closing on one:
When you sell a high value domain name, how do you reinvest that money?

  • Do you buy other domain names?
  • Do you invest in real estate?
  • Do you provide seed capital for incubating companies?
  • Do you invest in the stock market?
  • Do you live off of your revenue in the French Riviera?
  • Do you make it rain at the Spearmint Rhino?

They May Be Watching Everything You Do

Elliot Silver
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Subscribe to Elliot's BlogOne of the neatest innovations in the supermarket industry was the introduction of loyalty rewards cards. Supermarket customers sign up for a loyalty card, and the supermarket gives them special discounts that aren’t available to regular customers when the card is swiped at the point of sale. Not only do these loyal customers save money, but they are also privy to special offers from the supermarket. Sounds like a great deal, right?
Well, the reason supermarkets and other businesses are so happy about these rewards programs is because of the fantastic data that comes along with their usage. When you use your rewards card, the supermarket knows how often you buy milk, when you buy beer, what brand of condoms you use (regular or magnums), and a troth of other valuable personal data that you would probably be reticent to share. When you think about it, this is kinda scary.
This same type of thing happens every day in the domain industry, too – although it might not be as obvious. When you do a Whois look-up, that information may be stored by the company where you searched. When you purchase an appraisal or use a free appraisal service, that data may be stored, too. Same goes for your accounts with your parking companies – they know how much traffic your names receive, which niche makes the most money, and which of your names is your biggest earner. Even when you complete a confidential sale using an escrow service, the buyer and seller data may be seen by the escrow company.
I haven’t heard of any cases where this power has been abused, but you should be very mindful of the potential wealth of data you are giving out by performing every day business tasks. You should be especially careful if the companies or principals of the companies can use the data for a competitive advantage. I am all for domain companies hiring people who are familiar with the domain industry and how domain investors think.   However, with that comes the potential for privacy issues.

Excitement Building for TRAFFIC Auction

Elliot Silver
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Subscribe to Elliot's BlogAs Rick Latona slowly announces his live domain auction inventory for the Traffic New York auction, excitement is mounting. This is going to be the first time Traffic allows an auctioneer other than Moniker, and the first multi-live domain auction conference featuring different auction companies. I think this is going to change the landscape of the live domain auction industry as upstarts try to dethrone the industry leader.   This can only bring good things for domain buyers and sellers.
Unless you’ve been living under a rock these past couple of years, you know that Latona has made a huge splash in the domain industry.   Hardly a week goes by where his company isn’t listed in DNJournal’s weekly sales report for a large sale or purchase. Knowing Rick, I bet he is more excited than anyone   at the prospect of changing the landscape of the live domain auction space. I would not be surprised at all to see several super premium domain names added to his current auction list just before the auction – all at crazy low reserve prices.
Other than long exclusivity periods, automatically renewing contracts, and high commissions for silent and live auctions, what’s also hurting the perception of the domain market is the fact that auctions have featuring great domain names at vastly over-inflated prices. Although it may be intriguing to think that an expensive name will sell, most of the time these names get passed on rapidly.
I think the market should determine the price of a domain name, and what better place to test the market than an auction attended and viewed by the biggest domain investors. Add prospective end user buyers that are encouraged to attend, and you’d expect to see tremendous sales on these great domain names after competitive bidding. I think auction houses have been too eager to get top names listed (for the auction and to wrap up exclusive rights for months after) and they haven’t said “no” to ridiculous reserve prices. Few sales has given the perception of a soft market, which isn’t accurate.
I believe Rick’s auction is going to have great names at very reasonable opening prices.   The market will determine the final selling price, and I believe there will be a new industry auction leader anointed.   I hope I don’t eat my words, but I predict Rick will sell an unheard of 75% of his listed domain names, and I predict he will sell upwards of $5 million in domain names.   I don’t know all of the names Rick is auctioning, but this is going to get everyone excited.

HUGE Domain Deal in the Works

Elliot Silver
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Subscribe to Elliot's BlogWhen you see that a HUGE domain deal is going to take place in the near future, who is the first person you think of that made the deal?   If you guessed Rick Schwartz, you would be correct.
Lightning doesn’t strike the same place twice, unless there’s a reason for it.   While some people have said that Rick Schwartz is “lucky,” I would strongly disagree.   Rick saw the potential in domain names many years ago, scoffed at selling most over the past few years, and has recently cashed in, while retaining some of his best names. Not only did Schwartz recently work out huge deals for iReport.com and Property.com (and RoomDividers.com last week), another deal is in the works that in Rick’s terms, “will blow the doors off the industry at the darkest time…..AGAIN!”
While the domain name in discussion hasn’t been publicly revealed yet, the deal is going to make headlines for Schwartz again – and for his friend Kevin who had a hand in the Property.com deal as well. While I won’t publicly congratulate Rick for this until the deal is done, I will say that from this and my own personal experience, it appears more end users are beginning to understand why they should own category defining generic domain names, and many are paying big bucks to get them.

Finding End User Prospects

Elliot Silver
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Subscribe to Elliot's BlogFinding end-user prospects for your category defining domain names is just as easy as searching Google for that term. Chances are fairly good that if the category is at least somewhat competitive, there will be several advertisers on the top and side who are paying tens, hundreds, or thousands of dollars a day in pay per click advertising.   If someone is paying this much money to ensure their top position in Google, they may understand the argument to spend money on their category defining domain name.
I personally prefer to reach out to the SMBs (small to medium sized businesses) who advertise on Google.   Compared to large companies, there is much less red tape involved in decision making with SMBs, and you can have an answer in less time than you would if you went to a large company. Many times, the decision maker is also the person who signs off on the monthly Google ad spend, so this is a good opportunity to speak with the right person.
My note to the Whois contact will explain how I found the company, and how I believe the domain name can help them. Not only can a category defining domain name help save money because of the type-in traffic (if that is true), but the category defining domain name will give them even more credibility.   This is much more pertinant to the SMBs who are probably competing with the large brands for positioning in Google.
For some companies, it makes sense to buy a domain name for $25,000 when they are spending $5,000 a month in Google Adwords spends. For others, they prefer to market their brand rather than use a generic domain name.   If a company has an issue with branding, I like to recommend they look at Vodka.com, Baby.com, and Loans.com to show brands that have successfully used generic domain names in advertising without watering down their brand.
Companies that spend money on PPC advertising buys are generally more aware of the power of a good domain name. Educating others is important, but I will let Google and Yahoo spend their time and money educating. I’ve found it to be very tough to sell an expensive domain name to someone who doesn’t really get it.   There are enough companies out there that do get it.
If you want an example of a company that gets it, have a look at this week’s domain sales report on DNJournal.   Rick Schwartz just sold RoomDividers.com to the operators of OrientalFurniture.com, who currently hold the #1 side banner ad spot for the term on Google.   This is clearly a company that gets it, and in time, they will probably be able to rely less on PPC and more on organic search traffic.   Smart move.

Domain Tax Tip

Elliot Silver
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I should preface this post by saying I am not anything close to a tax expert, and in fact, I received a D in Financial Accounting in college (granted I was pledging a fraternity). Nevertheless, I want to talk about taxes with regards to your domain business. I know it’s barely September, but if there are things you can do to lessen your tax burden before the end of the fiscal year, now is the time to do it.
The tax problem I generally have with my business is that I frequently spend quite a bit on acquisitions after a big domain sale, and taxes are an after thought.   For example, after selling a domain name for $80,000 and making a $40,000 profit, I am often inclined to go out and buy a $70,000 domain name.   However, assuming a 35% tax rate (state and federal combined), I would owe the government $14,000, leaving me with $66,000.   Since taxes aren’t taken out at the time of the sale, I might feel safe spending $70,000, but if I develop the new name, I have to come up with the extra $4,000.
That said, there are ways to lessen your tax burden by spending money on expenses such as new computer equipment, office upgrades, web development, research, self-employment pension plan contributions… etc. All of those with the exception of the SEP contribution are things that need to be considered before the end of the year.   It doesn’t make sense to go out and spend a boatload of money in the middle of December simply to lessen your tax burden.   You will end up with lower quality things since you are essentially spending to spend.
My best piece of tax advice is to speak with a professional accountant. While an accountant may not know the ins and outs of your domain business, he should be able to understand the jist. Regardless of his experience with a domain-related business, your accountant can give you general business tax advice, including how to lessen your tax burden.
Again, I am not a tax expert, but I believe now is the time of year to have a conversation with your accountant to show him how you’ve done so far and see how you can run your business more efficiently.   As your business grows, you will want to meet with him more often, but at the very least, a once annual check-up is smart (aside from when he is doing your taxes). Also, now is a good time to teach him about your domain business, as he will have more time to learn now than in March or April.

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