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Our reaction to the lisitng of the IDNX on Reuters and Bloomberg

Recently the IDNX, a index for  domain names, promoted and sponsored by Sedo has been listed on Reuters and Bloomberg.  Domainindex is publishing indices for the domain world since 2009 and I would like to share some of our concerns connected to this development.
Its great to see the domain industry to grow into the financial sector, something we are working on for many years now and we honestly congratulate IDNX to be included in Reuters and Bloomberg this is a big achievement.

However I want to share some of my concerns connected with this step I must say that from an investors perspective I am afraid the promotion of the IDNX might cause more harm then good.

There is in fact nothing wrong with the methodology of the IDNX itself, the problem is created by the set of data used for the calculation: Sedo´s sales data from 2006 to today. So the first and obvious argument against this is that the IDNX only looks at a very specific marketplace, it would be a little like creating an index for antiques by only looking at antiques sold on eBay.

Sedo has created a great marketplace, the best and biggest in the world for domains, however there are certain domains that are simply rarely or never traded via sedo, with a commission between 15 and 20%, an escrow fee 3x higher than escrow.com it attracts a very particular crowd that will purchase domains. It fits the names in the range of 100 to 10.000 usd and usually again to domainers or webmasters and rarely to "high end" endusers in this price range.

I have talked to many domainers last week and almost nobody has bought or sold any domain in a range over 20K ever on Sedo, but traded many below 10K on Sedo´s marketplace. So what happens is that domains are simply growing out of the Sedo market once they reach a certain value. Yes from time to time Sedo will broker a huge domain like sex.com, but most big deals are made without any of the marketplaces or brokers, most endusers will simply contact owners via the whois and so will most domainers and webmaster and lawyers acting on behalf of big buyers.

So Why does it matter ?

1) Over the longterm, the IDNX would suggest only a very little growth in value for domain names, for .com´s 20%, .net 20%,.mobi 15%, es 20%, so from an investors perspective domains would therefore represent a horrible Investment because this means only about 2% revenue/year but in fact what we look at is that Sedo has managed to keep their average sales price increase at inflation level.

2) What do we see in the IDNX ? We see what we see all over, if the economy is doing well and the consensus is bullish, people buy more, when the sentiment is bearish people buy less (in this case domains) and pay less for them on this particular market. This is the worst case for domains as an investment, because the main thing every professional investor will look at if it comes to alternative investments is the correlation to the market. If an alternative investment is correlated there is usually no point to invest in it because you are inheriting additional risk and reduced liquidity and if you can achieve the same goal by buying an established financial instrument you will simply buy an index.

These 2 issues will make it harder to promote domains as investment in the future because it will be benchmarked against the IDNX within the Reuters and Bloomberg systems (and all other systems using the data) from now on.
Comment
Marcus Hofer 4 years ago
Hi Mike,

thanks for your view.
Me personally, I believe that the challenge of convincing investors is not the permanent growth of a certain domain portfolio, except you differentiate between project domains and trade domains.

Project Domains will mainly not grow its value by its name, but by the profit of the project. The profit may increase, therefore the value. This may happen in a quite constant way and period.

Trade Domains just have two prices, a purchase price and finally a real sell price, anything between is maybe an internal value, which could be used for value estimation and performance charts of a certain domain fund.

We need to convince investors, that a domain portfolio only may 5 - 20 % annually,
but,
a single domain name may gain 10.000 % if you made your 101 right;
Buy low and sell high. This should be the best reason to invest in domains when the whole economy goes bearish.
In fact this would diverse the risk of investors.

Just compare it with art and we all know where we are. Compare it with the art prices index, which was smacked down in 2009,
but these days we read about an auction of Edvard Munchs \"The Scream\" for estimated 80 MIO $, an expected sales record.

Joint Venture Investors, what we actually need for trade domains, dont follow an index, they follow chances
and that s what we offer almost unlimited !

We see the highest possible sales prices only when marketing the domains directly to proper final customers !
Go find ´em !!! :)

Marcus Hofer CEO, DomainInvest.AT
Thies 4 years ago
Thanks for sharing your concerns and thoughts. I have posted a longer reply at my blog at http://www.lindenthal.eu/2012/05/04/does-idnx-spoil-the-sales-pitch-to-investors-a-response/

Best, Thies (of IDNX)
TL 4 years ago
response to your comment:

http://www.lindenthal.eu/2012/05/04/does-idnx-spoil-the-sales-pitch-to-investors-a-response/
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