In a very interest post on NameCake.com, the guest author, laid out some good arguments about the economy and how the domain industry will fair in it.
One of the points the author made, is one I have read before on many blogs and boards, that the recession/depression of 2009-2010, will create a similar opportunity for someone to come along like Frank Schilling did in 2002-2003 to create a domain empire during the .com bubble.
While I agree that fortunes will be lost and made in this harsh economic time, its disingenuous to tell people that they can duplicate what Frank was able to do.
So I’m going to tell you the simple truth.
You’re not going to do what Frank did and here’s why:
1. You’re not offshore.
The difference between being offshore legally, and being US based, is the difference between making a living and building an empire.
Let’s just do the numbers.
Rounded off.
Let say you generate $15 million in revenue and reinvest all of it in more domain purchases.
If your offshore, legally, you pay no tax and can invest your entire revenue in domains with no tax cost.
If you’re US based and make the same $15 million, reinvest it all and buy $15 million in domains, you’re going to owe Uncle Sam approximately $4.9 million.
So if you’re US based you would have to dig in your pocket to pay the $4.9 million, that you no longer have because you spent it.
You are taxed on money you no longer have.
Why?, because under US tax law, you can only amortize the cost of the domain purchases over 15 years or $1 million a year, in this example, you would have a taxable income of $14 Million, even though you spent all $14 million in cash to buy other domains.
Year after year your spending power will be a fraction of what an offshore companies would be, compounded.
The compounded loss of capital, when your “income”, without being able to deduct your cash outlays (domains) are taxed at 35% (soon to be over 40%), compared to zero tax, is going you to by less than 1/2 of what an offshore domainer can buy.
US tax law, puts you in a tremendous disadvantage against those in non-taxable jurisdictions and under the proposed US budget, your tax rate would be even higher.
Bottom line, if you’re US based you can’t complete with someone offshore.
Done deal.
It’s just not mathematically possible.
2. PPC income is way down from 2002-2003.
We all acknowledge that PPC revenues and payout are down 40%-50% from last year, but compared to revenue in 2002-2003, they are down several times over.
Bottom line, a domain that made $10,000 a year in 2002 will only make $2,500 on average in 2009. Less revenue, less funds available for buying additional domains.
3. Domains are expensive.
Back in 2002-2003 there was no such thing as a domain drop auctions.
Domains that expired were deleted and available on a first come, first served basis.
Many of the domains that were registered in those day were done so for cost.
There were a few drop services that ran scripts and would charge a premium for domains they registered, but there was not an all expired domains to domain auction environment that we have today. Many great domain were caught by registrants own scripts, registrar scripts that were run for cost and in general there was a much lower acquisition cost in 2002 than exists today.
When was the last time you got a domain for cost?
Today, every decent domain goes to a high profile domain auction where your going to pay hundreds and if not thousands or tens of thousands of dollars.
4. You don’t have the skills that Frank has.
I talked about this on Owen’s Show, domainsuccess.com, the other night. In all other professions and occupations we accept that some people are “born” with more skills or aptitude than others. In football, we probably will agree that Tom Brady or Peyton Manning have more natural skills than other Quarterbacks. What makes Tom Brady and Peyton Manning so good?
Talent, god given talent.
Likewise, certain domainers have the god given ability to find gems where others see dirt. This is a ability that cannot be taught or learned. Surely you can educate yourself and wind up being very successful in the domain industry, just like hundreds of quarterbacks who have played the position and earned a very good living. However none of them are Tom Brady or Peyton Manning.
There are few people with the god given talent for domaining that Frank has.
There will be great buys and opportunity in the next 18 months.
There will be winners and losers.
There will be an opportunity to acquire quality domains at a fraction of the price you would have paid a couple of years ago.
But you’re not going to do what Frank did.
Thanks for this post, Mike. I felt the same way when I read that namecake post.
I agree with all of your points and would like to emphasize the following:
1) the auction prices I see right now on Snap, Namejet and Godaddy are comparable to or higher than what I saw last year at this time. I don’t believe the depression has hit domains, at least like any other industry, yet. And there’s a chance that it won’t as domains seem to be treated like gold investmentwise.
2) You are absolutely right about Frank being different. You call it talent. I call it genius. In an industry full of geniuses that would include you, Kevin Ham, Rick Schwartz and a handful of others, Frank still stands out. Just reading his blog posts from the past, you can tell this guy is no ordinary genius. Unfortunately, I’ve never met him and spoken to him in person so that’s all I can go by…
I agree you can’t be a Frank, but you can be YOU!
and you can be better than Frank!
Tony
As someone who has had the honor of not only meeting Frank but hanging out with him on several occasions all I can tell you is if you met the man and talked to him, you would be even more impressed.
Jason
I didn’t say you could be or couldn’t be Frank, what I said is you cannot accomplish what he did, the way he did.
While reproducing Mr. Shilling’s success would be almost impossible to reproduce with .com’s ; there is a major opportunity evolving with cctld’s. People searching the internet in their native languages will get results in those languages and extensions. .com will be included in those results but more and more country specific results are being returned, in the native language and text, which might not be English. It appears that some extensions are generating some great returns for domains in native languages. ie. .de, .cn. es. etc..
imo.
Cheers,
Steve
some great revenues are being developed dealing directly with endusers, leasing, renting out premium generic keyword domains. all countries.
Steve
I agree there is a lot of opportunity in the cctld space.
However to be really successful at that, I think you need to have an understanding of the language and culture of the country code your dealing in.
Just registering englsih words and phrases, in a .de extension for example is not going to get your there.
Mike,
Your right, English words in Germany or Spain or Romania might not work too well but the words in their native languages and extensions are gaining some traction. The English word and country extension option works well in Canada for .ca. While I don’t own CandyBar.com a Canadian retailer may see some value in CandyBar.ca . Native languages specific to each country is the key I think. Watching sedo and the German words flying off the auction shelf, amazing. You must know what they mean and if people actually use those words in that country. Still if you do your homework it looks like there might be decent opportunities. China i think has over 300 million people online and most don’t speak English. They are typing search queries in Chinese and getting Chinese results. 🙂
Cheers,
Steve,
thanks again for the great forum.
A great tool for checking different domains and results for those domains is at
http://www.idn.bz
as well use google translation and babelfish at yahoo to compare all of the results before you decide.
Best,
Steve.
I agree…there is only one real Frank in this .com world!
You can easily tell he is a genius by reading his sevenmile.com blog
Try reading other domain blogs…you will easily see the difference! Don’t get me wrong, there are some interesting domain blogs out there…but can not be compared with Frank Schilling — the domain master!
Nice post Mike. I’d just like to clear up that I don’t actually agree with everything seabass said in the post on my site. I do however pay great attention to what he says as his advice on namepros has really helped me find my feet in this industry. As you say though, the chances of replicating Franks success is practically nil, but as you also state there are opportunities to acquire quality names for a deep discount from their highs. I myself am looking for names i can now develop into websites – that people will want to visit and gradually move away from pure domaining, which due to the decline in parking revenues could be out in the wilderness for some time.
Thanks for reading the site though (I didn’t know the big boys were looking in on me.) 😉
James
I don’t agree with everything either but I do agree with most of it.
A well thought out post and a great read.
I also agree with your strategy for acquisition and development.
and yes the big boys are watching
I was told by a lawyer that if a US citizen wants to give up his citizenship and move offshore to escape the tax burden here, that the government will still consider that he owes taxes for six more years. If that’s true I think it’s outrageous, considering that the country was founded, in large part, by people seeking relief from high taxes.
Jon
I believe it is 5 years and they treat all your assets as being sold on the day your renounce your citizenship and send you a bill for the taxes owed on the deemed sale.
This country long ago, turned away from its founding principals and is getting further away from them every day.
I can work anytime, and anywhere in the world!!!
Location does not matter, it is your attitude that counts.
Great write up.
One of the best from all of the recent posts.
What Frank Schilling, Kevin Ham and Yun Ye did was acquire approximately to 1,000,000 of the best domain names in a relatively short time frame.
While everybody knew domains were good investments… Those three guys were the most aggressive ones and pulled the trigger.
1,000,000 of the best domains worth over a billion dollars.
Great stories. Big time visionaries and hard working people.
Classic rags to riches stories.
All the best,
Mike
Yeah Frank is quite charismatic in person, I call him “Jesus of domains”
Another reason why you can not replicate that: those top-10 big domainers will not let domains drop nor sell cheaply.
I agree that Frank is the man when it comes to domaining and that the short one word domains are probably long gone in just about any TLD.
However, I think that there are still huge opportunities in keyword rich domains that are buyer oriented. I own hundreds of such domains and they make money everyday from Adsense, eBay, and affiliate programs.
It may be a little harder now, but one can still build an empire.
For what it is worth, I am planning an exodus out of the U.S. as well and I agree that the country has fallen far from its original founding ideals.
Gregg
Next wave now is ccTLD domains. If you are able to do the work, you get the results. In an easier way if you have some money to spend and can buy domains from third part owners. I have made a few millions last years only with .com.br ccTLD in Brazil.
Guys in USA and Europe seem to be ccTLD blinds, this is not good attitude… you lose money, lots of it.
I see guys paying hundreds thousands of dollars for second class two word domains with low traffic just becouse this is a .com while we have in ccTLDs premmium domain names with lots of traffic for just a fraction of the price.
Some say: its not my language… well, buy yourself a translation program or use google tools.
Some say: many ccTLDs pay less money becouse are in countries like Brazil, China and etc… that’s true… but in my experience I know that it’s fine get only 4 cents per click average while other countries are getting 8 cents becouse domains here use to have lots of traffic… If I own let’s say Real Estate in portuguese (and I do own) .com.br domain name it will get a lot more traffic than if I own the same name in english .co.uk domain… in the end will probably make more money.
Regards,
Gustavo Volcan
Brazil
Gregg
First of all, as someone who types in many two and three letter domains, into whois to see if it is available, I’ll tell you a lot of those are owned by Frank as well.
No one is saying that there are not good or even great domains available, nor did I say that you could not make money in domaining even if you just started today.
Actually I said the opposite.
What I did say is your not going to build up a portfolio of hundreds of thousands of great and good generic, generating tens of millions a year in revenue.
Also Gregg, you moving offshore is not the same as Frank moving offshore.
As a US citizen your taxed on your worldwide income regardless of where you live and regardless of where your moneys earned.
This is why I noted Frank was able to move offshore, legally and clean.
You are in a different situation
Gustavo
I don’t disagree with you.
You can see my response to a similar post in comment 6.
However, In my opinion the use of a simple translation program is only going to be of limited use.
Again I believe if your US based, speak only english and are not well travelled, its going to be tough to accomplish what you have in the cctld space.
I see your live in Brazil.
A translation program cannot give you an understanding into the culture, trends use of language, knowledge of how people live their life, conduct their business, or what they purchase .
If you understand another culture and its language than you can make a lot of money in that space.
If you relaying on Google to translate not only English words but US culture into another culture your going to get it wrong a lot more than your going to get it right
MHB,
You’re right, I agree with you, living in Brazil, speaking the language and all else allowed me to work better and see what would be difficult for not natives see. But I think it’s not impossible task making good money in other ccTLDs using the rigth tools. Will take a lot more of work, but not impossible.
Many answers for what you have stated above you can find in this site below, its pretty good. 3k a day only with ccTLDS from all over the world hand registered.
http://www.3000adaydomainer.com/
Regards,
Gustavo
Gustavo
I saw this video a few weeks ago.
I do think there is tremendous opportunities in the space.
MHB
I actually have a plan in place to get around the whole citizenship issue. 😉
Gregg
If you want to bounce it off of me, feel free to take it off line and e-mail
Did you see the new Nike ad for domainers?
Be Like Frank.
I think doing what Frank did can be done……just differently. Maybe some us are three times smarter than Frank. 🙂 Remember he came to the game late also.
I admit….he is a smart guy though. You can see it in his posts.
It would take a lot of time/money/brains.
.
Johnny
Coming to the game late is one thing, but the game has changed.
http://domainnamewire.com/2009/03/11/domain-name-industry-acquisition-watch/
It looks like Fabulous is the latest casualty. Spot on prediction by Sea Bass. 🙂
Johnny
We made the same prediction regarding parking companies in our 2009 predictions:
http://www.thedomains.com/2008/12/28/our-predictions-for-2009/
However as I commented back on Andrew’s blog, Fabulous or parts thereof, have been available, for the right offer for sometime.