The financial industry is all about pinstripe suits, excessive Excel sheets and boring data. Or is it? Financial markets are more colorful than their reputation: take a look at Bloomberg's or Reuters' sites, and you'll see that pork belly is as much an object of investment speculation as coffee, electricity, bananas, hides, or fishmeal. Recently, the universe of data available to financial analysts and investment bankers grew further, with the addition of the Internet Domain Name Index (IDNX) to leading financial data distributors Bloomberg (ticker symbol: IDNX <Index>) and Reuters (ticker symbol: .IDNX).
So what does IDNX tell us?
IDNX is to domain markets what the NASDAQ is to stock markets or the Case-Shiller index to housing wealth: an aggregate indicator of price changes for the market as a whole. IDNX is the first price index for Internet domain names that is based entirely on data from actual domain sales, meaning that subjective evaluation or opinion is not a factor at all. Under the hood, IDNX employs an estimation technique borrowed from Real Estate finance research that has been refined by researchers from the Massachusetts Institute of Technology (MIT).
How do we use IDNX?
Price trends for domain names can be used for trading strategies, personal investment optimization, or insights into the Internet economy in general. Overall, the market for domain names fluctuates in a very similar way to the IT industry, but the correlation between the two is not exact. While IT index heavyweights like the NASDAQ 100 cover the stock performance of the largest IT companies, IDNX has a broader scope. In fact, because IDNX is not based on stock prices but on real trades done by large blue-chip companies, small online marketers, start-ups, and private investors alike, it is a comprehensive fever curve for the well-being of the broader Internet economy.
With IDNX data being distributed through the industry standard data platforms, traders can easily embed this information into trading strategies and investment decision making. In the same way that demand for electricity is linked to economic activity in general, the demand for domains gives insight into the dynamics of Internet-based business across the US and around the world. The virtual economy has made its way onto Wall Street.
Finally, if you're a domain owner, your core source of income is revenue generated from online advertisements. As prices paid for domains represent the discounted future cash flows from owning a domain (assuming textbook-like behavior for buyers and sellers), changes in IDNX can be read as changes in domain owners' expectations as to how much they will earn from online ads. Media executives: why not access your Reuters or Bloomberg terminal, subscribe to IDNX, and know where the future markets are heading?
How does IDNX help investors, domainers, or academics?
IDNX also helps domain investors track their wealth. Almost every company or organization owns at least one primary domain. So do many individuals. A substantial number of them have also been compelled to purchase the name they want from other investors for amounts sometimes reaching 6-digit dollar amounts. With an overall market benchmark like IDNX, it is now easier to appreciate how these intangible assets affect your balance sheet, and to know when to adjust their value according to the general benchmark. Your accountant will ask fewer questions if you can justify a 10% increase on the asset side with data from Bloomberg or Reuters. And for the few dozen investors who own more than 20,000 domains (sometimes up to several hundreds of thousands), a market-wide benchmark is the best indicator of changes in their wealth.
For academic researchers, having domain market data well integrated with thousands of other data sources makes comparisons and deeper analysis convenient and efficient, and on this front, I am curious to see what kind of studies will evolve using IDNX.
How do I start investing?
As of now, it is not possible to invest into the index as such, as there are no investment tools developed that tie into returns linked to changes in the index. However, IDNX can still be used as a tool in itself for financial professionals and domain traders alike. For more information on how IDNX is estimated, please read this research paper. To explore the dynamics of domain prices right now, go to sedo.com/idnx.
By Thies Lindenthal, Product Manager for Domain Pricing, Sedo.com
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Minds + Machines