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Where Has the Domain Name Growth Gone?

Jay Daley

It is pretty common knowledge now that domain name growth started to drop around two years ago and is falling still. At this rate there is every chance that TLDs that have only ever seen growth will start to see a decline sometime in the next few years. What follows is a theory on where that growth has gone.

It is widely stated that the greater choice provided by hundreds of new gTLDs means that demand is dissipating across them and that's where the growth has gone. But the 6.5+ million registrations in new gTLDs are nowhere near enough to account for the reduction in growth across established TLDs. So where has the growth gone?

The theory I'm going to put forward is that it's actually the impact on speculative behaviour that is the primary reason for the decline in growth.

'speculative' is used here in a broad sense to cover the following two overlapping behaviours:

  • Early purchase of a domain name that the registrant is thinking of using in the future; and
  • Purchasing a domain name that the registrant believes has value greater than the purchase price that they can unlock at a later date.

This speculative behaviour originally emerged because of the perceived scarcity of domain names. In other words, it was the perceptions of meaningfulness of domain names by potential registrants that created the scarcity rather than any technical limitation.

For those that were thinking of using a domain name, it became important for them to purchase it when they had the idea of how they might use it, long before they were ready to execute, because failure to do so would often mean losing the domain name.

For those looking to arbitrage on prices, speculating on domain names was a good bet. There are many examples of domains being resold for hundreds of thousands of dollars and sometimes up into the millions.

It is commonly believed that domain name speculators are a small group of people who purchase domain names in bulk and so can easily be spotted by a registry through examining portfolios. However as every registry who has looked at this knows, there is no clear boundary in portfolio sizes. In fact the actual distribution is a smooth logarithmic curve.

Complementing that, there is strong anecdotal evidence that many people have purchased one or two domains speculatively without considering it a portfolio or even much of a speculation, given the low price of domains. This means that domain name speculation is not limited to any size of portfolio and any domain name could potentially be a speculative purchase.

The impact of new gTLDs has been to solve the 'meaningfulness problem' by the creation of hundreds of new gTLDs and this in turn directly affects the perception of scarcity. This reduction in scarcity is in turn reducing the incentive to speculate.

It is my assertion that this speculative behaviour has been a significant factor in historical growth and so domain name growth prospects are partly dependent on what happens to that behaviour. At the macro level, global speculative behaviour in domain names will reduce and the money will switch to a different scarce asset, permanently leaving our industry.

For those people for whom speculation means bringing forward their purchase to avoid later scarcity, we can see a number of things happening at once:

  • There is less need to purchase early, as there may actually be more choice in the future than there is currently as more new gTLDs are introduced.
  • People will probably be less likely to purchase on a half-formed idea, preferring to wait until close to execution because they are less worried about missing out. As few ideas ever get to the execution stage, this is likely to mean an overall reduction in new purchases.
  • Those that have already brought forward their purchases may, when faced with the renewal cost, decide to let the domain name go as they have greater confidence that they can get a suitable domain name if and when they need one.
  • The purchasing decision, when it comes, will now be based as much on the brand of the TLD as the availability of a specific string to the left of the dot.

This suggests that this source of growth will drop off quickly and may even lead to a reduction in the register as fewer domains are renewed.

For those for whom speculation means buying a cheap asset, hoping to sell/exploit it later for a higher price there are also a number of things happening at once.

  • There will be fewer buyers in future, as those buyers will have a wider range of TLDs to choose from. This makes selling harder.
  • They will try harder to talk up their existing portfolios and the brand of the TLDs they have invested in, in order to protect their assets.
  • Further investment decisions become more complicated as the competition is now between existing brands, new brands and investing outside of the industry.

This suggests slowing growth but also increasing market support aimed at protecting existing portfolios.

The conclusion from this is that this growth has gone as the speculative money has left the industry and now that the market has permanently changed, it is not coming back.

By Jay Daley, Chief Executive of the .nz registry

Related topics: Domain Names, Top-Level Domains

 
   

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Comments

Besides selling, lots of speculative domain usage Rubens Kuhl  –  Jul 16, 2015 11:23 AM PDT

Besides selling, lots of speculative domain usage involve getting Web traffic and monetizing it. It's not a coincidence that one of the large events in this field was called T.R.A.F.F.I.C, and after starting in 2004 in ended in 2014.

Search engine algorithm changes might have a stronger correlation to the decrease of registrations than any other change in the domain industry itself.

Supply and Demand Economics Jeff Ostrovsky  –  Jul 17, 2015 6:00 AM PDT

The author's logic is terribly flawed.

The reason domain sales have slowed down during the last two years is not because of a lack of interest but because of the new gtlds that were introduced in 2014.  With the introduction of a practically endless supply of new extensions, the market was flooded and a chilling effect was felt by the industry.

Supply and Demand Economics 101.

Now that it has become apparent that the new gtlds are being shunned by an uneducated and apathetic public, however, it seems that the new gtlds will soon wither up and die.  Add the fact that people accidentally type in .com all the time which will disrupt and financially undermine any company that foolishly attempts to utilize a quirky .whatever.  Finally, combine that with the fact that every single member of the Fortune 500 (yep, without exception!) now uses a .com.  Considering that these same Fortune 500 firms account for approximately 95% of our daily advertising intake, the .com extension has become permanently embedded in people's collective minds.

The idea of adding an unlimited supply of extensions was certainly worth trying.  It had a tiny bit of potential even though the attempt has seemingly ended in failure earlier with .mobi, .aero, .coop, .travel, .tel, .name, .pro, .xxx, .jobs, .asia, .cat and .museum. 

I predict that you will soon see digital real estate (ie, .com domains) continue to quickly rise in value as the laws of Supply and Demand Economics remain in force and the gtlds all prove to be worthless duds.

So speaks a .com portfolio holder Jay Daley  –  Jul 17, 2015 1:37 PM PDT

As I said Jeff, there will be "increasing market support aimed at protecting existing portfolios" - a point I think you've just proven.

Hi Jay,Good points. Here's an anecdote for Christopher Hofman Laursen  –  Jul 18, 2015 12:20 AM PDT

Hi Jay,

Good points. Here's an anecdote for you. Just the other day one of our clients, global consumer brand, wanted us to inquire on a LLL.com. However a couple of hours later they contacted me again: "dom't bother. We'll register LLL.social". It would have been unheard of some years ago

Get A Clue! Jeff Ostrovsky  –  Jul 19, 2015 10:30 AM PDT

LOL.Social?  Thanks for the laugh!  When the gtld "genius" later comes crawling back to buy the .com (after losing tons of costly traffic), he will then discover that the price is now considerably higher. The new gtlds are a deadend and anyone who tries to use one will discover that the hard way.

While I can't look into the future Christopher Hofman Laursen  –  Jul 20, 2015 12:27 AM PDT

While I can't look into the future - and you definitely can't either - there is no doubt that the mental model is changing among businesses. Will they go back to .com at one point? Good question, but imo there are just too many signs pointing in the other direction.

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