When you try to sell something, I think it's useful to understand what motivates buyers.

So... why would someone buy a domain name?  Is it fun? 

Well, a little fun, maybe, but the reasons appear to fall into three categories: immediate profit, branding (including vanity), or speculation.

Immediate Profit

One can make money from a good domain name without a lot of work by placing targeted advertising, sponsorsorships, etc. on your web page.  Because of folks like Google, simply by putting some good links on your page, you can make money when your visitors click on these links.  The amount you can make is a combination of the following:

How many people come your way? 

You can only make money based on the actions of people who are on your web page, so the important factors tend to be things like how many people type in searches which bring them to your web page.  Those searches could be directly entering your domain (typing table.com into the URL bar of their web browser) or brand name, or entering a search for which you rank well because of some content on or links to your site, or following links from other places. 

The collective unconscious of searching generates a certain set of search opportunities, and your domain's content, link acquisition, search engine optimization, and so forth will determine to some extent how many of these opportunities you can see.  One crucial relevant point: Google and other engines positively weigh the occurance of a search keyword in the URL, so if you want to rank well for tables, owning table.com could be very helpful. 

How expensive (or more accurately, how profitable) are the items you're selling?  How likely are the sellers to be able to sell what they're advertising to your audience (called the conversion rate)?  Together, this implies how much money someone might be willing to pay for a targeted "click."  If the item being sold is inexpensive, you need a very high quality audience.  If the item being sold is more costly (like, say, a yacht), someone may be willing to pay a lot per click even if the conversion rate is quite low.

Because of folks like Google, it's pretty easy to get into this business.  It's like owning a rental apartment, but with a much, much lower cost of entry.  You can buy a domain name for a few hundred dollars, and turn it into a recurring revenue stream. 

Branding

A second reason to want a domain name is to include it as part of a longer-term branding strategy.  In this case, the domain buyer is betting that over time they'll be able to make more money by having a recognizable brand/domain name which will increase their core business.  Unlike the advertising play, brand folks are interested only in domains relevant to their business.  This interest could have to do with a particular product launch (usually not a generic name) or as a place to showcase industry leadership (where a generic name could be very good).  Or the strategy could be purely defensive, to keep competitors from nibbling at their business by buying up good generic names.

Branding works for a lot of the same reasons we've already discussed.  People tend to type in the names of brands more than they would type in other similar phrases, which gives the owner the chance to monetize the traffic.  Though it may not be immediately obvious, in the long run this strategy is the same as the advertising strategy, because the brandholder will use the brand equity to sell a product, perhaps one or more items of its own manufacture.

The value of a brand is not as tangible as direct monetization, but the parties involved tend to be better funded than most individual domainers, and they have a lot more to gain or lose since they're in their business for the long term, and they can't easily diversify their portfolio of opportunities.

Vanity Domains

Of course, what you want brand may be yourself, and you may never intend to make money with your domain...  it may be just a clever joke among friends.  There is a market for such domain names, just like there is for vanity license plates.  For instance, I own such a domain based on my last name.  Since there isn't really a profit motive, my guess is that the prices for these tend to be relatively modest.

Speculation

If you think that a domain is mis-priced, you might be interested in buying it, holding it for awhile (perhaps making a little money while you own it via the advertising strategy), and then reselling it at a more auspicious time to a more appropriate market.  The proper price probably comes from one of the previous two strategies, since your buyer (or someone down the line, at least) will be a non-speculator with the need to make money from the domain.

The valuations imply that while table.com is not worth a huge amount to me, it is worth a lot of money to a certain special someone out there.  But, who is that right somebody?

One way to get some insight into the world's collective unconscious is to look at the results of Overture's Keyword Selector Tool.  While Yahoo gets considerably less traffic than Google, Yahoo does one thing which is very nice.  It provides a quantitative list of recent searches that include a specified term -- and best of all -- how often someone searched on that phrase!  So, in addition to knowing which searches are the most frequent, it tells you how many people did that search on Yahoo. 

With a bit of simple math, and knowledge of the the relative search engine market shares, you can tease out of this data how many searches like this probably happened elsewhere (including Google, Microsoft and Ask).  Assuming that people generally search for the same things on Yahoo as on Google (They don't, exactly, but it probably suffices for an approximation.), and and combining your numbers with how the search engine market is divided amongst the various engines, you can estimate the likely search numbers for each engine, and for the search market in total.

I typed table into the box, and reviewed the top 100 results.   The top 10 were table (110,988), periodic table (102,570), pool table (94,340), coffee table (49,307), contact myspace table (45,558), poker table (44,113), periodic table of elements (38,289), multiplication table (29,531), table lamp (29,314), and table saw (28,568).

There's a bit of a long tail.  The top 10 searches happened a lot... over 570,000 times, but the top 100 searches occured even more often -- nearly 1.5 million searches.  Entry #100 -- poker table top -- still was getting over 4,000 searches/month, according to Overture.  Assuming that Yahoo has about 20% of the search market these days (Google has ~60%), that implies that 20,000 searches are happening every month for #100 alone!

To better interpret the data, I tried to categorize each of the keyword phrases.  How did it break down?  Several of the top phrases (7 in the top 100) were references to the periodic table (probably not very monetizable), and there were almost as many to tax tables (maybe a little better).  But nearly 60 of the searches had to do with furniture and/or games, which sounds good.  Furniture is a sizable industry that deals with lots of consumers, where a branded URL might be valuable.

So, if I had to make a guess about who would find the most value in owning table.com, I would probably choose someone in the furniture industry.  Of course, it doesn't mean that these entities will turn out to be most interested, just that it seems like a good fit.  And, I haven't yet addressed the question of how one might go about reaching out to these potential buyers... 

One reasonable question is whether I should sell this domain myself, rather than having someone do it...

I bet I could do well at it.  I wouldn't have to pay any commissions. I could follow up on all of the leads I wanted.  I wouldn't have to trust that someone else was doing what I wanted.

On the other hand, there are skilled people who do this for a living, who already have many of the strategies and contacts necessary to succeed.  And most importantly, I really do already have the job of running a small business.  Between my job, family, this project, and other commitments, something would definitely suffer. 

If I did decide to sell the domain myself without using an auction, I would probably use a combination of strategies:

• broad reach by posting the domain on listing services & forums
• and lots of targeted calls and emails to people working in relevant positions in relevant industries (for instance: furniture, dining) asking whether they know anyone who might be interested in table.com.

Does it really matter where I list table.com, or am I wasting my time researching the different possibilities? 

If the marketplace were efficient, the "law of one price" should hold.  If the domain aftermarket functioned well, the same domain ought to sell for about the same price at every exchange.  If it didn't, the differences would quickly be arbitraged away by individuals buying those "underpriced" domains, and then reselling them at a more propitious venue or time.

Alex Tajirian's paper Price Inefficiencies in Domain Name Markets: An Empirical Investigation makes a strong argument that the domain market -- despite the growing popularity of the auctions -- is not efficient. 

That part wasn't really a surprise to me.  But what was surprising was this: One of the markets where the report didn't identify significant price differences across exchanges was actually in the highest-priced cluster.  I would have expected the premium domains market (domains which might sell for $50,000 or $100,000 or more), would have been even less liquid, because there are even fewer reasonable players.  Perhaps when the price gets high enough, it causes the market participants to behave differently in some way? 

In short, it probably does matter a good deal where you try to sell your domain, but your mileage may vary.

Maybe we shouldn't sell table.com at all.  There are several reasons to consider holding onto the domain, at least for now.

It's possible that Round Table Group might come up with some kind of separately brandable product or service which might make good use of table.com.  Holding on the the domain at least reserves the possibility of harnessing the domain in our business.

Also, the reach of the internet grows every day, so it's likely enough that the market for brandable .com domains is -- on average -- growing faster than the economy as a whole.  Doing nothing and letting our "bet" on table.com ride could well be a viable strategy. 

On the other hand, new business practices or technologies may come along which may make domains less valuable or obselete.  For instance, future "web browser" applications might reduce the use of or not include domains at all, reducing type-in traffic and brandability.  Search engines may remove or reduce the weight given including keywords in domains. 

And, of course, the domain doesn't actually fit with our current business, and investing in our business (which is also growing quickly), may be a better, as well as lower-risk investment.

The domain listing services didn't seem like the right venue for a premium domain.  We worried that potential buyers would have a hard time finding us, and we didn't really know what the right price to charge was!

For this reason, the auction model was appealing, but -- of the online auctions -- only Sedo's new "premium domains" auction had any real attraction for me.  The others didn't seem like the right venue for a high profile domain.  The offline domain auctions of Moniker and Domain Roundtable, despite being kind of a backward way to sell online property, were clearly higher profile events where some qualified buyers might congregate.

Moniker has a good grip on the premium domain aftermarket, accounting for close to half of the sales on DN Journal's 2007 list.  They are the big player in the industry.

On the other hand, Domain Roundtable has some fantastic ideas about how to make the industry even better.  I love adding the live component to the auction -- which would make it much easier for entities who aren't professional domainers, who might have a legitimate real-world use for a good domain to buy the domain of interest to them -- , and wish Moniker had something like this.  I liked their transparency, too.

But, there were just too many unknowns about Domain Roundtable's auction -- as a first time occurrance -- to pull the trigger.  I also took Domain Roundtable's suggestion that we submit what seemed like a lowish reserve (in comparison with Moniker, which didn't immediately flinch), as a sign of lack of confidence in their ability to pull in the big numbers.

We chose Moniker's auction.

Note: We didn't have time to fully investigate the domain broker model, which I think might have been a very good fit for us, because I think a person actively pursuing leads might have been able to find some very qualified buyers.  Unfortunately, I didn't know any domain brokers, and the time constraints made it difficult to find out enough to be truly comfortable.  If I had another week or two to make up my mind, this is where I would have spent my time.

There are many, many kinds of auctions.  At eBay, for instance, you can choose from several species.

English Auction is the normal auction at eBay, where everybody can bid as many times as they like over a specific period of time, and the highest bidder gets the item.  Historically, an English auction usually happened before a live audience with an auctioneer, but it can also work as a "silent auction" where bids are written on a sheet of paper, and the highest listed price wins (which is more like what eBay does, with the computer efficiently replacing a sheet of paper).

eBay also allows a form of "Dutch auction" (which others might call a "multi-unit English ascending auction") when several of the same item are being sold.  In this case, there are several winning bidders, and all pay the lowest price that was offered by one of the winning bidders.  A "traditional" Dutch auction is actually somewhat different: the auctioneer begins with a high asking price, which is lowered until a buyer steps forward, or a minimum price is reached.

These types of auctions can be mixed with other parameters.  When a seller doesn't want to sell for less than a particular price, a "reserve" is introduced, under which price you can't submit a bid.  eBay also offers a sort of "fixed price auction" (which I suppose isn't really an auction) via their "Buy it now!" button.  eBay allows the seller to specify a price at which the buyer can end the auction by agreeing to "buy it now." eBay also has a twist on this, called "best offer," where the potential buyer can contact the seller with her own offer.      

Some other kinds of auctions include:

• Sealed-bid first- and second-price auctions:  All bidders simultaneously submit bids so that no bidder knows the bid of any other participant.  In the first-price version, the highest bidder pays the price she submitted.  In the second-price (Vickrey) auction, the winning bidder pays the second-highest bid plus one bidding increment.  An example of this auction is the Google pay-per-click system.
• All-pay auction: In this exotic auction, which is often used to model lobbying or other competitions, all bidders must pay their bids regardless of whether they win.  The seller collects from everyone, and only the highest bidder wins the item.

For even more about auctions, including some interesting history, see this Wikipedia entry.

Domain auctions are typically of the "reserve" type, but how the auction is conducted varies.  Most domains are sold in online auctions.  A few physical world events offer domains in live or "silent" auctions, like those popularized by Moniker.

In my opinion, other than knowing how to bid if you're a potential buyer, the type of auction doesn't matter.  Mathematically, it tends to wash out in the end (for instance, people bid more if they know they won't pay the highest bid), unless people have access to unusual information.

The most important detail governing the success of auctions is the size of the market.  If you don't have a critical mass of bidders, the power of the auction starts to break down.  That's why there aren't millions of small online auctioneers instead of one eBay.  If you want to sell your life-size Ronald Reagan cardboard cutout, you need to find people who have the same (or more) interest.  A healthy auction community brings you together;  a too-small auction community doesn't. 

One acceptable proxy for very large volume is a large targeted volume, where the bidding audience is spiked with hand-picked, interested parties for each of the items.  In my opinion, it's the job of a high-end auctioneer to go out and bring those "qualified" bidders to the table.

One concern I had about all of the domain auctions -- which is still a relatively new market -- was "where are the premium domain buyers?"  Secondly, do non-professionals -- who might want to buy a particular brand for their real-world business -- know where to go to find these domains? 

Others seeem to share the same worries.  In his fascinating post "domain roundtable scorecard" reviewing the Domain RoundTable conference, Adam Strong at Domain Name News says:

"In his predictions, Jay [Westerdal, CEO of Roundtable organizer Name Intelligence] expected heavy bidding and higher prices as the names were ran up, but the reality wasn't like that prediction. Nearly 3/4 of the names he wrote about simply weren't sold. The total results at the auction were 167 out of 450 domains sold, meaning 37% were sold. As was the case with the other recent Moniker auction events, many of the domains at DRT sold right at the reserve prices. Sellers are being encouraged by Moniker andDRT to lower reserves in order to "get more bidders". Getting more bidders shouldn't come at the cost of the person selling the domain though, should it? That's the job of the auctioneer or event producers. The game plan to lower the reserves to stimulate activity certainly doesn't seem to be doing that. In many cases names are selling at their reserves with only 1 bidder."

Adam points out that Moniker's Traffic auction, which was probably the most successful large-scale domain auction (by revenue, and % of domains sold), only sold 54% of its inventory, so there's obviously still not a huge amount of liquidity out there.

Says peter_stargazer on the domaintools.com site:

"If i would go ahead and set the reserve to the minimum $1.000 in order to maximize the odds for making it into the auction as so often is recommended, i could in theory recive lots of bids and in the end selling it for more than $20k. But from personal experience with other high profile domain auctions. I have learned the hard way that as a seller, i MUST Assume that my domain will only receive one bid thus selling for the minimum reserve. And therefore i need to set a reserve price that wont make me cry. And if this means that no one will bid on my name... So be it. In the end a domain is only worth what someone is willing to pay for it. It's the eternal debate of setting the reserve to high or to low..."

I've gotten two requests from Moniker to lower the reserve for table.com, the first from my sales rep, and the second from Monte Cahn, their CEO.

It was fun to correspond with Monte, who's sort of domain space royalty (between his companies and the Domain Masters online radio talk show).  But this reserve lowering stuff is a disappointment -- I chose Moniker in part because I felt Domain RoundTable was pushing me towards too low a reserve. 

I'm beginning to  get the uncomfortable feeling -- from my experience and anecdotal evidence -- that everybody does this.  Reserve lowering may just be a consequence of the form of the domain market and how the major auctions do business. 

Domain sale information is asymmetric.  Above and beyond the possibility that the auction house may have better price expectations that the average seller, they certainly know more about the number and quality of potentially targeted buyer prospects who will be attending the auction than the seller does, which is not in their interest to share.  They know more about their negotiations with multiple sellers than the sellers know about them, so they are in a better position to negotiate their wishes into reality.

The auction house has several incentives to ask everyone to lower their reserves (regardless of whether the price is right), so that it can get credit for any "bidding wars" that occur, and so that it can market its auction to more paying attendees.  Secondly, a lower reserve minimizes the risk that the auction's domains won't sell.  That's a big risk for an auction that limits, but less so for a seller who is willing to wait for the right buyer.

On the other hand, domain exchanges probably do know more about the most likely sales prices than many domain sellers, who from first-hand experience I can say frequently have unrealistic or inaccurate expectations, so in some cases this is really a valuable service for all involved!  Since domains don't typically sell a bunch of times in quick succession, it's hard to say.

What do you think?