It’s Time To End Pattern Domaining

There is one thing that current tough economic times for domainers has made abundantly clear – it’s time to end pattern domaining.  Although values for all domains have decreased recently, the values of pattern domains have been hit particularly hard.

What is pattern domaining?  It’s buying and selling domains simply on the basis that the domains fit a particular pattern.  The best examples are the buying and selling of “short” domains – like LLL.com, LLLL.com, and NNNNN.com.  But pattern domaining is not just about short domains.  It also includes buying domains because they are one word domains – despite the fact that the odds of an end user every choosing to brand themselves under that word are less than the odds of being struck by lightning.  It includes buying domains with an “i” prefix simply because iReport.com sold for a large sum, or buying thousands of domains prefixed with “Iam.”

Domainers are attracted to patterns the way that moths are attracted to light at night.  The lure of pattern domaining is clear – it looks like you get all the benefits of owning domains, without needing to be an expert at valuing the domains.  This expertise takes a lot of time and hard work to develop, so, unfortunately new domainers tend to be the most attracted to pattern domaining, and in the end, the ones who are hurt the worst.

Pattern domaining tends to follow…..  oh, let’s just say a pattern.  You’ll find an increasing number of forum posts that set out recent sales for domains that meet the pattern, the number of domains left of that pattern that aren’t registered, talk about increasing minimum reseller pricing, and so on.  The posts will be full of spin and hype, and made with the goal of drumming up interest in the pattern.  Sometimes even entire blogs are created to discuss a particular pattern.

Pattern domaining has a serious flaw – and that is the lack of enduser sales or traffic.  One characteristic of pattern domaining is that most sales are to other domainers rather than to end users.  Prices can’t continue to rise constantly unless endusers are buying domains.  There needs to be a significant number of enduser sales – not just the odd one that gets pumped up on the forums.  And the prices that endusers are willing to pay have to be high enough to justify the reseller prices.

This flaw is now being exposed.  The examples are numerous.  The reseller value of a low quality LLL.com has fallen by about 1/3 over the last 5 months;  the reseller value of high quality LLL.com has fallen by about 1/2 over the last 5 months.  The value of low quality LLLL.com has fallen a whopping 90% over the last 8 months.  LLL.in’s are trading at less than reg fee.  Sure, all domains have been struggling recently, but the decline in the value of pattern domains has been staggering.

Sustainable value does NOT come from the fact that a domain is rare.  It does NOT come from the fact that all of the available domains that fit a pattern are sold.  Sustainable value comes from the fact that there are a significant number of endusers out there willing to pay a premium for a particular domain name.  Sustainable value also comes from traffic.

Ultimately, each domain is unique and should be valued based on it own merits, rather than the fact that the domain fits a particular pattern.  If you approach buying domains this way, you’ll never get sucked in by the pattern domaining fads that regularly hit the domaining world.

LLL.com – $5,000 Barrier Broken

On Friday at 2.00 p.m. Eastern Time, the auction hammer dropped at Sedo on VXG.com – with a closing price of $4,988. 

While OLU.com previously sold at $5,002, a lot of people said that this was simply the fault of the time and venue.  However, for VXG.com, the venue was Sedo, which most active domainers regularly follow, and the time was 2 p.m. EST, which is convenient for bidders from the West Coast to the East Coast and all of Europe. 

Also, there is a psychological factor to crossing the $5,000 barrier – at the time of the OLU.com sale, a lot of people joked that they would be willing to buy any LLL.com for $5,000.  I’m not sure that they would be saying this now – certainly they’re not acting on it.

I have been advising the selling of LLL.com since June 7, 2008 and written several blog posts about it since then.

While there has been a decline in the value of most domains since June 7, the decine in LLL.com has been particularly steep – at decline of almost 35% in just 4 months.  To put that another way, if you’d cashed out at that time, you’d have about 1 1/2 times as much money as someone who didn’t.

My recommendation remains to continue to sell your LLL.com.  I think that the minimum wholesale price will continue to decline in upcoming months. 

Particularly for the lower quality three letter domains, the fundamentals simply don’t justify the high prices.  For $5,000 you can pick up a decent .com domain that is much more likely to result in a profitable end user sale than three random letters like VXG.com.  The lower end of the LLL.com market has essentially relied on domainer interest for profit, rather than end user sales.  As domainers are hit by the credit crunch and they tighten their belts, these domains are poised to fall in value much more quickly than solid generic dot coms with end user sale potential.