Why New gTLDs Mean Big Money For Investors, Even If They Fail

Printing Money

If you’ve been visiting Domaining.com this month than you know that 90% of the posts are about new gTLDs, many covering the same topic another blog covered for the fifth time. The other 5% of posts have been about NameJet auctions since they now have an affiliate program and everyone is trying to make an extra buck. Frankly speaking it’s been a bit boring for me, and not because I’m not interested in new gTLDs or the impact they will have on the industry but because I miss a lot of the great stories and unique content from the blogs I frequently read.

Now this is not meant to be an attack on bloggers, blog about what you want, but if you see that one or two, or three people have already covered the same topic, why not add something new and different to the mix? Just saying 🙂

Okay, now for the topic at hand – Printing Money. Tomorrow is the “Big Reveal” and already major players like Donuts, Inc., Frank Schilling, Juan Calle and many more have decided to throw their hat in the ring for the new gTLD Bonanza. While many Domainers, including myself, believe that very few of these gTLDs will take off, it’s important to realize that all of these guys will be printing money and making far more money than any speculator that tries to jump in and follow the old Domain Investing approach of buying up premium domains in a TLD.

Those days are gone and if you want to make money buying and selling domains now it’s about .COM and .COM only. However, if you want to make money with new gTLDs there is a way, and in fact, it’s a way to make good money, but it’s not at all about using the techniques investors have used for years. No, to make money with new gTLDs you need to be a registry or one of the major players that is actually bidding on gTLDs to run themselves.

While Domainers might see TLDs like .BIZ, .INFO, .WS, etc. as failures, the folks who run those TLDs are actually enjoying running very lucrative businesses. In fact many of these are shining examples of why companies like Donuts, Inc. are making such a big play. You see, to have a new TLD become a successful business does not require nearly as many registrations as you might think. Let’s go a bit deeper here to understand the business model.

So with applications, filing fees, etc. let’s do a high estimate of $350,000 to get the TLD. Then let’s look at the cost to run a TLD, this is around $150K/year and in some cases doesn’t even need a full-time employee, or can have one person managing multiple TLDs. Now let’s suppose you make $50 for every single domain name that you sell. Now let’s even go a step further and say your TLD is a complete failure as far as most Domainers would be concerned and you only get 10,000 registrations in your first year. That sounds like an abysmal failure right? Well let’s do the math.

If you get 10,000 registrations your first year then you make $500,000 which means you break even, paying back your initiate investment and covering the costs to operate the company. Now next year rolls around and maybe things are really going poorly and now you only get another 2,000 registrations in the entire year. Complete failure right? As a TLD sure, but as a business, you’re officially kicking ass and taking names. Let’s do the math here for year two:

Now you have 12,000 registrations which means you’re making $600,000, less the $150,000 to run the business and you have a profit in year two of $450,000. Remember, this is in the case of complete failure, if things going even moderately well then you’re really bringing in the big bucks.

This is how companies like Donuts, Inc. were able to raise $100 million to get over 300 gTLDs and why Frank put $60 million of his own money into this space. Even in the case of extreme failure as a TLD, as a business there is a lot of upside and tons of passive income even if you never hit a critical mass.

Remember .BIZ? That failed didn’t it? Maybe in the eyes of Domainers but as a business Neustar is making a fortune. The same is true with TLDs like .INFO and .WS, while many Domainers avoided these like the plague and with good reason, as a business they are printing money.

So with the new gTLDs I think it is really important to understand what side of the equation you need to be on to make money. If you’re running a gTLD or a registry, life is about to get a whole lot better. As a Domain Investor there probably aren’t many opportunities and in fact, there’s a greater chance that you could lose a lot of money speculating on random TLDs. The thing to remember is that the people buying and running these TLDs are looking at a business model that is not dependent on mainstream adoption or success, they just need a small number of people (or relatively small) to use the TLD and renew their domains each year.

This of course doesn’t mean Domain Investing goes out the window, .COMs will continue to be the gold standard and will be great for buying and selling. For development, there will be more TLDs to develop in which means more options. However, if you’re looking to make money like some investors have in the past by getting in early on a new TLD, I recommend you stay far far away. It’s not that there’s no money in the new gTLDs for investors, it just depends on what side of the equation you find yourself.

(Photo Credit)

Morgan Linton

Morgan Linton