Why I’m giving up on domain drop-catching…

by Edwin on January 21, 2012

As of January 21, 2012, I’m no longer involved in domain drop-catching. I’ll admit to feeling a bit nostalgic, as that’s the end of a domain mining adventure that’s lasted over a decade, from the early days of flat-fee .com catches through to our current near-exclusive focus on the UK (.co.uk) namespace, with brief opportunistic forays into .co.nz, and .jp along the way.

While there’s definitely still mileage in the .co.uk drops for anyone willing to put in the not inconsiderable legwork, a number of factors (some general, some specific to our situation) have combined to make it “no longer worth the effort” in our case:

  • The average quality and quantity of drops are falling
    Once a commercially valuable domain drops and gets into the hands of a domain investor, it’s not likely to drop a second time. This means that every year the “pickings” get slimmer, since everyone’s left chasing a smaller pie. At the same time, people outside the “industry” are becoming more conscious of the potential market value of their digital assets, and they’re less and less likely to allow quality domains to simply expire.
  • The drops are getting more competitive
    More and more catchers are coming into the market, chasing fewer and fewer drops. This inevitably means that the “cream” of the crop ends up with one or other private catcher willing to play the long odds of the “drop lottery” and dedicate all their catching resources exclusively to snaring the occasional gold nugget, with everyone else chasing the solid second-tier names.
  • The “opportunity cost” of drop-catching is not just financial (though this is a very real factor – see below).
    Over the years, I’ve spent thousands of hours poring over drop lists and looking at millions of “candidate” domains – you know the drill! It may not be much on a daily basis, but finding and booking candidate names, tracking the results of daily drops, paying invoices and doing the accounting, processing transfers and loading catches into our sales system, while working with over a dozen different catchers (each with their own booking systems, billing cycles, etc.) means that the time and effort certainly add up. And it’s like being stuck on a treadmill, as anyone in the industry knows – there are no “off” days if you’re serious about catching domains!
  • I’m not getting any better at picking “winners”
    Looking back over the last year or so of sales data, our more recent drop catches continue to sell at about the same rate as the older names in our portfolio. Since we have around 10,000 domains (including 7,000 .co.uk generics) what that means in practice is that even if we acquired 1,000 additional names of a similar average quality, we’d likely only see a 10% uptick on current sales flow. That’s a lot of expensive heavy lifting for such a small increase!
  • Each successive drop catch makes less incremental improvement to our overall portfolio
    This goes hand in hand with the previous point. When we had 1,000 names then catching 100 new names was a big deal – that’s 10% more inventory. Now the same 100 domains (representing several months of catching at our current rate of success) would mean a 1% change.
  • We’re not likely to run out of inventory any time soon
    If anything, that’s an understatement. Our typical sell-through rate is about 1% a year, a little more in a “good” year. And while we’ve let some plum domains go over the years, on average what we’re retaining is probably “as good as” what we’re selling, since to end-users the business is a “black box” (they don’t care about our other 9,999 domains – they’re only after the 1 name that fits their line of business perfectly)
  • Frankly, there may be better (= “more effective”) things to do with the money
    Last year alone, we probably spent in excess of £30,000 on new drop catches. That would pay for stands at tradeshows such as Internet World, magazine advertising space, press releases and marketing materials, etc. which might result in a better uptick in sales than the incremental change produced from acquiring new inventory. If we could increase our sell-through rate to 1.5% of our portfolio a year, that’s a 50% improvement (i.e. the equivalent of conjuring up 5,000 new domains of comparable quality to our existing inventory, only without the ongoing renewal fees!)

So what’s next?

I plan to take a break and regroup for a bit, then we will be working towards automating our sales platform so that it will suggest “related” alternatives to the domain name currently being viewed, and also allow for the sale of “sets” of domains (for example a singular+plural pair, or a group of synonymous names) at a reduced price. A much-needed facelift for our sales page is also on the cards somewhere down the line, and in due course there’s the prospect of dabbling with auto-generated PDFs to prepare more sophisticated sales brochures.

Of course, it’s important to ensure that every domain “earns its keep” one way or another, either by pointing to a sales page or a suitably optimized parking page, so we will gradually review our whole portfolio looking for any that may have slipped through the monetisation cracks first time around.

With a “stable” inventory it’s also easier to sort and categorise the portfolio, and to look again at making use of alternate distribution channels such as Sedo and Afternic – this becomes a “fire and forget” exercise if there are no new domains to take into consideration.

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{ 11 comments… read them below or add one }

Jon Cook January 21, 2012 at 6:48 pm

As someone who has only recently started dabling in drop catching I can understand your frustrations about the time and quality of drops.

As you have such an extensive portfolio I definitely think the key focusing on increasing your sales rate as I think that’s where you’ll see the biggest bang for your buck.

The beauty / curse of drop catching is that there are no barriers to entry so there are an increasing number of people going after the top names. This does also mean though that you can jump back in at any time if you so wish.

One final thought is outsourcing your drop catching. If you’ve got a set routine that you follow when selecting names to catch then can you move this function to someone / somewhere where it would be more cost effective? Obviously if you often make selections based on “gut instinct” this can’t easily be tought to an outsourcer but if you base you catches on Exact matches and CPC then there maybe is a route for you to pursue?

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Edwin January 21, 2012 at 7:03 pm

Jon, thanks for your comments. We did discuss outsourcing, but that would still land us with the same hefty bills so for the time being we’re going to try spending the money in more effective ways. You’re right that it’s “easy” to go back in which is why we’ll be holding onto our custom drop lists very firmly indeed – just in case…

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Anthony Trollope January 21, 2012 at 8:41 pm

Interesting insights Edwin, thanks.

Rather seems consolidation is the term on everyone’s minds this year. You could certainly argue with a portfolio the size of yours that you could be doing more efficient things with your time than chasing further domains. Development of some of the most valuable ought to be where to start first or ramping up direct sales efforts..

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Mally January 21, 2012 at 8:50 pm

Hi Edwin, would you be looking to create a buying platform like noktadomains have done for their domains?

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Edwin January 21, 2012 at 8:54 pm

No plans to do so at the moment, need to work on our own sales first. But of course nothing’s ever fully off the table – if we manage to find a “formula” that works significantly better, there could be mileage in extending it to very carefully selected 3rd party names.

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Samer January 21, 2012 at 10:26 pm

Great post, I really enjoyed reading it. Hopefully you find something else to replace your time with. It will be challenging at the beginning to not look at drops.

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Stephen Reynolds January 22, 2012 at 12:13 am

Edwin

I think you have called this right. Acquiring the domains in the first place is the easy (but time consuming) part of the business. Marketing them to sell for their full potential or even developing some out requires a lot more thought and effort but the rewards are potentially much much higher.

Good luck. A lot of us will be watching your progress with interest.

Stephen.

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Gary Yeardley January 22, 2012 at 4:34 am

Hi Edwin. I think a wise decision. I also agree with Mr Reynolds above that focussing on developing out your best domains as I think there could be must greater returns and even outsourcing some of this so to make the best use of your time.

Gary

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Top Search January 23, 2012 at 11:31 pm

Eco Stephens post about *development* – I’ve found my time much better spent on 1 or 2 good names and working to better position them in the G ratrace.

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Mick February 1, 2012 at 5:35 am

Probably,
the next step is harder for Edwin, since uk.co is a much smaller market than .com

I’d say that’s 50 mil vs 1 B potential pair of eyes.

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Markus Jalmerot March 5, 2012 at 8:20 pm

I think you made a good call. Many drop catchers are probably thinking along the same lines.

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