How will shrinking demand for domains impact aftermarket?
Demand for domains is off to a slower start this year.
Earlier today, I published the latest .com rankings, which evaluated top registrars’ performances in January of this year for .com domains. The numbers tell us something we already knew: demand for new .com domains is tempering.
Last week, Verisign (NASDAQ: VRSN) lowered guidance for how much the base of .com and .net domains will grow this year. It was a rare admission for Verisign, which has a habit of setting low goals and comfortably meeting them. It has levers it can pull, including discounts, to make sure it meets its numbers.
But the comedown from the pandemic surge is unavoidable. People registered more domains than ever during the pandemic as they moved business online. Now we’re entering the aftermath.
We knew a reversion to the mean was going to happen. Tucows has noted this in its earnings reports. Last August, GoDaddy tempered expectations for the second half of 2021. It ended up having a great Q4 but warned that 2022 growth would be slower.
Two factors are at play here. First, the comparables from pandemic years will be hard to beat as things normalize. Second, some demand for domains was brought forward by the pandemic. Once a small business gets online, it usually doesn’t need another domain.
So what does this mean for the domain aftermarket? I think it will be bifurcated.
On the lower end, we should expect some softening of sales. We’re not talking about huge differences here; January’s .com registrations were only down 6%. (I’m using .com as a proxy; while different TLDs grow differently, the overall market was likely sluggish in Q1.)
The higher end depends a lot on the state of venture funding. As long as the money continues to flow and the economy stays relatively healthy, expect valuations for one word domains to remain high.
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