Are you piling into .CO domains? Good luck with that.

By , July 22, 2010

The big buzz throughout the domainer circles this week is the launch of the .CO domain and domainers are busy talking up a storm about, not to mention everybody is piling into it. Some specialty .co aftermarket channels like have already emerged, and of course, there are a few blockbuster aftermarket sales announced already.

Most of the commentary about .CO I’ve seen looks at as a great new opportunity for domainers, Rick Schwartz, in his customary boisterous style, all but calls anybody who can’t make big bucks on this new terrain a loser.

I think all these bozos are about to be schooled. Yesterday EVERY domainer had the EXACT [same?]  opportunity to speculate and win or lose. All the big mouths will have their jaws dropping soon as they watch folks manufacture money from thin air. This proves they have no talent and just whine. Losers in every sense of the word. While others are enjoying success and creating even more, they will still be saying the same crap or sitting on the sidelines spewing hate instead of jumping in and do what a true domainer does and have the balls to speculate. If they can’t make it in domains which is a gift from the heavens, they will make it in nothing.”

There’s a couple points above I’d like to address that I may leave for a separate post.

The important thing is a little maxim I developed for myself over the years, which I suppose is nothing new to any value investor or contrarian. But it’s just an observation that has worked for me:

Whenever you find yourself standing in a very crowded line-up, you need to ask yourself if you’re on the right side of the transaction.

Daytraders sum it up nicely by calling something a “crowded trade”. When I see a big long line-up, I ask myself “How do I get to be on the other side of that line-up?”

In the case of the .CO rollout, it’s easy. As a domain registrar I already am. When everybody else is panning for gold, the guys selling picks and shovels do well. (Having said this, I am probably one of the few, if not only registrars, who actually dissuades my customer base from piling into new TLDs, because for the most part I think they are overhyped cash-grabs.)

There are some essential key differences about .CO which any serious investor should look at before committing any capital into this space.

  1. The landrush pre-orders were handled differently than in the past. When .biz and .info rolled out, landrush pre-orders were awarded in a random/round-robin fashion. That basically made it a literal lottery, and made it possible for domainers to essentially grab monster keywords at the price of registration. Not so under .CO, where landrush pre-orders with multiple claims automatically go to an auction process. That will push the cost basis on many of the desirable names higher, reducing upside drastically.
  2. .CO domains have much higher base costs from the registry. The landrush pre-orders cost over $200 and the real time registrations have a wholesale base cost over 3X that of .com. So right there, if one is amassing a large portfolio of .CO’s, it will take more money to sustain the renewals. In this day of drastically impaired PPC revenues, this will be difficult.
  3. The “type-in” action on .CO will be disappointing. This much is guaranteed. Half the lift on keyword type-in on .COM is via web browsers automatically appending “.COM” and from things like the “.COM” button on iphones. There is not a device in the world that will automagically append .CO onto any keyword. The only thing that will work is when somebody tries to type “keyword.COM” into a web browser location bar and makes a typo, omitting the last “m”. That’s it.
  4. Which brings us to the fact that the single, most significant driving factor that puts wind under this TLDs wings is that it is a typo for “.com”. Everything else is marketing intended to gloss over this reality. Domainers go to great lengths to explain the difference between themselves and typosquatters. This entire namespace is one big typo. Face it, if Columbia’s ISO 3166 code was .CI or .CB would it have taken off the way it did? It will be really interesting to see the inevitable actions against .CO domains by their respective .COM counterparts. As an investor, it’s a pile of risk I could do without.

So far I’ve seen only one refreshingly accurate assessment of .CO which basically calls it for what it is: a speculative trap, where far more domainers will lose money over the next year than those who will make any.

The people that make REAL money from these new extensions (most of which are over-hyped), are the Registries and the Registrars. In other words, the companies that sell them to YOU. There is only ever a small number of premium generic keywords that sell upwards of $200k.

I have recommended to my customers that they register .CO domains on a defensive basis. I would not recommend “investing” in .CO, if you have some play money sitting around you don’t mind gambling with, then by all means speculate. But I wouldn’t commit any capital to .CO that you can’t afford to lose.

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