When Sahar writes, I generally listen. This morning, Sahar made some predictions for 2008, and the following predictions worry me a bit:

“1. Top prices will drop: As the top of the domain market is driven by a handful of buyers (Frank Schilling, Kevin Ham and Co., Anything.com), I see those coming to the conclusion they either have enough to develop or have better returns elsewhere, therefore stop paying top dollars.”

“5. Top portfolio owners to diversify away from domains, investing in other technologies (Search technoligies, others), services ( arbitrage, others).”

Sahar has a great feel for the domain name market, better than most, so when he makes a prediction like this, I would take some time to evaluate your holdings.

I’ve noticed that many of the mid-level to highest-priced domain auction acquisitions end up in the portfolios of the big players. They control quite a bit of the money that is invested in domain names. If one or more of these companies drop out of the bidding at domain auctions, we could see what would appear to be a market correction. Of course, another company could come in and fill the void, but it would take a whole lot of financial power to do that.

Regarding the prediction below, I know that Owen Frager has also been saying something to this affect for a while:

“4. Top portfolio owners to collaborate more with marketers outside the domain space (such as Scott Day/Seth Godin The “ever” project), SEO folks.“

This is a smart approach to domain development. If you look at some of Scott Day’s domain names (like Chairs.com as an example), you wouldn’t know that each wasn’t a full business. Not only does Scott seem to have one of the nicest portfolios assembled, he also has one of the smartest development strategies.

At this time of year, it’s always good to evaluate your portfolio and make changes if necessary. It’s smart to have a diversified portfolio in case there is any type of domain market correction. When it comes to domain names, content is king (for monetization and protection), so now is the time to consider your development strategy.

There are many parallels between real estate and domain names, but I was reading an article in the New York Times last night about home teardowns, and I thought about this in relation to domain names. A fairly recent trend in real estate investing is purchasing a home on a nice lot of land, tearing it down, and building a nicer, more modern, and usually larger home. The investor then sells this piece of real estate for much more than the price he paid and the cost of building the new home.

In terms of domain names, I can see this being a profitable opportunity for an investor who happens to have development skills or a staff of developers on hand. If he is able to purchase a domain name earning PPC for a decent multiple, he could quickly build a custom website, get it indexed by the search engines, and start building traffic and revenue. Assuming that this website generates greater income than the previous PPC page, he could resell it for a higher price. By using the Hybrid Development approach I outlined before, costs would be kept down and this could be done across many domain names.

There are many advantages of domain names over real estate in this instance:

1) A person is not subject to weather that could impede a real estate rebuild.
2) Other than the physical labor involved with developing a domain name, there are not many material costs, other than hosting, with a website.
3) There are no added real estate taxes that will be incurred with a large property.
4) The Internet is worldwide, and geography plays a small role.
5) While searching for a buyer, the website is making money – the real estate property is costing money.

Whereas many domain investors buy and resell domain names based on the same PPC model (which I disagree with – but that’s another story), this could add tremendous value to the domain name. Many people believe they can increase the amount of money a domain name is earning by testing various parking companies and/or keywords, which may yield better results. By developing the name, you would almost certainly increase the value of the name much more than relying on PPC. Of course, development is difficult, so this isn’t for everyone. This is just another opportunity in the domain business.