Tuesday, February 19, 2008

Fusu: A Stock Exchange for Premium Domain Names

fusuFusu could be the biggest thing since sliced bread. Or, it could be a Sam Bowie-like flop (Google it folks). But the company is going after what could be a huge market, allowing anyone to “buy stock” and speculate in premium domain names.

Here’s the basic idea: domain name speculation has typically been an all-or-nothing game. You own a great domain name, but until someone buys it, there is no way to gain any liquidity. Essentially, you’re on the hook for whatever you paid until you can find a buyer. Further, if you’ve ever inquired about one of the tens of millions domains that speculators currently hold, you’ve probably come to realize that prices can be fairly arbitrary.

Enter Fusu, which publicly launches today and allows domain owners to sell up to 45% of their names to investors. It starts with an “Initial Domain Offering” (IDO), the equivalent to an IPO on Wall Street. Investors buy up shares, and that money goes directly to the domain owner. From there, the shares are owned by individual investors, who can then buy and sell them at an agreed on price, which in turn changes the valuation of the domain name. Once the domain owner sells the domain (gets acquired) shareholders get the acquisition price – presumably higher than the current market value that has been set by the Fusu trading community. Similar to an online brokerage account, Fusu provides tools for tracking your investments and getting quotes for domain names.


In theory, this is brilliant for a few reasons. First, domain owners can immediately get cash for their holdings. Second, rather than arbitrary domain pricing, values are set by a marketplace of buyers and sellers. Third, there is a finite amount of good dotcom names in the world, and with such scarcity, the value is likely to continue to go up over time. This gives small investors a chance to get in on the action, versus having to shell out tens of thousands (or more) for premium domain names.

In practice, Fusu has some significant challenges ahead of it. Much like any online marketplace, it will need a critical mass of buyers and sellers in order to set legitimate market values. Until it gets that critical mass, investors could essentially be stuck holding their shares indefinitely, waiting either for more buyers to come along that they can trade with, or for the domain owner to find an acquirer. That said, given the scarcity issue, it’s hard not to be bullish on the long-term prospect of domain investing (as annoying as such practices might be to people who just want a good name for a site they’re actually building!).

If it is successful, Fusu could be an enormously profitable company. They are both the investment bank and the exchange in this case, collecting 1% on the “IDO” and 1% on all transactions that take place in the after-market.


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