Are Domain Names the Next Investment Bubble?

Conventional wisdom seems to be that our current economic downturn was due to a "bubble" in the real estate market. So, what is a "bubble," and where might some of the current ones be taking place? Are Internet domain names, a market in which many people are investing, a market on the verge of collapse?





The first question that comes to mind, of course, is the definition of what a bubble is. A basic definition of a bubble would be an economic situation that exists when a massive amount of an asset is purchased at an unsustainable value. What happened in the U.S. real estate market, largely triggering our current global recession, was that the value of housing one day simply collapsed. Basically, the mortgages and other financing for overvalued homes in the U.S. had been "securitized," or placed into other investment vehicles and sold to banks and other investment firms. Then at one point, prominent economists and investors basically realized—or decided—that these assets could no longer be sold at a profit, or even at a break-even level. This caused a massive devaluation of real estate assets throughout the global market, the consequences of which we continue to live with today.





Bubbles are often characterized by rampant speculation. For example, in the years leading up to our current economic collapse, the "flipping" of houses was common. This was the purchasing of a house, fixing it up, and putting it back on the market at a much higher price. At the height of the bubble, houses and condos sold in a matter of days; hence the term "flipping," with its connotations of rapidity. The element of speculation makes it easy to understand just how prices can rise rapidly and far beyond the actual value of the assets in question. Basically what happens is that one day "flippers" and other speculators charge too much for their assets (to put it another way, beyond "what the market will bear"), and the entire market simply collapses.





Bubbles are a recurring phenomenon throughout history, so it is probably safe to assume we have not seen the last of them. The first "bubble" in modern history was the infamous Dutch tulip bubble, which took place in the seventeenth century. Tulips were so prized in Dutch society that at one point, the price of a single tulip exceeded the income of roughly ten average Dutch workers. This was followed soon after by the "South Sea Bubble," based on speculation in the results of New World exploration.





So where do domain names fit in the history of bubbles? For the moment, this subject is under debate. What is clear is that if you are thinking about purchasing domain names as an investment, you should take the care that you would take when making any other investment. You should consult with experts in the field and be careful to read up on indicators of the strength of the market. You also need to determine your tolerance for risk, and let this inform you how much you are willing to commit to this enterprise. The important thing is to make sure you are financially prepared for any negative contingency potentially having to do with your investment.





There are many resources on the Internet you can use to check on available domain names. There are also merchant account services available if you decide to use your purchases to build Internet commerce sites.