Selling Virtual Real Estate

While the housing market is down in the doldrums and the stock market is tanking, what else can someone invest in that will make money?

Well... I've been looking into domains lately, as I will soon start up an author's website. But in the process, I've come across some interesting things. Sure, business.com was sold for $7.5 million and bingo.com for $1 million, but really how much cash can be generated by owning a domain name?

A lot, but like all things, it takes work and knowledge. It's not a bad time to buy, either. While live auctions for domain names are quickly going out of fashion, online auctions for domains are quietly bringing in money, and websites that deal in domains, such as GoDaddy.com, and others such that deal with expired domains and deleted domains can be readily found. In the .com.au Australian market, domain investment is actually picking up.

A domain is like real estate on the Internet. It's someone's shopfront to the Internet world, and if you own a shopfront on a busy street, where there is a lot of traffic, then that piece of real estate can be worth a lot of money. Also, the cost of being online is a fraction of what someone would pay for a physical shopfront. So... it is likely that some businesses that close shop in the real world because of lack of business can still do well in the virtual world online.

A domain can be bought for as little as $10. These sort of websites, of course, do not have the traffic of walmart.com or microsoft.com, for example, both already well-branded companies. But with Search Engine Optimization (SEO) any site can bring in traffic, and get customers knocking at your virtual door. You just have to know what people are looking for.

This is where the Internet is a very exciting vehicle for businesses. Imagine a store in a backwoods area, in the middle of nowhere. It won't get much traffic. Sure, the people living in the neighborhood might utilize it, but no one else, because it just isn't very convenient. With the Internet, the equivalent of a superhighway can be built for a nominal fee, bringing traffic right to the business's door. And a business can open up an offramp from the Internet's superhighway just by using the right words, bringing in a flood of customers.

But I also came across something very interesting, that is more like real businesses:

The key advantage of buying an existing domain that has been indexed is that it is often easier to optimize that site for certain keywords than it is for using one that is a brand new domain. If you believe the stories of Google's sandbox rule, then all new domains will take 6 to 12 months to rank well which means for a business that is purely internet based that could send you bankrupt and I can assure you I have seen that happen. Whether or not you believe or do not believe that the Google sandbox rule exists, in most search engines, the age of the domain in the index does play a role in your ranking. I have seen webpages in the index that have been there for 10 years and have less than 20 back links on extremely competitive terms and rank in the top 5 of those competitive keywords.

Essentially, the longer domains have been around, the more likely a search engine is to find them. And thus, the better traffic it will have. But one must also be wary of sites that have been utilized for fraud, and have been blacklisted, as these are essentially worthless. Kind of like someone buying Enron.com, for example.

Now, I found an article on niche marketing, where domain investors concentrate on domains for which they have specialized knowledge. Like a football referree buying footballrules.com or a florist buying flowerarrangements.com, for example. Some people even think that these days the development of a website, essentially bringing traffic to it, will increase its worth. That makes sense, as in non-virtual real estate, a property that has been developed, even marginally, will be worth more than a vacant lot.

So... I don't know if I'll actually go into investing in domains, though reading about it does make me want to dabble, but I am certain that very soon I will be buying a domain, more as an online billboard for my services as a writer and a method for promoting my books.

Individual Voluntary Arrangements (IVAs): A Tool for Consumers in Debt

As I have stated previously, in the current economic climate, businesses that help free people from debt are going to be doing well for years to come.

Part of the problem in much of Western society, and particularly in the United Kingdom and the United States, is that consumers have been spending more than they have been earning, and digging themselves into a hole of debt. In both countries, spending beyond one's means can often result in bankruptcy.

In the United Kingdom, there is an alternative solution, the IVA. Individual Voluntary Arrangements with creditors are similar to Chapter 11 Bankruptcies in the US, and are looked at with more favor by creditors, though they still affect a person's credit rating. They essentially entail the consumer paying off a portion of their debts, with the creditors writing off the rest. They are private arrangements made through insolvency practitioners and a person's creditors, so that a person does not have to file for bankruptcy. Unlike Chapter 11 Bankruptcy in the US, IVAs are geared towards individuals rather than businesses.

An individual thinking about an IVA as an alternative to bankruptcy must have a debt of at least £15,000 and must be regularly employed, so that they can make agreed upon payments on the debt. As with everything, there are pros and cons.

The benefits from IVAs are that individuals can protect their positions of employment. Anyone who has had financial issues inevitably would have problems keeping or getting a job that requires handling money. In the UK, people with bankruptcies in their past cannot work in the civil service, police, or the military. Consumers are also protected from further action by their creditors and their property is safeguarded. Payments usually last only five years, individuals have control of their finances, can open bank accounts, and they only pay a set amount equal to an agreed upon payment that they can afford.

The disadvantages are that it cannot be used by someone with less than £15,000 in debt. Also, if the terms of the agreement are not met, creditors can take further action, including being forced into bankruptcy. Though a person gets to keep their house, towards the end of the debt period, equity must be taken out of it in the form of a new mortgage that is released to their creditors. IVAs do go on a person's credit history for one year, though in most cases they are seen as preferable to bankruptcies. Sometimes too, in about one out of twenty cases, the period of debt repayment is extended to six years. During the period of repayment, a person is also not able to borrow.

Debt must be dealt with before anyone can create or build wealth, and IVAs offer many consumers in the UK who are in financial trouble an opportunity to do just that.

Socializing the "Free" Market?

I began thinking about socialism a few days ago when I read a blog entry that suggested the nationalization of banks. Now, socialism has more commonly been identified as an evil, especially by politicians in the United States, and perhaps they had a point. Nazism was essentially "national state socialism", a type of government that curtailed the freedoms, including economic freedoms, of all the citizens of Germany and the countries that were under its control The Union of Soviet Socialist Republics used the word "socialist" in its name, and it too restricted radically the freedoms of its citizenry. So too does China, which describes itself as a socialist state, and in which all of the major industries are controlled by the state.

The idea of socialism is, in fact, a broad set of economic theories that advocate state ownership and ownership of the means of production. And, looking at the majority of Western societies, particularly those in Europe, there is a tendency towards a form of democratic socialism in part of the economy, where certain industries, particularly the health care industries, are nationalized and controlled by the state, which is in essence seen as the representative of the people.

I just read an interview with Noam Chomsky, a professor at MIT and also a prolific writer about economics and its use in the power structure of the world. I have read a number of books by Chomsky, most that deal frankly with the economic inequalities that exist in the world, and in particular exposing many of the hypocrisies that modern Western states propagate. Chomsky describes himself as a libertarian socialist, and gives accolades to such individuals as Juan Evo Morales Ayma, who rose to power through non-violent means through democratic elections.

What intrigues me is how Chomsky says that the U.S. economy was never really a free market economy, and how deregulation, which has played a major role in the current financial crisis, has actually made it worse. As someone who has an avid interest in history, it is interesting to note that the rapid growth of the United States' economy in the latter half of the nineteenth and early twentieth centuries was during a period when the US economy was at its most protectionist. The railroads that opened up the West to settlers in the latter half of the 19th century were, in fact, funded by the government. It is the government, Chomsky argues, that has actually aided growth of the economy during certain periods. Following World War II, for example, the government funded housing and schooling for war veterans. Corporations have from time to time needed "bail-outs", such as a the savings and loans in the 1980s and the auto makers and banks today.

Take the Great Depression and World War II, for example. It was the war and its increasing demand for manufactured goods, and not Roosevelt's policies, that actually brought the US out of the Great Depression. And a lot of people have been comparing this current downturn to the Great Depression of the 1930s. It is like it in a lot of ways, as it was brought on by speculation in the real estate market, with people borrowing in order to create wealth, which essentially just existed on paper.

But the way in which Western societies are dealing with this debt is exactly the opposite of what, for example, the World Bank dictates upon those who make use of it. Those countries who go through the World Bank and International Monetary Fund to get out of national financial emergencies must follow austerity measures that curtail investment in social structures.

But Chomsky says it better:

It is striking that the ways that Western countries are approaching the crisis [entirely contradict] the model that they enforce on the Third World when there is a crisis. So when Indonesia has a crisis, [or] Argentina and everyone else, they are supposed to raise interest rates very high and privatize the economy, and cut down on public spending, measures like that. In the West, it is the exact opposite: lower interest rates to zero, move towards nationalization if necessary, pour money into the economy, have huge debts. That is exactly the opposite of how the Third World is supposed to pay off its debts. That this seems to pass without comment is remarkable.

The question that few people are asking is whether piling on more debt, which is what the government is doing, will help solve a problem essentially caused by too much bad debt. Naked Capitalism tells how Sweden solved a banking crisis during the recession 1992, when a number of its banks were on the verge of collapse. Sweden closed the insolvent banks and put aside their assets, essentially quarantining them so that they could not negatively affect the rest of the economy. This resulted in a devaluation of Swedish currency, which stimulated the economy by making Swedish exports cheaper on the international market.

But this is not the path taken by the biggest economies in the world during this current crisis. Instead, they are borrowing to help "save" the banks from their mistakes, and the bail-outs have not ended with them. If this means the American people will now "own" banks, and perhaps other industries, for a time, and then be able to sell the nationalized shares in bailed out industries for a profit at some future point in time, it is not such a bad prospect. Perhaps we will see a democratization of the economy, with citizens having more economic say in the direction large businesses will go.

Chomsky has been talking about this inequality for years, as real wages for workers have stagnated. It is no secret that the wealthiest have benefitted most from the past three decades of economic expansion in the US.

So... how does one create wealth in such a chaotic and panicked atmosphere? The only answer I can give to you is... very carefully. And perhaps we shouldn't get so fussed about things, as after all, these are just economic cycles, as recovery follows recession and what goes down must come up.