September 9, 2009

The Value of a Domain Name.

A domain name is much more than just a group of letters attached to an extension. A domain name reflects who you are and what you do online. From a generic name which defines the product you offer (such as LondonVacations.com) to a domain which represents the targeted information your provide (SanDiego.com) or a brandable name that evokes the spirit and power of the brand you have created (Facebook.com) – each domain is an individual unique asset where value can not be compared by similar sales in the marketplace.

We understand many of the most vocal members of the domain investment community value domains using common elements such as automated systems, ppc traffic and age however these elements are mostly irrelevant to developers, end users and long term investors. In fact, the entire theory which seems to exist within domain investors provides nothing more than a chase for valuation to provide liquidity in the aftermarket industry.

Many traditional domain investors will disagree with our opinion however our market is to end users, corporate buyers, developers, long term investors and the next generation of domain investors – not the domain flippers who chase trends and sell or buy based on what others are doing. Until recently the majority of domain investors have invested in domains for resale and not development thus the true value of a good domain is often never met due to the vicious cycle of resale throughout the investment community. Only when a domain is purchased by a long term investor, developer or end user will the value of the name begin to mature.

For new investors you must understand that the conversation of domain values online is the loudest single voice you will read about however these words should play no factor In determining how much a name is worth to you. The value of a great domain has not changed much over the years believe it or not – it is the crazy, ridiculous ones which continue to be sold from one domainer to another which attract most of the money in this industry and define sales trends. Ironically, most of these names have no real value in the outside world. We are in touch with many large buyers, long term investors and developers and most ignore sales reports and value domains according only to their own business plan without even a glimpse of what other names have sold for.

Some of the biggest buyers over the last decade are now on the sidelines trying to figure out what to do. A challenge we believe many will fail at since the motivation to develop, the desire to make something great can only be truly achieved by those who have a hunger for money, a passion for building and a targeted, well-defined plan for growth.  Owning 100,000 names and hoping to develop even a small percentage of them with more than just what is known as a mini-site in this lifetime is simply an unachievable goal without superhuman strength. Earning 2 or 200 million a year in parking revenue provides a comfort zone where development is nothing more than an obstacle in the way of enjoying privileges life has already provided.

We respect industry leaders for promoting the industry, providing candid conversations and even helping other domainers out however the industry leaders of today will most likely never be industry leaders of tomorrow. Most of the original crew - of course there are some who will shine - will be lost in time and become known as visionaries who were able to acquire domains at a time when the value was unknown. They were gamblers, addicts, smart investors – any moniker you want to use – but ultimately they were truly great gamblers whose bet paid off.

Today however small business owners, small business dreamers and most of the domain community who actively participate online should be looking for inspiration from those who are developing. Are there examples of domainers earning high six and seven figure annual incomes from developing? Certainly but more are searching for answers on where to start.

So what makes a good name?

The elements we consider a good domain to have
 

1.  Extension

.com .net or .org -- It is as simple as that.

We do not believe in other extensions with the exception of a handful of country codes such as .co.uk (note that we do not offer assistance with country codes)

2.  (a) Lead Generation

Elliot Silver was kind enough to write an article about us on his blog (ElliotsBlog.com) and reference the type of names we seem to like. He was right – lead generation domains have the most value. To understand why this element will override any other element (including existing traffic) is to understand that almost anyone who is spending money to buy a domain name, any domain owner looking to monetize their domains and most companies looking to add or create an online presence will ask one question.

How can I generate leads from the purchase of this domain?

It could be mortgage leads, education leads, apartment rental leads, insurance leads, newsletter subscribers – does not matter what kind of lead however the domain itself needs to represent a quality or keyword value of a product or nature which can lend itself to lead generation online. These domains can range from three word combos to single category defining names such as DallasApartments.com to BobbleHeads.com

    (b) Brandability

The potential brand power of a domain name is the single element on par with lead generation in terms of quality for a domain in our opinion.

It is noteworthy to mention that many times only one (1) of these elements will exist in a domain and value for a brandable name is much harder to define since the number of buyers will certainly be less. A brandable name only really has value to people who want to brand the name whereas lead generation names have value to 1,000’s of people wanting or already working online.

We often see buyers who simply want a name they can brand and market. Think of Facebook or iTunes before they existed. These domains have no or little value by themselves – the value was created by the people who marketed the name however these companies also understand how 5,6 or seven figures for such a powerful name is well worth the cost so even though buyers may be limited prices can be much higher than lead generating domains.

GEO domains are great examples of brand names. The power of holding a true Geo like SanDiego.com is unmatched in the marketplace for that specific sector. We try to simplify domains and Geo domains are brandable names in our opinion.

   (c) Exact Search

Search engines like Google, Bing and Yahoo pay great attention to exact match keyword domains and the higher the exact search of the exact keywords of your domain a greater advantage you will have (from the start) from another domain. Of course, relevant content will always eventually trump keywords but as a starting point - assuming two domains are of equal price with equal traffic and equal extension but no content .. the exact match domain will be of much more value (to both domainers and investors) almost every time.

3.  Age

Age is a factor which ONLY helps the lead generation element and even that is temporary and can be overcome. People and companies who buy a name to brand do not care if the name was registered yesterday.

As far as age goes for lead generation domains – believe it or not age is much less of a factor today than most domainers believe. Many argue about AGE since another domain investor told them it was a factor but wait, another domainer who doesn’t develop told them that. Hmmm…

The fact is if you ask anyone worth a dime in SEO and they will tell you that age IS a huge factor in helping a websites SEO however by renewing the domain for a longer term than 1 year – many will renew from 5 years and up – search engines will decrease any penalty for even a name registered yesterday much more than you think. Sure, for the first 12 -18 months you may have some negative ranking calculation going towards you but original content can overcome anything – even age. We must be mad?

  • Fact. There are 1000’s of names registered every day.
  • Fact. New sites for information are found every day by all of us.
  • Fact. Many of these new sites have names created in the last 12 months.
  • Fact. While you were arguing about age – someone else was registering a new name and developing content, optimizing the domain and kicking your age theory out the door

The AGE argument is between domainers - NOT developers.

We can also look at other dynamics going on.

1000’s of good names are dropping every day – quality of domains which seem to be getting better day after day. Many times these domains are re-aged when the auction company grabs the name.

Does this make the name worth less?

A great domain is a great domain. Age makes it a little better but no matter how old – a great domain is a great domain.

4.  Price

We will revert to the above “Fair value by definition is a price point where the seller and buyer are both happy” – nothing else to say.

5.  Traffic

Traffic is last - Of course we are excluding domains with substantial traffic since these have a value outside of any of these factors but the domains with $10 a month PPC revenue, the ones with 10 visitors a month. PPC revenue is not an element almost any end user will ever ask about. If a domain has substantial traffic it very well could be a selling element however this can vary from buyer to buyer. Traffic to a brandable name may have value but only if the potential buyer is going to brand the name in the same industry as existing traffic assumes the name to provide. Traffic can play a role but it is not the largest factor in determining a good domain name by any means – only for domainers who park. Developers will create their traffic by building unique content, applying SEO strategies and marketing the site using internal marketing plans.

3 Letter and 3 Character Names
 

3 letter and 3 character domain names are quite rare however unless an end user can use the acronym or initials defined by the domain name the only value of these names besides traffic is to domain investors.  Premium three (3) letter domains such as fly.com obviously do not fit in this generalization as they are much more than just three random letters.  Our opinion is 80% of all 3 letter domains will continue to cycle within the domain investment community for eternity with values changing only according to how much an investor believes another investor will pay. In short, they are worthless outside of the domain community. The other 20% have a value potential only limited to the budget of the end user.

Many may disagree with this analysis but its ok - as very few have a defined theory as it is. This is ours.