Collecting Gone Digital: A Guide To Investing in Domain Names

Domains — Collecting Guide by Aron Meystedt

It started for me more than a decade ago.  Like many people, I pondered the various Internet-based businesses I could start and run from my house. I was inspired by the success stories of ordinary people running a business they had a passion for, right out of their living room.  I really desired the freedom that an Internet business appeared to offer.  I began to setup e-Commerce stores selling goods ranging from jewelry to audio equipment.  It was profitable and a great learning experience.  However, there was one aspect of the business that bothered me: stocking and shipping inventory.

In the quest to find something to sell with no shipping required, I happened upon domain names, which are purely digital in form.  I was intrigued by the fact that buyers all over the globe could acquire my premium domain names, and “shipping” the merchandise was as simple as a few clicks of the mouse.  I was hooked.

Over the years I’ve acquired and sold dozens of domain names.  Some were highly coveted investments, such as two-letter .com domains, while others had existing traffic that I turned into passive revenue streams.  Most of the names I acquired and sold were simply one-word .com domains that defined a major category, such as Tablets.com.

So, if you’re an entrepreneur like me and wish to get started in the domain business, here are some helpful tips on investing in domain names that I’ve learned along the way:

What makes a domain name valuable and desirable:

Over 260,000,000 domain names have been registered on the Internet, yet only a minuscule percentage are truly premium domains.  The availability is scarce, and they are very much in demand from investors and businesses. This supply-demand dynamic keeps values solid.

It is not uncommon for premium domain names to be sold for 6 and 7 figures. In fact, the top 150 domain sales of all time are all over $500,000. Premium domain names can range in price from $10,000 up to $10MM plus.  Several factors determine the value of a domain name:  Some of these factors include traffic, advertising costs, the age of the domain name, the length (i.e. brevity) of the name, comparable sales, advertiser competition in the category, industry growth and overall marketability.

Check out the top recent domain sales chart.

This is how you can determine if a domain name is a premium asset:

Exact match words that name a product, service, industry or location
A one or two-word domain name that represents a large business category or geographic location will always command a premium price. Examples of this include: Computers.com, Chicago.com, Furniture.com, RunningShoes.com, and Tickets.com. Names like this are often referred to as category defining domain names. Investors and end-user businesses are actively seeking this type of domain name for either investment or business use.

Short names and acronyms
Acronyms are always high in demand because they are easy to type and easy to remember. Two letter .com domains like AA.com and HA.com have a very high value, and three letter .com names like KLO.com are worth a significant sum as well. In fact, a two or three letter .com, if bought at the right price, will be a stable investment.

.com
While there are a few exceptions to this rule, in order for a domain to be classified as a true premium name, it should be of the .com extension. There have been several solid historical sales in other extensions such as Meet.me and Date.me, but most highly valued domain names are .com. As you will soon learn, there is a second Internet “land rush” occurring shortly. This expansion of the Internet will provide more choices for investors and businesses.

One word branding names
Domain names such as Blue.com or Slide.com have value as a brand name for a corporation or business. Even though they don’t name an exact product or service, these names are always in demand as branding assets. Companies are buying these names for their use because they are easy to remember and offer creative branding opportunities.

Domains with a high search volume
Premium domains typically name a word or term that is searched often in Google. The volume of searches can be found by using different domain tools available on the Internet. If a word or phrase is searched often in Google, there will be more advertisers competing for the eyeballs related to these searches. The exact match domain name for these highly searched phrases will have value.

Names with high advertiser competition
If you “Google” a product or service and you see a lot of high level advertisers competing for the traffic, then the exact match name in that space will have value. For example: If you Google “Mortgage” you will see many well-funded advertisers competing for pay per click traffic. Therefore, it can be assumed that Mortgage.com has big value.

High traffic volume
Similar to physical real estate, virtual real estate becomes more valuable as the volume of traffic increases. If a domain name has a large amount of visitors, business can turn these people into profitable leads and sales. Several premium domain names have a high traffic count and this increases the potential value of the asset.

Note:  I would advise against registering or purchasing any domain names that include a trademarked term.  Don’t register misspellings of common websites either.  While this is a way to land a domain name with enormous traffic, this practice is highly frowned upon.  It is best to stick with one and two-word category names, geographic locations or short acronyms.

 

The following are reasons why you should choose a premium domain name for your online operations:

1. For a business, your domain name is your identity on the Internet. It is the foundation of your online operations. A strong domain name can help you acquire and retain customers more easily than if you placed your company on a non-premium name.
2. Secondly, a premium domain name offers instant credibility in the marketplace. Instant trust is established when a company operates their business using a name like Cars.com or Hotels.com. A premium domain name will give you a competitive advantage from the start. In addition, prospects will perceive your business as having authority status, which leads to credibility and lower customer acquisition costs.
3. Next, many premium domain names have existing type-in traffic that can be converted into customers. Type-in traffic has been proven to convert at a higher rate than all other forms of online leads (search engines, direct links, and banner advertisements).
4. Additionally, premium domain names will help you more quickly rank higher in search engines. Search engines give added “weight” to exact match domain names. Your development on a premium domain name will rank better on Google, Yahoo and Bing faster than if you placed your business on a newly registered name.  Along these same lines, the search engines respect names that are “aged”. Your ranking will improve more quickly if you own a 15 year old premium domain name than if you register a new one today. When matched with quality content and a strong SEO foundation, the exact match and premium domain names will give you a stronger presence on search engine results.
5. Finally, a premium domain name is one of the most important assets your business can acquire. Domain values have steadily increased over time. Even if your business ends up failing you will still own a solid, valuable asset.

The following are reasons why investors have acquired top-tier domain names:

1. Domain names are the raw land of the Internet. Similar to physical real estate locations, no matter what you build on your website, its value is in large part dependent upon the domain name.  An oceanfront lot is similar to a premium domain name.  The oceanfront lot has value because of its scarcity as a high-demand location.  However, owners of domain names have significantly less maintenance and expense than real estate owners. A domain name has no property tax, no insurance and virtually no carrying costs. Your only expense is a $10 annual renewal fee. A premium domain can be bought and held indefinitely, with no day to day maintenance required.
2. Domains can be used to generate passive revenue while you are waiting to develop or resell them. Many premium domain owners have their names “parked” with paid advertisements, which generate revenue and require no daily upkeep.  As mentioned earlier, if your domain name has type-in traffic, you have the potential to create a revenue stream from your digital asset.
3. Domain names are portable and incur no storage or security fees. We need to keep our art in a secure location. We need to protect our currency in a bank or a safe. Investors insure and protect their precious metals, which are also expensive to transport and ship. Meanwhile, domain names can be owned and held without the difficulties of transportation or security.
4. Domains offer global opportunities. When you acquire a premium domain name, customers and potential acquirers can come from all locations across the globe. With physical real estate, a commercial property may have interest only from local buyers whereas a premium domain name will often generate traffic and buyers from other continents. We have sold domains to buyers in Asia, Europe, Africa, Australia, North America and South America.

Recent trends:

Branding names, as opposed to exact category names, have become highly desired by investors and end user businesses.  While exact category names like Shoes.com and Computers.com are still highly coveted, generic branding assets like Gazelle.com, Blue.com, and March.com are commanding premium prices.

Many of the significant sales in the past few months have been branding type names:

• Fix.com  $850,000
• Hot.com  $850,000
• TeamWork.com for $675,000
• True.com  for $350,00

In addition to these one-word brand names, 2-letter .com domains have steadily increased in value over the past several years.  There are only 676 total combinations of two-letter .com domains, and many are in use by major corporations.

Here is a small sampling:
AA.com – American Airlines
BN.com – Barnes and Noble
BP.com – British Petroleum
CK.com – Calvin Klein
CC.com – Comedy Central
EA.com – Electronic Arts
GE.com – General Electric
GM.com – General Motors
GS.com – Goldman Sachs
FB.com – Facebook
FT.com – Financial Times
HP.com – Hewlett Packard
ML.com – Merrill Lynch
MS.com – Morgan Stanley
PG.com – Procter and Gamble
TI.com – Texas Instruments
UA.com – Under Armour
WB.com – Warner Brothers
WF.com – Wells Fargo
YP.com – Yellow Pages

It is estimated that half of these combinations are in use by major corporations.  The other half are in the hands of investors.  Every year, several companies acquire their matching two letter .com acronym.  The prices of these acquisitions are quite incredible.

A few notable acquisitions include:
FB.com to Facebook for $8.5Million.
IG.com to the IG Group for $4.7Million.
YP.com to Yellow Pages for $3.85Million.

It was reported, just this week, that JD.com may have sold for as much as $5Million to a Chinese company who now uses this asset. When you pair the finite supply of two-letter .com domains with the high demand from end user businesses, it is easy to see why these assets have increased in value.

Premium domain names continue to sell for significant amounts.  Whisky.com sold early this year for $3.1 Million.  The name was purchased by a European company in the whisky business, who is looking to establish themselves as the leader in this market worldwide.  However, solid domain names do surface for fair prices.  It is possible to acquire a memorable brand name or investment without paying a fortune.  Please contact me at AronM@HA.com if you have any questions about domain .  Our next auction runs from March 20 until April 9, and it features 100 domain names perfect for investment or business branding. Please contact me if you have any questions.

By Aron Meystedt

 About the author: Aron is the owner of the very first domain name to be registered on the Internet:  Symbolics.com.