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The internet has minted a fair share of millionaires. More than a handful have made those millions buying and selling desirable domain names. Starting with the sale of business.com for $7.5m in 1999, over the years many domains have changed hands for sizable amounts -- six, seven and even eight figures.

That's not exactly surprising: domains have been likened to real estate, and when it comes to building a brick-and-mortar business, it's all about location, location, location.

But has the domain name gold rush nearing the end? Domainers, those whose primary business is buying and selling domains, might be asking themselves that question after the first major live domain auction of 2011 disappointed. Although domains often sell after an auction, the tepid pace of sales at the Moniker/SnapNames action held at DOMAINfest Global 2011 was described by some observers as "embarrassing" and "painful to watch", particularly given that attendance was very high.

While some blame the poor showing on a lack of "end user" bidders, such as major brands, one insightful commenter noted:

...we’re not in 2006 anymore, Toto. As things stand right now, the smart money in eBusiness is focused on what something ‘does’, rather than what it ‘could potentially be’. Domains register way, way to the latter end of that scale.

He or she went on to observe that "if the premier end-users haven’t been along yet to acquire the gigantic, generic domains we see not selling in auctions such as these time and time and time again, they may never be along."

It's an important point: if you're the owner of a domain name like footwear.com, which didn't sell at the live auction with an asking price of $750,001 to $1m, who are you realistically going to sell to? If a major footwear company wanted the domain, you'd think they'd have made a move by now, and while the owner has built footwear.com into a farm for affiliate links which probably earns decent money, entrepreneurs like Tony Hsieh have built eight, nine and ten figure businesses without generic domains using quirky names like Zappos.

So is the 'premium', generic domain name done for? Not exactly. What's bad news for domainers could be good news for entrepreneurs and established businesses alike. That's because the values -- and prices -- of quality domains names currently owned by passive investors with no ability or desire to develop them into robust businesses will eventually decline if their owners can't continue to sell their domains to other domainers at sky-high prices and end users are unwilling to pay their often exorbitant asking prices.

Although owning one of these domains may not be so important to end users, lower prices would certainly create some interesting opportunities. After all, even though a business may not need a generic domain name, there are some advantages. Take, for instance, some believe Google's algorithm gives weight to exact match domain names, and even so, combined with development and decent SEO, such domains can be a great asset.

In the end, it appears there's a good chance that the market for virtual real estate will end up looking an awful lot like the market for physical real estate: if you owned the right piece of property at the right time, you could have made a lot of money selling it to a developer. But the real money long-term is almost always in being the developer. On this final point, business.com is instructive: barely eight years after it helped start the .com gold rush, a developed Business.com business was sold for $360m.

Photo credit: Marcin Wichary via Flickr.

Patricio Robles

Published 7 February, 2011 by Patricio Robles

Patricio Robles is a tech reporter at Econsultancy. Follow him on Twitter.

2402 more posts from this author

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James Doncaster

I would have said that the domain 'gold rush' ended circa 2005.

Speaking from a UK domain market perspective, the industry has developed and matured remarkably in recent years - in my opinion it has never been so healthy.

Egotastic 'guru' auctions such as DomainFest rarely see particularly impressive or game changing domain sales, as is it rare for that hotshot end user to be present within the inherently closed audience. The approach is all wrong.

Brands are certainly waking up to the benefits of an exact match domain, amongst others. The good value of generic domains still surprises me, as you correctly say, add SEO and 'bang' you're competitive.

over 5 years ago

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Rich

I was following you until you gave that single example of Zappo (or is it Zappos). One only has to look at the daily parade of terribly named companies on KillerStartups to understand that for every startup with a poorly chosen name that did make it, there are hundreds that did not.

For example, try changing the name of your blog to poorconsultant.com and you may better understand the point. A name, whether it be of a corporation, a music band, a school club, or a person, has always mattered and will continue to matter. It is an Identity. The problem with venues such as DomainFest is that almost all of the good names are gone, and it is illegal to name a company Zappo II (or is it Zappos II)

over 5 years ago

Patricio Robles

Patricio Robles, Tech Reporter at Econsultancy

Rich,

"One only has to look at the daily parade of terribly named companies on KillerStartups to understand that for every startup with a poorly chosen name that did make it, there are hundreds that did not."

Fact: most new companies do not succeed. Trying to imply that most failed simply because they didn't have a good name is probably giving these failed companies too much credit. Correlation is not causation.

Fact: if you look around, you'll see that the vast majority of the most recognizable online brands today are not generic. A handful of examples: Google, Yahoo, Facebook, YouTube, Twitter. Google and Yahoo didn't need to be search.com, Facebook didn't need to be socialnetwork.com, YouTube.com didn't need to be videos.com, and Twitter didn't need to be microblog.com. The people behind these properties succeeded by actually building useful products.

Fact: there are plenty of high-profile businesses with generic domains that have failed. Remember Pets.com, or how about even Sex.com? And plenty of generic domains haven't even had the opportunity to succeed or fail because their owners have done absolutely nothing with them.

I see you apparently own Links.com and have since 1996. Great domain. Which, of course, you're trying to sell. According to Quantcast you have 10,000 global monthly UVs, Compete.com says you have 8,000 and you say you have 14,000. How much is somebody realistically supposed to pay for that?

over 5 years ago

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Nick Craig

I think your final point here is spot on - it's all about developing domains to achieve some measure of return or value from them. There is always a period of maturation in any market and I think that's where we are with domains now and the poor performance of the auctions you refer to are more of a reflection of the industry taking a more pragmatic view of value than anything else.

It's easy to focus on the mega-price domains but it's very worthwhile thinking about the tens or hundreds of thousands of domains that are in themselves little businesses, once developed. We should also think about how well-developed domain names compare against more traditional forms of investment like equities and property.

Take sydneyhotels.com for example, recently bought by a firm based in Singapore for a low six-figure sum from a long-standing domain investor. I've read that the new owners expect to see a <b>100% return in just one year</b> through their affiliate model.

Exploring the real-estate metaphor...compare that to buying a rental property, perhaps a 1-bedroom flat somewhere. We're based in Edinburgh, and if you spent £100,000 on a flat/apartment here, you might expect to get back 5-7% return on your investment per year. So a single domain name can bring you 15-20 times the return that a bricks-and-mortar property can. Which one looks like a good investment now?!

Even less popular domains can be developed to generate a few hundred pounds a month in revenue fairly easily - that sort of income would require tens of thousands of pounds worth of shares or cash in the bank.

So, there has definitely been a maturing of the market, but compared to other 'investment opportunities', domains can still deliver a frankly stunning return.

over 5 years ago

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Danny Olson

Why did you waste my time and delete my two posts?

Moron

over 5 years ago

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Quick Free Site

I believe a domain by itself has little or no value now. That time has passed already. Now domain has to be supported by a great and working idea implemented into life.

about 5 years ago

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Andrew

Generic .coms will always be sought after because they make advertising stickier, get type in traffic, provide start up credibility, and underline market leadership. You don't need a top domain name to develop a successful website but it makes it slightly easier and cheaper to develop your online presence.

about 5 years ago

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