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.