Benefits of trading in internet domain names
Pritam P Hans May 9, 2012In February 2012, Sarees.in was sold for $9,500 (around Rs 4.75 lakh), according to DNJournal.com, a domaining news website, giving the domain name owner stupendous returns.
The .in registrations started in 2005. Between then and now, the owner would not have spent more than Rs 4,500 on holding the domain name (Web address). The return is 10,455 per cent in seven years.
With the evolution of the online space, the mad scramble for buying premium domain names so that one can sell them later for huge premiums is akin to the huge rush in the US in the 19th century when lands cleared of native-American settlements were opened for possession by tax-paying farmers on a 'first come, first served' basis. The farmers, in expectation of bumper profit, rushed to claim the best land. When Oklahoma was opened for settlement on 22 April 1889, its population at the end of the day was expected to be in excess of 10,000.
Things are no different in the online world. For instance, one of the latest Web domains opened for the public on 6 December 2011, .xxx, got more than 55,000 applications within 24 hours.
According to Verisign Inc, an internet registry which handles .com domains, there were 220 million registered domain names at the end of 2011. A domain name is like a plot on which you can build an online office or home. This is because to access a website, you have to type its domain name in your browser.
A short and easily memorable name is like a prime address. In contrast, a long and cryptic one will make your commute longer. Internet domain names with general words such as cars and songs get a premium as they are easily memorable. The catchy ones are also in demand.
Due to limited availability of good domain names, they are traded in an active secondary market. Premium domains can fetch lakhs to crores of rupees.
For instance, in 2010, Sex.com was sold for $13 million. This year, PersonalLoans.com was sold for $1 million. BowlingBalls.com, Lov.com and Kboing.com changed hands for $225,000, $160,000 and $150,000, respectively. Some other interesting deals (not based on size) include for Airline.com ($125,000), Let.com ($100,000) and DIY.org ($60,000).
"Domains are a great investment. They are the real estate of the Internet. Like land, they are limited in number. As demand increases, so will their value. The cost of holding a domain is small. So, even if you hold a domain for, say, five years, the potential for loss is very small," says Bhavin Turakhia, founder and chief executive, Directi, a Mumbai-based Internet products and services group which owns hosting provider and domain registrar BigRock.
GO FOR THE BEST
Domains have been used as an investment for quite some time, albeit at a small scale.
"The key thing to be kept in mind while investing in a domain is that it must be able to survive in the e-commerce world. If it doesn't drive traffic, it's worthless. Selecting terms with high online affinity will give greater traffic and value," says Liesbeth Mack-de Boer, chief sales officer, Sedo GmbH, an online domain name marketplace with headquarters in Cologne, Germany, and offices in the US and the UK.
Global-scope top-level domains (TLDs, or extensions that appear in Web addresses), particularly .com, .net and .org, are considered more valuable. Domains with country-specific extensions are also generating interest.
"India is an emerging market. Over the next few years, we expect an increase in the number of .in registrations," says Mack-de Boer. "Till date, around 1,500 .in domains have been sold through Sedo at an average price of $1,000," she says.
The domain space is heating up. Internet Corporation for Assigned Names and Numbers (Icann), which manages Internet domains, is accepting applications to manage new generic TLDs till 29 March 2012.
At present, there are 21 global-scope TLDs (gTLDs) and 250 country-code TLDs (ccTLDs). In addition, there are 30 international domains displayed in local language characters.
A new gTLD offers huge opportunities. You can become the sole registrar for a domain extension, but it is an expensive proposition. The cost of applying for a new gTLD is $185,000. Add to that the cost of running a critical piece of Internet infrastructure. Besides, you will have to pay $25,000 annually to Icann.
You can gain from the new extensions by registering new domains. Before a new domain extension is opened, there is a sunshine period during which trademark owners can claim ownership of their brands and trademarks. Try buying generic domains with the new TLDs.
BE THE FIRST MOVER
It pays to be the first to identify a domain's potential and get it registered with a reputed name such as GoDaddy.com, NameCheap.com, Name.com, BigRock.in and Net4.in.
Unless it's a new extension, you are unlikely to find dictionary words available for registration as domains. Staying up to date with global trends will help you identify opportunities for registering profitable domains.
Olympic-Games-London2012.com was auctioned for $45,000 on Flippa.com, a marketplace for websites and domains, a year ago. Other domains based on London Olympics will also be valuable as they have a better chance of appearing on the top in search results.
You can buy domains from marketplaces such as Flippa.com, Sedo.com, Auctions.GoDaddy.com, SnapNames.com and AfterNic.com. However, the price in the secondary market is usually high.
You can also buy domains that have been allowed to lapse by their owners. It may seem strange to buy a domain that has been rejected by its owner but you can find good virtual real estate at places such as SnapNames.com and Auctions.GoDaddy.com.
Many domainers use a concept called domain tasting to analyse the income potential of a domain name through advertisements. All Icann-regulated registrars offer a five-day grace period for new domains. You can delete your domain during this period and get your money back.
Domainers register domains in bulk and direct traffic to websites displaying advertisements. The domains that get traffic without promotion and generate more money than the registration cost are retained.
The rest are cancelled. Domainers use this to expand their portfolio of profitable domains that generate money without much effort.
Domain tasters target generic names, trend topics and events that can get type-in traffic (where an online visitor types the domain name to access a website) or ranking from search engines such as Google and Yahoo.
"Domain tasting is often frowned upon by industry players. The purpose of the five-day grace period is preventing mistakes and registration by accident," says Turakhia.
Generally, domainers have to wait before they get good offers. During this period, the domains can be parked with domain parking service providers such as Sedo.com, Afternic.com and DomainSponsor.com to show ads while tracking visitor activity.
"Domain parking not only generates revenue while you look for a buyer, it also gives you insight into the quality of your domain. It helps you learn where traffic comes from, what people are searching, etc," says Sedo's Mack-de Boer.
Displaying advertisements is not always the most profitable way to make money from domains. Based on traffic and revenue potential, domains can be used to redirect visitors to an actual website.
If a domain gets decent traffic, domainers create a single-page website with a promotional offer that earns them money. To sell your domain, you can list it on marketplaces and forums. A simple notice on the website can also get you offers.
Beginners should understand that the price of a domain depends on how desperately the potential buyer needs it. "Amateur domainers often get carried away by big domain deals. They fail to understand the potential of their domain and often reject good offers," says Turakhia.
Typos are common. Seasoned domainers use this by registering common names with wrong spellings of popular keywords. For instance, Cheptickets.com (a typo for 'cheap tickets') was reportedly sold for $200,000 three years ago.
However, you must not register domains based on trademarks and brands, even if it is a typo.
It is important to have the basic understanding of trademark and copyright laws. You risk legal action if you squat on trademarks or use them in your domains. As a thumb rule, never register a domain name with the intention of selling it to the trademark owner or the company.
Though you are free to register any domain name, the ones bought to benefit from the reputation of established brands and trademarks may get you a place in the long list of domain squatters. If you are buying a country-specific domain, check the applicable laws and norms to stay on the safe side.
TRUE VALUEIf you think putting a price tag to a domain is like gambling, you are wrong. Seasoned domainers put a domain through an appraisal process before investing. Several professionals and companies offer this service. The valuation is based on parameters such as age, length, search popularity, e-commerce potential and likely future valuation.
The top-level domain (TLD), or the extension found at the end of a domain, is an important factor dictating its value. Some TLDs, such as .com, .net and .org, have more demand than others. Country-specific domains such as .us, .in and .fr are considered less valuable than their counterparts with global-scope TLDs like .com and .net.
For domainers, bigger is not better. Short and simple names are valued more as they are easy to remember. It is one reason for the high valuation of single-word domains.
Domains can contain alphabets, digits and special characters such as hyphens. Domains that contain only letters are in greater demand than those with numbers or hyphens. A domain with digits and special characters requires extra effort for memorising and typing the address in the browser.
The value of a domain depends on the number of suitors. If there are alternative names available, a buyer may register a new domain or go for the cheaper option.
A domain name that targets a large market will be more valued. The number of advertisers for a specific term also dictates a domain's earning potential.
A domain with the potential to become a good brand is valued more. This is one reason single-word domains are valued. Even multi-word domains based on popular phrases are prized possessions.
A domain name in a widely spoken language will be valued highly.