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Domain Names: Are These Hot Commodities a Sound Investment?

This technology can lead you from bottom to top or reverse

21Jul

A domain name is much more than a structured string of letters, symbols, and numbers that relate to a specific IP. In a tech-centric world, it acts as prime pieces of digital real estate, the building block of the internet. As the cyber universe expands at a rapid pace, the demand for good domains has never been higher. Indeed, ever since the digital revolution put them in the spotlight, the investors do not rest idle. They strive to carefully weigh the risk and returns before diving into an online ocean of opportunities.

Name of the game

There is no doubt that the domain name market is becoming huge. Let us just mention the famous example of ‘insure.com’, which set the world record with $16 million back in 2009. Even lengthier and less attractive names are sold for hundreds of dollars. Many investors have taken notice and now seek to move domain names for a hefty profit. Some of them want strength in numbers and purchase hundreds of domains, while others opt for high profile domains.

Furthermore, there are different types of domain names. Generic names that depict a product and service can be a great asset. The same goes for generic business names such as a lawyer or agent. Geographical names are popular as well as they cater to community portals, websites, and businesses that target local audiences. There are no hard rules to striking gold, but familiarizing yourself with these basic concepts is a leap in the right direction.

Likewise, potential investors must consider why someone would like to own a specific domain. In, other words, what is their value aside from the resale? Well, a domain name is the branding hallmark, a powerful marketing tool. Thus, it does not come as a surprise that business organizations fight tooth and neck to secure them. Domains are also attractive to those who are doing market research and need names for their analytical work.

Digital marketplaces

There is no shortage of ways to go about selling and buying domain names. Famous hubs like GoDaddy.com use auction method to facilitate transactions. Here, a lot of interest can drive the price tag up significantly. On the other hand, we also come across specialized websites that purchase and sell domains. These make-an-offer sales are associated with niche domains and those that do not spark that much attention.

Also, bear in mind that you can obtain whole domain lists for the purpose of crawling. There are many online services that offer access to gTLDs, new gTLDs, and ccTLDs and their zone files.They most often employ employ big data tools to gather lists of all available domain names day by day. What is more, some of the common practices involve reverse engineering algorithms, utilization of third-party sources, and standard internet crawling.

Blurred lines

It must be said that building a rock-solid domain name portfolio takes much time and effort. Besides, there are some pitfalls like misleading appraisals and shady escrow methods to avoid. The risk is also present in the form of questionable legality and liquidity of domain names. Namely, unlike bonds and stocks, they are not sold or bought via a broker and finding the right customer can take forever.

This also brings us to the matter of subjectivity. Names cannot be valued based on predicted cash flows or coupon payments and interest rates. Their valuation is not rooted in any tangible criteria. In fact, the value depends on future ranking and volume of traffic. From the legal standpoint, things can get murky as well. This is due to the fact that one must steer away from copyright and trademark issues that could result in domain forfeiture.

Sellers with a large portfolio are not bothered by all of this: They usually set the price and then wait patiently for offers. They are fine with the long time horizon and have a high-risk tolerance. For them, buying domain names is an innovative way to diversify the portfolio and, of course, reap material benefits. However, those who are looking for some quick and easy cash may find this endeavor to be a dicey proposition, to say the least.

Assess pros and cons

Domain names can be a lucrative investment, but as a digital commodity, they come with their unique set of risks. The best strategy is to go step by step. Start by developing a deeper understanding of the market and learning the ropes. Bear in mind that there is no surefire method you can rely on. Therefore, you better know what you are getting yourself into and not take the plunge blindfolded. 

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