OPINION

Getting Ahead in Domain Name Trading

Most of us are painfully aware that the real estate market has been on the decline for some time. In fact, some experts feel that it might take at least two years for prices to hit bottom. However, an interesting twist is bringing good news: Virtual real estate prices (domain names) are on the rise! In fact, we now have active trading in domain names.

Last August, I wrote an article for the E-Commerce Times titled “Domain Names: The Latest Real Estate Deals.” In it, I said: “I consider the Internet as a virtual reflection of the entire world economy. Just about every business of any significance has a Web site — thus a domain name. In fact, many individuals presently have their own Web site.”

Virtually Pricey

In real estate, the old saying as to what drives value is “location, location, location.” However, in virtual real estate, location isn’t really applicable. What drives prices is the vehicle (domain name) that will get you to the right location — the right placement for search engines.

Entrepreneurs are constantly on the lookout for domain names that will create value based upon a catchy word or phrase in the Web site name. There is intense interest in the type of domain names that will push upwards the potential number of viewers, thus the location in a search engine.

Creating or finding such a domain name is not as easy as it might sound. Yet entrepreneurs are continually registering what they regard as killer domain names that might have some value in the near future. They are watching trends, emerging industries and new applications.

What they are on the lookout for is any new product or service that might have a mass audience. If they can attach a catchy name for that product or service, the chances are good that the people running such a company would pay substantially for a domain name that will give them a vast audience.

Feeling Comfortable With Prices

Prices of domain names actually are being driven upwards through auctions. Regarding this type of trading, The New York Times recently ran an article titled “Coins in the New Realm.” Brad Stone, the writer of that article, said: “The practitioners’ fundamental assertion — that names of Web sites can be valuable, cash-generating assets just like stocks, bonds or property — appears to be gaining a broader acceptance that veteran domainers are not accustomed to and may not be totally comfortable with.”

My feeling is that the virtual real estate craze is not going to go away anytime soon. Any commercial enterprise ignores the power of the Internet at its peril. In this day and age, I can’t imagine a business of any considerable size without an Internet presence — a domain name.

This being the case, smart money is on the lookout for catchy names.

Recent Auctions and Prices

A good site for a listing of domain name offerings is Sedo.com, a German-based company with offices in the U.S. A Boston Globe article last year stated that Sedo is as a sort of eBay for domain names and handles more than US$3 million in transactions each month.

I recently looked at the Sedo site and found a plethora of domain names listed — some for as little as $60, others going into the thousands. Additionally, there was quite a broad spectrum of sites available.

Another interesting site that I recently visited was Afternic.com. I found this site different than Sedo in that there were many domain names listed with prices going well into the thousands. In fact, this company styles itself as the “world’s leading premium domain marketplace.”

Afternic, like some other sites, allows you to actively bid for a domain name. Believe it or not, there is actually a link to order an appraisal for a domain name. Isn’t this starting to sound like actual real estate activity? In many ways, it is. The difference here is that we are talking about virtual real estate.

Looking to the Future

With the Internet not only here to stay but an absolute necessity for a business of any size, there is no doubt in my mind that domain names will continue to be created and sought after. In fact, when I made a Google search titled “domain name auctions,” I got more than 230,000 hits!

In addition, we now have the equivalent of domain name real estate agents — that is, people and companies that assist you in searching for and acquiring an appropriate domain name. Some of these companies, for a price, will even provide you with domain name appraisals — just like the real-life appraisers in the real estate market.

Domain name appraisers in fact have become quite prominent. If you go to Google, for example, and search for “domain name appraisers,” you will get about the same number of hits as for “domain name auctions” — over 200,000. It seems to me that virtual real estate has created a new profession: domain name appraiser.

Just as in the stock market, there is money to be made — and lost — in domain name trading. From a seller’s point of view, the objective is to get the highest price as possible. From the buyer’s point of view, it’s still caveat emptor — buyer beware! Good luck!


Theodore F. di Stefano is a founder and managing partner at Capital Source Partners, which provides a wide range of investment banking services to the small and medium-sized business. He is also a frequent speaker to business groups on financial and corporate governance matters. He can be contacted at Ted@capitalsourcepartners.com.


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