You've decided on a domain name for your new business, and
the domain is already registered and for sale. How much should you be
willing to pay? This is becoming a common question, as so many quality
domain names have already been taken. While there is no scientific
method to determine a precise value for any domain name, there are some
considerations that go into determining a reasonable ballpark value for
that domain name you want. Please read on, and learn about some of the
techniques professional domain appraisal companies utilize to ply their
trade.
Valuation Factors
There are quite a few technical factors that go into
determining what a domain name is worth, and there are differences of
opinion as to the relative importance of the various factors. Here we
will examine a number of commonly considered parameters in domain
valuation. This collection is not necessarily meant to be
all-inclusive, but is instead intended to give you a flavor of many of
the fine points to consider.
One of the most important considerations in valuing a domain
name is the "TLD," or Top Level Domain. This is the extension that
appears at the end of the domain name, such as .com, .net, .org, etc.
All other things being equal, a .com name will generally sell for about
four times the otherwise equivalent domain in one of the other common
global extensions, such as .net, .org, and .info. The .mobi extension,
utilized for content to be delivered to mobile devices, is rapidly
gaining popularity and value, especially for domain names suitable for
such devices. Some country specific domains, such as .co.uk and .de
(Germany) are very prestigious, and can also command high prices in
certain cases. The .tv extension, later to hopefully be used in
connection with internet enabled TV, results only occasionally in high
value sales at current (until hardware, distribution, and media
companies resolve their mutual "cut of the pie" concerns, there is
likely to be little content to drive this market).
An extremely important consideration in the value of a domain
name is the number of words it contains. Single "real word" domains (no
misspellings or abbreviations), especially in easily monetizable
internet industries, can be enormously valuable, particularly in the
.com extension. Two word domains, again without misspellings or
abbreviations, can also be quite valuable, as long as the domain name
can easily be monetized, and the TLD is of high quality. Values really
plunge when you get to three words or more.
Domains containing misspellings, abbreviations, hyphens,
characters not on a standard keyboard, and other oddities often have
very little value. Also, domains containing phrases that are
trademarked may be worth nothing, as the trademark owner may be able to
summarily confiscate the domain.
The extent to which a domain can be monetized has a major
impact on its value. Domains in the sex, financial, and health
industries often top the list in terms of high value sales. Domains
related to industries that cannot easily generate revenue on the web
will usually have little value.
Generic domains tend to be more valuable than non-generic
ones. A generic domain is one that contains only real words (ones you
can find in a dictionary), and has no contribution from proper names
(first or last). Generic .com domain names in highly monetizable
industries can be immensely valuable, and are for the most part very
hard to obtain (without spending a lot of money!).
The number of letters in a domain name also affects its
value. Three letter .com names can be quite valuable, even if they mean
nothing. Four letter .com names usually need to be pronounceable to
have value, but they need not necessarily be real words in the
dictionary (cool sounding four letter .com names can be very brandable,
even if they are made up). When you get to five letters or more, value
is driven by quality of the word or words (generic vs. non-generic,
monetizable vs. non- monetizable, etc.). Once you start getting over
8-9 letters, value tends to decrease a lot, unless the name is highly
monetizable.
The extent to which a domain can be branded may be very
important in determining value. Domain names that are easy to say and
remember, easy to type in, highly reflective of predictable monetizable
content, and/or generate a lot of "type-in" traffic (people typing your
domain name directly into the address box in their browser rather than
finding your domain via a search engine) are highly sought after, and
may transact for significant sums.
The size and profitability of the market to which the domain
name applies is also important. This directly impacts how easily the
domain name can be monetized. Needless to say, products and services
that do not lend themselves to e-commerce (directly, or indirectly
through selling ad space) will most often have little value.
We could go on almost forever listing factors that impact the value
of a domain, but the above gives you a sense of what to consider.
Where's The Beef?
You'll notice the discussion thus far has presented no magic
formulas for computing the right price to pay for your new domain name.
I would love to give you a cool formula with lots of neat math symbols,
but sadly things aren't that simple or elegant. In order to understand
what you are going to have to pay, you need to learn a few things about
the domain aftermarket.
First, there is way more supply than demand. This at first
may sound encouraging, but unfortunately it isn't. Most domain
resellers are very inexperienced, and tend to price their domains way
too high, and as a result drive buyers away. Haggling often results in
little movement in the price.
Second, the really great names, one or two real word .com
domains in high traffic, high margin internet sectors are essentially
all bought up. They do sometimes become available for sale, but always
at extravagant prices.
Third, you have to be very careful when buying non-generic
domain names (domains containing words that are not in the dictionary,
or domains containing words that are in the dictionary but combine to
form an unusual phrase that the courts will not consider "public
domain"). These domains may be protected by a trademark. In such cases,
the trademark owner can sue for ownership in court, and quite possibly
be able to confiscate your domain without remuneration.
The Bottom Line
At this point you're probably wondering how much to pay for
that domain on the aftermarket. As stated above, I can't give you a
precise formula. I can, however, give you some advice based on the
above principles, via reference to contemporary sales history. The
basic idea is that I can provide you with anticipated price ranges
(rather broad ones) that seem to be well in sync with recent domain
auction closings.
At the very top of the spectrum, you have one word, and very
high quality two word, generic domains in easily monetizable internet
sectors. These may sell for $100,000 USD or more, and will usually have
.com extensions, although occasionally some will be in other high value
TLD's (such as .net, ,org, .info, .mobi, .co.uk, and .de). The very
best of these domains may approach $10,000,000.
Global (non-country specific) TLD's other than .com's rarely
sell for more than $100,000. The best of these, again one word and very
high quality two word generic domains in easily monetizable internet
sectors, usually sell for between $10,000 and $100,000, but sometimes
may go as high as about $250,000. The best country specific extensions,
mainly .co.uk and .de, lend themselves to the same kind of pricing as
the non-.com global
TLD's ($10,000 - $100,000). Some excellent domains in the .eu (Europe),
.se (Sweden), .tv (Tuvalu), and .ch (Switzerland) extensions are
starting to command these prices too.
Every week, there are several dozen sales of .com domains in
the $10,000 to $100,000 range. These tend to be one to two word
generics, but not as easily monetizable as the ones that sell for over
$100,000.
There is an active aftermarket in two to three word .com names that
are long (10 letters or more) and sell for $2,000 to $10,000. These
tend to be generic, although some non-generics may be found here as
well. These domains will in general be harder to monetize than the more
premium names, either due to industry (not a high profit internet
sector) or scope (serve only a subset of a larger sector).
There is also a market in global TLD's other than .com's in
the $2,500 to $10,000 range. .net's and .mobi's tend to dominate this
space, although you will also find .org's and .info's here. These are
generally one to two word generics that are less monetizable than their
otherwise equivalent brethren that sell for more.
Certain country specific domains tend to sell in the $1,000 to
$10,000 range. These tend to be one word or short two word generics in
the most attractive country extensions (especially .co.uk, .de, .eu,
and .tv). Needless to say, these are not as monetizable as their more
premium brethren.
If the domain you want does not fall into one of the above
categories, you should think long and hard before spending more than
$2,000 or so. Admittedly, there will be times when purchasing a
particular non-generic name may be unavoidable (e.g., you already have
an offline business name which is not trademarked, and need the
corresponding domain for your online presence). The key point here is
that absent proof of pre-existing heavy traffic, and/or profits from an
already deployed web site at the domain, these names are just not that
valuable.
In Closing
My hope is that this article has helped you to become a more
educated domain buyer. The main takeaway should be that unless you have
a truly urgent need to obtain a specific domain, you should use common
sense principles and not overpay. Remember, in spite of the fact that
so many good names are taken, most domains just sit and wait at
aftermarkets like Sedo and Afternic because of the vast supply
overhang. If the owner of the domain you want will not sell for a
reasonable price, try to be creative and find alternatives, like using
a different TLD, pluralizing, reordering the phrase words, etc.
The internet domain market will never lend itself to
discounted cash flow pricing like financial securities, and the value
of a domain is really nothing more than what the market will bear.
Ultimately, values are determined by sale prices of similar domains.
This article has hopefully armed you with that knowledge so you can
negotiate with confidence.
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