What is domain name investing?
Investing in domain names can be compared with investing in real estate. In fact, it is more like it than you would imagine.
Think of a beautiful waterfront property in a sought after suburb. There are not too many of those. Prime location and scarcity contribute to their value. Independent of the strength of the economy, there is usually always an interested buyer.
Domain names behave in the same way. Only that the proximity to the water is represented by the length of the domain. In other words, the closer a place is to the waterfront or the shorter a domain name is, the more valuable it is.
And like real estate properties, every domain name is unique under its extension. If you want a particular property on Waiheke island, you have to pay what the owner asks for it (if it is ever up for sale). Same is true for domain names.
Investing in Domain Names is
similar to investing in Real Estate.
For example, any hotel or hotel chain would benefit highly from owning the domain name “hotel” or “hotels”. On top of being very brand-able and memorable, being an exact match of what people would type into their browser when searching for accommodation, those domains would guarantee them a lot of valuable traffic. Now imagine you were the owner of those domains and you set the buying price …
Following a list of the all-time top 10 domain name sales:
- Sex.com — $13,000,000
- Fund.com — $9,999,950
- Porn.com — $9,500,000
- Porno.com — $8,888,888
- We.com — $8,000,000
- Diamond.com — $7,500,000
- Z.com — $6,784,000
- Slots.com — $5,500,000
- Toys.com — $5,100,000
- Clothes.com — $4,900,000
These are some exceptionally valuable domain names and their sale prices are far from being common every day sales. The majority of every day domain name sales are somewhere between a few hundred to few thousand dollars. To give you a better idea on the investment return on domain names, here a few examples of some successful .NZ domain name sales over the years.
- sex.co.nz — $28,000
- rentalproperties.co.nz — $5,020
- onlive.co.nz — $$5,000
- payless.co.nz — $5,000
- real-estate.co.nz — $5,000
- kin.co.nz — $3,750
- greenstone.co.nz — $3,500
- travelguide.co.nz — $3,500
- cq.co.nz — $3,300
- hg.co.nz — $2,310
As you can see, those prices are far away from the international top 10. There are a couple of reasons for that, New Zealand being a small country with smaller economy is one of them. We have compiled a short 6 point guide to help you better understand the value of domain names and what to consider when investing in domain names.
1. The Name
As a rule of thumb, the shorter the name the better, the longer the less valuable; with short single generic words being the best. Think of “hotels”, “cash”, “buy”, “deals”, … vs longer combined words “ChristChurchHotels”, “BuyYourProducts”. While the latter may still hold value, it might take you on average longer to find an interested buyer.
Single generic words are a relatively secure investment. There will always be a buyer for domain names like “shoes”, or “clothes” or “pizza”. These domain names are a save investment in the worst of times and can achieve incredible profits during economical growth spurts.
Take the inspiring example of Rick Schwartz, the “Domain Name King”. Rick bought the domain name “ebet.com” for a mere $100 USD and sold it 17 years later for an eye watering $1,350,000.
2. The extension
There are literally hundreds of domain extensions to chose from and it would be dishonest to say that all of them are able to achieve the same aftermarket sell value. Aside of the name, the extension makes up for the biggest part of the value.
The king of domain extensions is without doubt .COM and has been so for over 20 years. It has been once of the first extensions and is loved and trusted by users in all countries around the world. Being used worldwide and hosting names under all languages, .COM raked up an impressive amount of 128 million domain names over the years.
With such a Hugh amount of domains registered, it comes as no surprise that it is getting harder and harder to hand-register investable and valuable .COM domain names, not impossible, but harder. On the contrary, with under 800.000 names between .NZ and .CO.NZ our local name space has still a lot to offer.
Admittedly, there is less interest in .NZ domain on the worldwide stage compared to a .COM domain name. But as there are fewer names registered in total, you have a high chance of securing really good .NZ domain names.
There are still a lot of great
opportunities under .nz and .kiwi.
3. The Industry/Market Size
The more profitable an industry is, the higher the price tag of related domain names. Think of businesses dealing with jewellery, diamonds or loans etc. These are very lucrative sectors with high profit margins. For that reason domain names related to those are in general quite expensive, or in other words, highly investable.
The domain name luxurycars.NZ is likely to generate healthier profit margins for its owner than a random name like “MyLittleCupCakesBakery”. While I have nothing against cupcakes, on the contrary … I love them, in this example they cannot win. As possible future domain investor this means you should focus on profitable industries. The more money a industry has, the more money there is for important domain name acquisitions.
Domain names with focus on this category, can be exceptions to the general “the shorter the better” domain name rule. For example exact match generic compound nouns like “real estate investments” or “mortgage broker” are a bit longer but can be evaluated higher due to their profitable sector. See the domain rentalproperties.co.nz in the list above.
We also need to take the market size into consideration. While the above mentioned luxury items target only a smaller but high profile market, there are plenty of cheaper products that target a much bigger market. “Refurbished iphones” are not as luxurious as diamonds but have a much larger possible audience.
4. Brand-ability
Brand-ability is important for domain name investing. TradeMe is probably the best example for this category. This domain is not a single word generic term, nor is it related to high profit industries. What makes this domain name great is the high brand-ability. There are many name combinations out there that basically just wait to become the next big brand name everyone knows. To get your creativity going, think of terms like “MyCash”, “InstantLoan”, “CouponList”, …
Not only do those names catchy and sound great, they give an instant indication what the business behind them is about. They would also easily pass the so called “pub or bar test”, which some consider important for naming a businesses. Imagine you sit in a really busy bar or pub. People around you are laughing, shouting and are having fun.
The only way to have a conversation is to partially shout at each other. You are having a chat with someone (who could be a potential customer or future business partner etc.) who asks you what you do for work. You tell them your company name. Would they be able to understand and remember it? This is a common scenario under which deals are made.
If you have to repeat the name 4, 5, or more times for them to understand. It might not be a highly brand-able term. Catchy combined names that indicate what a business is about, are good brand-able names and can be a good investment. A good example for this is the domain payless.co.nz in the list above.
Make sure to register brand-able
and easy memorable domain names.
5. Do your research
As with all good things, research is the breakfast of the successful and domain investing is no exception. There are countless sources with lists of past domain names sales. These are a great place to start and build up some feeling for domain names and trends. Let’s use one of those hall-of-fame sales as an example.
If you know that the domain name diamond.com has been sold for $7,5 million and that “diamond” has also been sold or is already registered under other extensions like .COM.AU, .CO.UK etc., the chance that this name will fetch a good price under .NZ is relatively high.
Have a look which names have sold in Australia or the United States. There is a chance those names are still available for registration under .NZ. Even if they are already registered, some might be available for cheap with a higher profit to be made if kept and resold at a later stage.
Other than domain sales lists, you can make use of domain name evaluation tools like estibot.com or the one provided by the biggest domain selling platform sedo.com. Platforms like these use their vast databases and historical records to check how much exact names under other extensions or similar domains under the same extensions have been sold for.
A very important part of the research is the trademark check. Avoid registering names that are trademarked. While it is usually hard to impossible for companies to trademark a single generic term – who has the right to own an English word like “hotel” or “money”?
Combined names are a different story. TradeMe for example is a registered trademark and therefore protected. Use the Trademark Search of the New Zealand Intellectual Property database if you are not about your chosen domain name.
6. Be patient
Investing in domains is like any other investment opportunity (except for maybe Auckland real estate, which is out of control currently), domain names are not hot cakes, they don’t sell “overnight”. Domain investors usually register and build a portfolio of domains and hold those until an interested buyer makes a lucrative offer. Quality should always be preferred over quantity.
There are domain investors that own few thousand domain names. Their job is buying and selling domain names. You don’t need to become a full time domain investor to own a portfolio of domain names.
Register and hold onto a handful of good domains and you have a chance to make a good return in future. Given that you chose good names of course. MyGrandMothers–SpecialOld–SchoolRecipes.NZ is likely to never find a buyer.
Feel free to contact us if you want to become a domain name investor and have questions. We are happy to give you some more insight.
Start with a few domain names
and built a healthy portfolio.
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Start your own domain portfolio. Enter your names in the box below and check if your preferred domain names are still available.
If you are hooked and want to learn more about domain investing, the following are good sources for detailed guides and insider knowledge:
domaininvesting.com
dnjournal.com
domainsherpa.com
whizzbangsblog.com
domainnamewire.com
domaining.com
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