Determining the value of a domain name
Determining the value of a domain name is a complex issue which starts with the prospective purchaser. There are essentially 2 types of domain name buyers, firstly the end user and secondly the domain speculator.
An end user may want to purchase the domain name for a number of different reasons:
- For a development project, be it for a new business or an existing business
- To benefit from type in traffic in the case of generic product or service domain names
- To prevent a competitor from acquiring the name
- To measure a traditional advertising campaign by directing traffic to a different domain
- To make the brand synonymous with the product or service
- To shorten a long company name, eg: law firms or accounting firms that use names of partners in the business name
The value is determined in the old fashioned way where we have a willing buyer and a willing seller who negotiate a price and conclude a deal. Many potential buyers find it difficult to justify a purchase in the thousands or millions of Dollars range but should remember that thereafter the cost is purely an annual renewal fee of between $7 and $40 depending on the extension.
The End user should consider firstly that the domain name is an asset with a resale value, what value is placed on preventing a competitor from owning the domain name and potentially dominating the space, the value of new customers derived through the domain name and the value of that customer in the future.
When we carefully consider these factors, the purchase price is a lot easier to justify and provides good reasoning for what may initially appear to be very large sums of money paid for domains like Toys.com, Slots.com which both sold for over $5 million, or in the co.za domain space, furniture.co.za at $33 000 or poker.co.za at $45 000.
A domain speculator may have deep pockets and be willing to pay large sums of money for generic domains that will not diminish in value and with the knowledge that at some stage it will be bought for a higher price. He also needs to be forward thinking, attempting to predict future trends, a good example would be 3D digital products like televisions and cameras. Possibly the most important factor for a speculator is to monetize the domain name during the holding period in order to achieve a return sooner rather than later.
Domain name speculation is not to be confused with Cybersquatting, which is:
registering, trafficking in, or using a domain name with bad faith intent to profit from the goodwill of a trademark belonging to someone else.
Domain names are the real estate or billboards of the internet