Domain Names are Undervalued Because... | DomainInvesting.com
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Domain Names are Undervalued Because…

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I think domain names are considerably undervalued when compared to other business asset classes. Most companies would rather spend money investing in a quality piece of land rather than a category defining domain name.

As a domain investor, I would rather own the domain name Candles.com than buy a piece of land where I can build the biggest and best candle store. No matter how great this candle store is and where it’s located, it still can’t reach 1/100th of the people a domain name like Candles.com can reach.

I believe domain names are undervalued for a few reasons:

Many business owners still don’t understand how the Internet works. You could give many business owners the best category defining domain name, but they would have no idea what to do with it or how to build a website. There is also still a tremendous amount of disparity in web development. I could put out a bid on a fully interactive website and you can bet I would get bids ranging from a few hundred dollars to tens of thousands of dollars for the exact same quote. If a business owner doesn’t know how to approach this, it’s easier to focus on what is tried and true.

Many people would prefer to build their own unique brand than to spend an extraordinary amount of money on a generic domain name. In marketing classes, people are taught to differentiate themselves via their brand, and if they name their company XYZ Swimming Pools, business owners seem to want to stick with their brand. Perhaps it’s ego or lack of knowledge about direct navigation traffic and web conversion.

Although there are at least a couple of easy ways to finance a domain name acquisition (Domain Capital or DigiLoan), I imagine it would be tough to convince a bank to give a large loan to finance a domain purchase. It’s easier to take out money to expand a small business in a local community than it would be to buy a domain name to enhance a company’s presence online.

There is no MLS-like system that can give consistently accurate domain values. Even similar domain names can have hugely different values, and there is no way to get an appraisal that is totally accurate. You can’t expect someone to spend tens or hundreds of thousands of dollars on a domain name when he has no idea if the domain name is worth the price.

What do you think?


About The Author: Elliot Silver is an Internet entrepreneur and publisher of DomainInvesting.com. Elliot is also the founder and President of Top Notch Domains, LLC, a company that has sold seven figures worth of domain names in the last five years. Please read the DomainInvesting.com Terms of Use page for additional information about the publisher, website comment policy, disclosures, and conflicts of interest.


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Comments (14)

    Leonard Britt

    Yes, even large companies will often pour $$$$$$ into branding a “brandable” or reg fee domain rather than acquiring a quality generic.

    July 16th, 2009 at 11:35 am

    dcmike77

    If you’re saying domain names are a better investment than real estate you’re entirely misinformed. The generous tax and loan benefits, higher liquidity, deep ‘end-user’ market, greater transparency, etc put RE in a FAR better position than domaining.

    However for beginner investors or those with smaller pocket books, domains are a solid alternative.

    July 16th, 2009 at 12:15 pm

      Elliot

      @ Mike

      LOL… I am saying that I would rather have the best domain name for a candle store than an actual candle store (or some other type of similar e-commerce product store/domain name).

      I think RE can be a better investment, but I also think domains can be a better investment in some circumstances depending on a person’s risk tolerance and investment timeline. Do you own a house or apartment in LA? How much value has it lost in the last 2 years? I can only think of 1 domain name that I sold where I actually lost money.

      I wouldn’t advise a friend to sell his apartment or home in order to buy domain names though for sure.

      July 16th, 2009 at 12:20 pm

    robb

    dnjournal just put out a post today showing more advertising losses for traditional media, and more money being spent on online advertising. This makes me think good domains may still be undervalued – more domains get taken and developped everyday, leaving a smaller pool of quality names. More people will be fighting for less domains, while online advertising continues to grow. Online is the place to be and it just keeps growing every year.

    July 16th, 2009 at 1:34 pm

    Snoopy

    Most gold producers thing gold is underpriced as well, you are likely preaching to people who will mostly agree with you, rightly or wrongly.

    July 16th, 2009 at 6:26 pm

      Elliot

      @Snoopy

      So why not give your opinion instead of a comment like that?

      July 16th, 2009 at 6:33 pm

    Snoopy

    Personally I have no idea on the direction of the market, I certainly think it is much higher risk than say 5 years ago. Personally I wouldn’t invest much until there is clear signs of the industry bottoming out.

    My point was though the argument has been done to death and you’ll just get most people agreeing with you because they own lots of domains, just like the gold producer will likely tell you gold is cheap.

    July 16th, 2009 at 6:54 pm

    George Pickering

    Many top domainers built their portfolios during the dot com bust when great domains were being dropped. I see many quality domains being released that could easily be sold or developed with the potential to make 10X+ your investment.

    I would rather bet on myself, since you can’t get those returns from any other investment now that the stock market, housing, and other markets have gone from bubble to bust.

    July 16th, 2009 at 9:49 pm

    Nigel

    It’s early days yet. Internet marketing isn’t widely understood. Domain name prices are still viewed in a vauum. Big company marketing departments still don’t get that a domain is a longterm play. They won’t think twice about spending hundreds of thousands of dollars, if not millions, on an advertising campaign that may last a year. But they don’t see the correlation to paying for a domain.

    I advised a client recently to pay $14K for a name. He balked at first, abd said I was nuts. But I explained that, depreciating the cost of the name over five years came to $2800 a year, a fraction of his annual advetising budget. And, at the end of five years he’d still be getting value from the name. Looked at in that light, buying the name just made good business sense and he went ahead and aquired it.

    As the economy comes back, I think we will see more people making similar rationalizations. We just need to give it some time.

    July 17th, 2009 at 1:07 am

    Snoopy

    “Many top domainers built their portfolios during the dot com bust when great domains were being dropped. I see many quality domains being released that could easily be sold or developed with the potential to make 10X+ your investment.”

    I think now is a vert different time to back then. During the bust people were able to pick up names for reg fee that paid for themselves in a couple of days, people were bound to get rich, it was a certainty. Today the hope is more centetered around “if these names go up in value”. It is more about speculation today rather than opportunities that definately work. The market is mature now.

    Agree about betting on yourself though. Dveleopment also is probably a good opportunity for those who want to focus on a couple of names, I’m not sure it is really a domaining strategy though – ie it doesn’t scale.

    Agree about the stock and housing market, though the domain market has done just as badly since 2007.

    July 17th, 2009 at 2:57 am

    marko

    i have purchased about 2 k of names ,made a reasoable profit but in no comparison to flip real estate, before credit crunch you could buy props at 100 percent loan at foreclosure and auction and have instant profit of 30 per cent at least, mostly more.
    i admit not so easy now in the uk ,but things will change.

    July 17th, 2009 at 6:14 am

    Perchboy

    I’m wondering how the ability of large corporations to purchase their own tld will impact the domain name sector.

    It may simply add to the confusion, thereby further solidifying .com as the supreme king of domain suffixes.

    Consumers will either adapt and become conversant with .coke and .ibm, or remain comfortable with .com as their primary tld in their mindspace.

    The Castello brothers appear fairly confident that .com will remain strong in the foreseeable future and I would not bet against them.

    July 17th, 2009 at 12:17 pm

    Ozie Jackson

    Of course no one can predict what the future holds but I believe we have barely scratched the tip of the iceberg when it comes to unlocking the true potential of holding or creating a valuable domain presence. If you look at the history of the worlds greatest advertising/information mediums:

    Newspapers have been around approx. 500 years
    Magazines have been around approx. 400 – 500 yrs
    Radio has been around 80 to 90 years
    Modern TV has been around 70+ years

    The world wide web, as we know it, has been around…maybe 20 years? All of those mediums took time to develop into the advertising platforms as we now know them to be. I mean companies are paying $1 million for 30 second Super Bowl commercials on a medium that is less than 100 years old.

    The general public corporations etc are just starting to get it with domains. Whether you create a brand (Google) or own a generic (News.com). As human thirst for immediate and accessible information grows I just can’t see how domain value, minus some bumps in the road, will not increase over time.

    July 17th, 2009 at 6:57 pm

    stephen douglas

    @ dcmike77

    Obviously, you have failed yourself by not buying the Domain Tax Guide at DomainTaxGuide.com (El-Silver probably has a link on his site for it). Sandra Brooks, agreeably the best CPA for providing tax info for thousands of domainers, is the author.

    You can present your domain investments as real estate style investments, as long as proper records are maintained. I suggest you purchase her report at http://www.domaintaxguide.com.

    July 19th, 2009 at 8:49 am

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