Domain Names are Undervalued Because…
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?
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