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Learn Why a Domain Name Has Value

18

I think a majority of the comments I receive on my articles listing the previous week’s domain sales that took place at Sedo and Afternic fall into one of four categories:

  • Most of those domain names suck
  • My domain names are much better
  • I don’t understand why names like that are selling
  • [Domain Name] was a good deal for the [buyer / seller]

Instead of looking at the list of domain names and comparing them to what you own or analyzing them on their merits, I think you need to dig a little deeper and try to determine why each domain name sold. Do a Whois search to see who bought the domain names. When the Whois reflects the new owner, type in the domain name to see what the new owner is doing with it.

Check out Andrew’s post today about some of the interesting end user acquisitions from last week. While in a vacuum environment, it might not make sense that some of those domain names sold at those prices, when you dig a bit deeper, you begin to see why they sold. Oftentimes, companies with unique brand identities want to upgrade to a better domain name. Other times, companies have a marketing campaign and the domain name is beneficial.

As domain investors, we tend to crucify companies that don’t “get it” when it comes to domain names. They may try to be cutesy by using domain hacks or alternative extensions. They may also add a LLC to the domain name or an abbreviation like NY or CA to identify themselves. If they have the chance to buy the exact match domain name for their company, even if their company name seems to suck, it’s a smart move.

I may not think the company name Linens N Things is good, but it would be worse if the company used LinensNThingsNYC.com because their desired name was unavailable when they needed it.

When you are looking at the weekly sales, forget the sales prices on what seems like random domain names. In many of these cases, the sales price doesn’t really matter and may not make sense. The reason that’s the case is that it boils down to a domain owner’s need for money, negotiation skills, and the buyer’s need for a particular domain name.

If a domain owner doesn’t need the cash, he can hold out for a better offer on a seemingly average domain name. Similarly, if a company needs a domain name, they may be willing to pay more, even though they’re likely the only entity that could ever want the domain name. In short, the prices on brandable domain names shouldn’t really matter to you since they can’t really be used as comps.

The next time you read the weekly sales list, instead of complaining about the domain names that sold or lamenting about how much better your domain names are, why not spend an hour researching who bought what domain names. It will be more helpful to you and your business.


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 (18)

    Poor Uncle

    Thanks for this helpful tip.

    November 30th, 2011 at 10:59 am

    Tony

    Digging might help you understand the backstory/reasons for the purchase but it won’t help you with future sales as these sales are usually situational.

    November 30th, 2011 at 11:18 am

    Elliot Silver

    @ Tony

    I agree… although when you do enough research, you begin to see patterns. If you see a particular company buying a specific type of domain name, you can either check to see if you have any similar names to offer them or you can try to acquire similar names in the aftermarket for less than they’re paying. The second is more of a gamble, but it takes money and a certain degree of risk to be successful. I wouldn’t buy names that have little commercial use though. Always have an alternate plan if your name doesn’t sell… so don’t buy a domain name ONLY because you want to sell it to one company.

    November 30th, 2011 at 11:21 am

    RH

    the prices on brandable domain names shouldn’t really matter to you since they can’t really be used as comps.

    That was the best line of the post, excellent.

    I agree with your post Elliot, but sometimes there are names that are legitimate to say what the heck ? Those are the ones people tend to focus on, but with research a lot of names can be understood.

    November 30th, 2011 at 11:21 am

    Elliot Silver

    “sometimes there are names that are legitimate to say what the heck”

    @ RH

    Absolutely… and if you’ve done research for a while, you will know which ones are anomalies.

    November 30th, 2011 at 11:22 am

    Brad Mugford

    I think good domain sales are generally the function of a few key components –

    1.) Average to Great domain.
    2.) Interested buyer with money.

    and the most important factor –

    3.) Owners who are financially secure enough to say “no” to what others would consider great offers.

    Most of the sales that leave you scratching your head are #2 and #3 combined.

    Also, owning a lot of quality domains helps your odds. If you only own a couple of domains, obviously the odds of getting a good offer are a lot lower.

    Brad

    November 30th, 2011 at 11:24 am

    Domains

    @Brad perfectly said

    The great thing about domaining!

    yes at times im in shock or shake my head but if a buyer wants it, they want the name imo.

    Focus on your own portfolio and names. Forget worrying about what sells for this amount. Only so many hours in the day IMO.

    November 30th, 2011 at 11:58 am

    Yan Huang

    Great blog entry! I like the way you broke it down–getting into the frame my mind to see where the buyer and seller is coming from, and understanding the transaction from a more in depth perspective.

    Keep up the good work!

    November 30th, 2011 at 12:04 pm

    Jeroen

    Great advice Elliot.

    I’m doing this for some time now and I must say it really helps, should have done this earlier.

    Recently, I bought a bulk whois tool to make the whole process speedier so it will take less than an hour a week including checking out live sites.

    Cheers

    November 30th, 2011 at 1:15 pm

    AB

    Great blog post Elliot

    November 30th, 2011 at 1:24 pm

    Jon

    There is a very simple rule I follow when selling to end user that really wants to buy one particular domain – whatever end user is willing to pay for the domain, he will pay per year for 10 years. So if end user is willing to pay $20K he will pay $20k for 10 for the total of $200K. But that only works with name that truly has no alternatives.

    The above works EVERY time. End user buyer will always huff and puff for a year or two, then he will buy it at above terms.

    November 30th, 2011 at 1:28 pm

    BullS

    Don’t spend too much time doing the research as others are doing the same thing.

    By the time you are just starting, you are already late.

    So go out and play…..

    If everyone is using the same tools like you do, so where the edge?

    I use my own domain tools and always ahead of the game.

    Those paid domain tools are a waste of money.

    November 30th, 2011 at 1:32 pm

    John

    Nice post Elliot
    “…The reason that’s the case is that it boils down to a domain owner’s need for money, negotiation skills, and the buyer’s need for a particular domain name…”
    That sentence really sums it all up

    November 30th, 2011 at 2:35 pm

    Uzoma

    These types of posts, though interesting, are fundamentally academic. It is difficult to limit what one should own, register, or collect, when it comes to domain names. Or even do with them, develop, park, or flip. It is futile to try to pigeonhole one to past experiences, or even current successful situations. Domain names, the market, and above all human activities operate in dynamism; life and its vicissitudes preclude any sort of guidance along the lines articulated in your article, Elliot.

    Though you mean well, that is to say that you have good intentions, I find it curious that your domain offerings for sale are usually full of surprises, and runs the gamut! Initially, after reading your posts last year, I thought you were primarily an animal niche domain investor, and come to find out, you own domains in more categories than anyone! And there’s no pattern to your domain names for sale, just like all of us.

    I’m not trying to pick on you, just making a little observation.

    November 30th, 2011 at 2:54 pm

    Elliot Silver

    “there’s no pattern to your domain names for sale, just like all of us.”

    Correct… the one thing you and others most likely observe is that I don’t try to speculate and buy names that a company could want to use as a brand, like Shmoopsy.com or Floodugly.com or something that’s made up.

    Almost all of my domain names are descriptive in nature and mean something, like DogWalker.com, Torah.com, AutoRaces.com, CollegeMascots.com, DogPark.com…etc.

    November 30th, 2011 at 2:59 pm

    Uzoma

    Yes, true, you primary deal with generic, key words. And, that’s prudent, but not to say others can’t do well with the contrary. I know you are not saying that, I’m simply buttressing my point earlier, which it is to say, one can do well in domain names, regardless of route. It’s a dynamic business, mostly made out of luck. For instance, the domain name OccupyWallStreet.com would have been considered “pigeon-shit” just a mere 6 months ago, today it’s a decent name to own. Who could have forecast that? Not even the domain king himself, Rick Schwartz! I participated in one of his forum discussions a couple of days ago, where he postulated on a domain names equation, basically espousing prescience in dealing with this business, and I concurred; however, that approach stops at the general business planning; It doesn’t encroach into actual name registration. One can be advised to hedge your bets, register wild, register many! And one can be advised to buy just one top-notch (pun intended) name and hold. And either, or both can be god, or bad. Do you see what i mean? There’s no way of knowing.

    Generally, we agree on approach, Elliot; I am merely bouncing off your post to make a larger point: there’s no pattern in domain business! Do your thing; simply apply general business thinking, especially free market guidelines. Thank you.

    November 30th, 2011 at 3:29 pm

    BullS

    I make tons of money in this domain business is because I have FUN.

    No expectations and no pressure-just pure fun in this BS domain game.

    November 30th, 2011 at 3:34 pm

    LindaM

    People shouldn’t read too much into the domain sales lists. Sure some, even most, are legit sales and I dont intend to diminish this at all. Its just that clearly a good number of them are obviously a device for transferring funds from one territory to another or between business entities to launder cash and commit VAT or other accounting fraud. Domains are a perfect vehicle for this because they do not require physical shipping or storage and most tax offices wouldnt have the 1st clue how to investigate it anyway. If the taxman or other financial authorities ask, they can always point to a ‘bonafide’ sale and transfer of goods.
    Another interesting use for domains is defrauding creditors and the taxman in a bankruptcy situation, I have seen this happen quite close up. Company A is going bankrupt but has a good domain so sympathetic Company B buys it before the liquidators show up at a cutdown price, keeping the asset squarely in the family.

    November 30th, 2011 at 3:59 pm

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