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Rick's Rants: Domain Names (October 2004)
by Rick Latona, Dollars.com and CJBucks.com
Most people I know either don't care about domains, don't understand their value, or they are absolute evangelists and put never-ending faith in their long-term potential.
There is little middle ground. I'd like to talk this month about domains, and I feel I'm qualified since I've bought and sold domains over the years and done millions of dollars in domain related transactions. How important is it really to have a good domain? What are domains worth? Where do you find them? How do you sell them? These questions are regularly asked on message boards and many people have written articles expressing their opinions, however all opinions are unique so I'll serve mine up now for your review.
How important is it to have a good domain?
The short answer is that it never hurts if you already own a good domain, but it is never wise to put yourself into financial hardship to acquire a great domain when it isn't absolutely necessary. Let me elaborate.
ConsumptionJunction.com is a horrible domain name. My partner Marc Womack jokes around saying that he would have come up with something better if he knew anyone was going to actually come to the site when he registered the name. The name is so bad we have a regular budget every year earmarked just for acquiring misspells of the name. There are literally hundreds of ways people misspell the name. And forget about international traffic…Germans would spell it with a k! Yet, tens of millions of people come to the site every month.
When we launched our site dedicated to selling traffic from our free sites, we called it CJTraffic.com. It seemed like a logical name at the time considering our biggest and most famous site has CJ as its initials. We were newbies at the time and didn't realize that CJ also stood for Circle Jerk the single worst kind of traffic that you can get on the Internet! Talk about another shitty domain. The funny thing is that it doesn't matter. All that really matters is that we can tell people a URL where they can go for pricing.
Having a great domain never hurts if you can afford to acquire one and stay within your budget. When I had a chance to buy Dollars.com at a great price, I never blinked. The only decision we had to face was whether or not we should sell the domain and generate a handsome profit, or use the domain on a project. When we decided to launch a B2B exchange for online advertising, Dollars.com seemed like a natural fit so we went with it. The name helps generate respect for the product. It doesn't get a ton of type-in traffic, but it is the kind of name that would make nearly anyone in the Internet business stop and take a second to find out what the product was. I certainly think that we'd be fine without the name but I'm glad we have it. The key to making it fit was acquiring the name at a great price.
Now all this talk so far is about a website name. The importance of owning a domain name purely for type-in traffic isn't an issue, rather, whether or not you should pay X dollars for the domain is the consideration. Domains with type-in traffic always have value; the only question is whether or not you should buy it for the price the owner wants.
What is a Domain Worth?
It depends. Largely, it depends on what you are going to use it for, what revenue it could generate on its own, what it has been used for in the past, its liabilities and long-term appreciation potential. The answer simply isn't cut and dry. It takes a ton of experience to value a domain and everyone in the domain business makes mistakes. I personally use the philosophy that something is worth what someone is willing to pay for it. I won't pay more for a domain than I could quickly resell it for. To me, that is the best way to avoid making a mistake.
The easiest domains to appraise are the ones with type-in traffic. There are many tools available to determine the amount of traffic a domain might get. Most domainers go to inventory.overture.com/d/searchinventory/suggestion where you can quickly find out how many times the term was searched for the previous month. At the time of this writing I can do a search for the word Spanish and see that Spanish was searched for 135,277 times in July of 2004. Spanish.com as a search term was searched for 1716 times with the .com extension. There are many different ways that could be interpreted and we are going to go through them all. Here are the questions that you need to ask yourself, because all of these affect the value. We are going to use Spanish.com as the case study in the answer to each one.
1. Is the name in English? Overture won't list the results unless it was searched for at least 25 times. However, the country-specific overture sites will, for example Overture Italy. With Spanish.com this question is irrelevant, but often you may find yourself looking at a domain with a little bit of traffic and definitely some value, but not enough to have an overture rating with the .com extension.
2. Has the name ever been developed? If not, you may not get any results even if it is a great domain. Spanish.com has been a site since 1996 so it has results. Dollars.com has no Overture results at the time of this writing, but we all know it has value and I know it has type-in traffic. The lesson here is that some domains generate traffic looking for a site and others generate traffic looking for the subject. The best type-in domains are the ones that have people looking for a subject, because your site will be different from the site that used to be there. DiscountDrugs.com recently sold for a lot of money because of the clear value of the traffic it would generate.
3. Is the domain a seasonal domain? Overture just shows you the previous month's results. I know as the previous owner of Spanish.com that the domain is extremely seasonal. The traffic falls off a cliff during the summer months, like July of 2004, however it picks up immediately when school starts again in late August. Not thinking about seasonality would have caused a missed appraisal.
4. Is the search term temporarily popular, or will it grow over the years? ThePassionOfTheChrist.com will most likely always have traffic but the traffic should steadily decline as the years go by. Spanish however is the fastest growing language in the world.
Ok, so we know that Spanish.com with the extension was 1716 on overture and knowing that it is a school subject we can estimate that traffic is probably at its lowest during the summer months. Now, you need some real information from me and I'm reluctant to give it to you because it may not be right for your real-world situation but here it is. I find that in general, a domain will get me 20 times the traffic as the average overture rating with an extension. If you own a domain, check it yourself on Overture and tell me what your results are. Spanish.com generated 1000 uniques a day more or less during the summer months, and about 3,000 uniques a day during the school months and it would peak at around 10,000 uniques a day around New Years Eve when everyone was making their resolutions.
Now we need to determine the value of the unique. Again, let's go to Overture.com for help. On their index page you can search for the term that is in the domain. A quick search for Spanish generates a ton of results. On the top right of their page there is a link to view Advertiser's max bids on this pay-per-click engine. At the time of this writing a company was paying 46 cents per click for searches using the keyword Spanish. Almost more importantly there were 37 advertisers bidding on the term, so there is enough action on it to give you an idea of the value of the traffic. I usually cut the top bid by 60 percent which would take us down to 18.4 cents. This is important because most PPC engines will only give you 40 percent of the revenue if you decide to point the name at a PPC engine. So, if we guess that Spanish.com gets, for example, 500,000 type-ins a year, and the traffic would be worth 18.4 cents a unique, or LESS, then we can safely guess that the domain is worth $92,000 a year. After that, you just have to determine the multiple that you are willing to pay. I can tell you you'd have a hard time finding a domain broker who would pay you more than two years of expected earnings even if that is an amazing return on your investment by normal financing standards. The reality is that there are too many domains on the market to get more than that, so be very careful if you think you may need to dump the name in a hurry if your plan isn't working out so great. Incidentally, I sold Spanish.com for more than two years revenue potential but I won't be saying just how much.
The other methods of valuing domains are all significantly more challenging. Before buying an expensive domain you want to know what it has been used for in the past. You can go to www.archive.org/web/web.php and get a great idea of what has been up on the domain over the years. I recently bought the domain watchporn.com and noticed that it was getting a lot more traffic than I expected it to get. When I went to the URL above I found out that it used to be a paysite and there are still buried links out there sending traffic to the URL!
What are the liabilities in owning the domain? Be careful of names that have famous brands or celebrity names in them. You can lose those in a heartbeat. MicrosoftSoftware.com and MicrosoftSucks.com will both be lost one day when the Redmond, WA giant gets around to them. Maybe they won't, but you will not see me spend time and/or money on the chance I could lose the name. The same goes with typos. I completely stay away from registered trademarks. I know a lot of domainers that don't, and make a nice profit from names like disny.com, but to me it is too big of a risk to take. That name, incidentally, was recently taken back by Disney after a lengthy process.
Lastly, there is the issue of short or long-term income potential. The new owner of Spanish.com clearly recognized the future long-term income potential. This all comes down to how much money you have and how long you are willing to wait for your profit. Many true domain evangelists never sell domains unless they get a ridiculous offer on them. This is because they are convinced that nearly all domains will go up in value over time. It is tough to argue with their logic, and even harder to change their minds. To them, this is still the land rush time. Many people, me partially included, believe that prices won't stabilize and normalize for another 20 years to come.
You do what you can when determining the value of a domain, but ultimately it is a leap of faith because there is no blue book of domain values. It takes practice and experience. If you are going to spend a portion of your wealth, regardless of how large or small your wealth may be, always get a second opinion. E-mail me at rick@ricklatona.com and I'll help the best I can.
Finding Domains
It's easy to find domains for sale. They are everywhere. It is as easy as finding a house for sale. Just drive down any road and look for signs. The hard part is finding the one for sale at a price that allows you to profit. Again, the same thing is true in real world real estate.
So what would you do if you were looking for a new house to buy and you wanted to get a great deal? If you really wanted to score, you'd need to get multiple agents and brokers looking for you, find houses for sale by owner yourself, and make a ton of really low offers until someone accepts. It's no different with domains than it is with any other resalable product on earth. Those willing to put in the most time and effort reap the greatest rewards. It's that simple. Other articles go on and on about resource sites and auction sites like pool.com, snapnames.com and greatdomains.com, but I am not going to do that here. I want to teach you, the educated webmaster, that you have to get your hands dirty. Owners of great domains get hit up all the time by brokers. Many brokers have software scripts e-mailing these people on a regular basis asking them if they want to sell. I pick up the phone and call them! Your goal is to separate the owner from his asset using as little capital as possible. Always keep that in mind, and you'll do just fine.
I used to own a pawn shop. In that business I learned that money was made at the time you acquire the object that you'd eventually sell. Buying is the single most important element of the domain business. You have to be a great buyer to make great money.
Selling Domains
If you've done everything else right, then this is the easiest part; it is just a matter of patience. To reiterate, if you have properly appraised the name and aggressively acquired the name, you will be able to sell it at a profit - which is why I say it is the easy part. If you didn't do those two steps right, you are in for a rough ride. If you have a domain you want to sell there are three categories of buyers…brokers, developers and institutions.
Brokers are buying your names for a profit. Most brokers want type-in traffic, so you'll have a hard time getting good money from them without it. Your average broker will point the name at a PPC engine earning a percentage of the revenue, and wait patiently for an institution or developer to offer a premium on the name. Generally, you don't want to sell a name to a broker unless you need the money or you find one that truly believes in the long-term potential and is willing to pay for it. I've sold domains to brokers and made handsome profits, but I also know hundreds of them and can get them all bidding against each other.
Developers are buying your name for a project or site that they want to launch. They want your name but have other options. You don't have to look for developers, they find you. All you have to do is make yourself easy to find, and negotiate from there. Sedo.com (www.sedo.com) offers an excellent service where they pay you PPC revenue for the traffic your name generates, and also offer your name for sale to everyone that types it in. They take a percentage of the sale price for this service. I own the name thisdomainisforsale.com and make that as the registrant for most of my names making it instantly obvious to people when they do a whois.
Institutions are the large companies that dominate a particular space that your name refers to. You have to be proactive and find these guys. I tried for years to sell Spanish.com to Berlitz or one of the other global language companies with no success. Had I been successful I would have gotten much more for the name. No one will pay you more than an international company. If I owned pooltables.com I'd be calling Sears at least once a month as they have stores everywhere and a sophisticated delivery and installation network.
The Bottom Line
I could have written a book on domain names, but I'll stop here. If you keep the age-old philosophy that you should buy low and sell high - you'll do great. Hopefully I've helped you learn how to determine what is low, and how to get a high price. There is a lot of competition in the domain marketplace, so be prepared to work hard if you want to make it a serious portion of your business and time. Personally, I think it is worth it as I've made some very handsome profits over the years.
Rick Latona's company started with Consumption Junction and has turned into a powerhouse delivering tens of billions of banner ads and text links monthly through a network of free adult sites. Each of his sites has strong consumer brands that generate bookmarkers and a loyal fan base. Recently we've seen him launch Dollars.com which as a B2B advertising exchange only puts him in charge of even more traffic. Visit www.kblogger.com for more of Rick's tips.
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