Prior to becoming a domain name investor, you should be educated and experienced in what makes one domain name good over another. What drives the value up in a domain name and what makes another one seemingly worthless.
The very same thing can be said for a domain name end-user buyer. Understanding the value of a domain name prior to making an offer to purchase one simply makes sense. The term "low-ball offer" exists in the domain industry because very few buyers are educated on the value of domain names prior to making an offer to purchase.
The common thread
I talk to a lot of domain name brokers and domain sellers, and the common hurdle is a consistent one! Educating the buyer on the value of domain names is the majority of the process in selling a domain name. It’s not really about the specific domain name, it’s about educating the buyer of the value of domain names generally and establishing the demand.
Why are domain names so hard to explain and understand their value? The internet isn’t that old, so that doesn’t help the situation.
I was attempting to explain to my wife’s grandmother the other day “what I do for a living” upon her request and I decided to go the simple route. I said, “I work on the computer.” She looked puzzled. Then I realized, she doesn’t even know what a computer is. She’s 95 but never experienced a computer, let alone the internet.
I can have a common conversation with a barber, store clerk, service provider, delivery person, friend, etc. and mention the word domain names in small talk and get a puzzled look. “What’s that?” is a fairly common reply. Age doesn’t appear to matter.
So, we have a generation of living people that do not even know what a computer is. We have generations of people who type domain names daily, yet do not even know they are typing a domain name. Some people use apps to arrive at a website, some use a domain name to arrive at a website. The majority of app owners have a website to promote their brand and business, yet users are not sure how they arrived at the destination they did.
It’s a very unique situation and add to the fact that each and every domain name is unique, it complicates things even further. Domains have different uses: main brand, systems, email, advertising, brand protection, offensive/defensive, personal, business, side hustle, hobby, etc.
The bare-bones basics
The most important thing to understand with domain names is they are literally one of kind. Each and every single domain name is unique.
The internet has created a way to provide global commerce, very easily. Communication is nearly instant, in many forms. Video chat anywhere in the world with anybody, even from the beach.
The internet works by use of keywords. These keywords are used by people at services such as search engines (Google, Yahoo, Bing, etc). You want to find something, you know what you want but are just not sure where to get it, so you type those keywords into a search engine. The search engine uses your input keywords to deliver relevant results to them. The results delivered to you are hyperlinks (addresses) of places around the internet that should relate to what you are searching for.
All of those hyperlinks displayed on search engines are domain names. To get to a search engine, you likely typed a domain name, Google.com, for example.
Over time, through word of mouth, experience, advertising, etc., you become aware of “a place” you like to frequently visit on the internet. A place that is helpful to you. A place you do commerce with. That place of business is virtually housed on the internet and can easily be found, by visiting a domain name. Its address. A location.
After you are aware of a destination and you visit it directly, this is called direct navigation. No search needed, you know it. You trust it. It’s easy for you to visit by tapping an icon or simply typing the domain name into your internet browser.
When something has global reach and is the driver of the internet with a world population of 7+ billion people, there can be and is demand. With demand, there is value. What drives the demand? Business and the lifeblood of survival, money!
Clear communication is done by providing a consistent and make sense situation. This is essentially branding. Your business name, logo, and domain name should be consistent. Considering there are 7+ billion people globally and over 500,000 new businesses created every month, many of these people and businesses use the same name as another person or business, but only one of them can have the corresponding .com domain name.
Want and need are two different things. Both are powerful drivers in our lives and in business. It is best business practice to be consistent with your business branding. In doing so, this consists of your brand name, logo, colors, etc. This makes your business easily identifiable in many ways and easier to find and trust. The same thing your domain name can and should provide for you: consistency of your branding.
The Demand has been established and it’s real. Domain names are sought after for branding, advertising, and communication needs around the world by businesses of all different sizes and locations. Domain names are rare and needed by the masses.
Classes / Types
Domain names really need to be split up into a “type” or “class” to help establish value.
If a term is generally known or common (already established in the brain), it is better than a fictional or created/invented term. The more commonly known, the better and higher value. The term Money is common, well-known and recognized by the masses. It is not restrictive. Moolah is a slang term know by some but not as many as Money. Money is more naturally recognized, easier to spell, less restrictive and easier to remember. Moolah has alternative spellings, Moola and may be spelled incorrectly like Moohla.
In general, we can classify domain names in the following categories:
- Common Phrases
- Two-word combination
- Three-word combination
Dictionary type domains are often the most expensive of all the classes/types of domain names. Common dictionary terms make for good brand names and increase demand. With higher demand, the higher the value of the asset.
Acronyms. Alpha or numeric. "The shorter, the more expensive" is a good rule to go by but demand in the specific acronym is still important. 2-letter combinations are rare, only 676 combinations exist. Current minimum sales range in the mid $xxx,xxx range with higher sales reported for millions for an example. 3-letter acronyms consists of 17,576 (alpha) total and 720 (numeric) total. 3-letter acronyms are very popular in business names. $xx,xxx is a common sales price, driven higher by a 3-letter English dictionary word or special letter combinations. Based on demand and need, 3-letter domain names have sold for millions and even tens of millions.
Common phrases. This type of domain name can be very similar to a single dictionary word, often times a common phrase is included in the dictionary. The demand or popularity of a phrase can easily put it into the dictionary word category and value-driven by demand.
Two-word combination. This is likely the most popular class/type of domain name due to the vast verity of combining two dictionary terms together to establish a brand name. Facebook for an example. Multiple word combinations lower the value the longer they get in general, but some more common, positive, and meaningful three-word combinations can be more valuable than a two-word combination. Popularity and demand plays a role.
Language. English, Spanish, French, etc. English will always be the most popular and commonly used language in domain names. A non-hyphenated term will be much higher valued than a domain with a hyphen. It's less natural and less appealing to the eye.
TLD (top-level domain). .com is the most popular and highest valued. Sales of .com domains dwarf any other TLD, ccTLD or gTLD by nearly 9 to 1 in many cases.
Once a domain name is split into a type/class, demand needs to be established.
3 main things can be used to establish demand in regards to a term and its related domain name.
Using a search engine and typing the specific term in quotes. “money” for an example. Then establish several comparable terms and do the same search. What you are looking for is the number of results returned. That number is the indexed results of the search engine. The more popular, the higher results. Using a category and sub-category method may be helpful. Money is the category. Money Transfer is a sub-category.
The second thing you should do is see how many registered domain names exist that contain and exactly match the term you are interested in. There is a free service called DotDB.com for you to do this. Just type in the exact term (without TLD). The higher the exact match results, the higher the broad match results, the higher the demand for the term.
Once domain type and actual demand are determined, you need to establish your need. Not just today, years from now. How important is it to own the best domain name for your brand? Your marketing message? Is your business only online? Think about that!
Although putting a price on something that is one of kind is not easy, establishing what kind of demand is present is the best thing to establish for both domain investors and domain name end-user buyers.
Owning the best domain name of a term, in the matching .com, is the most powerful way to secure that term as a brand name and be the official source.
If an interested party makes a $500 offer on an asset that is commonly selling for $500,000, that makes them look silly, uneducated. They are wasting time and the seller’s time. Making up a story for your need is still a story and not relevant. Your need for a domain name is your need and likely different from somebody else’s and has no relation to value. With wide demand comes wide interest. You may feel like you are the only one interested but realizing that we live in a big world and demand exists for the term you are interested in, that demand reaches domain name owners from more than one party.
Unique domain names are owned by unique individuals. Different situations can exist based on the financial wealth of the owner. This can and does affect domain sale prices. Microstrategy sold Voice.com for $30M in cash. In a different owner's hands, maybe Voice.com sells for $500K? $1M? It takes both sides for a deal to happen.
Current use plays a role. If a business is up and running on the domain name, put yourself in the owner's shoes and see what it would take to change. Just because a website doesn’t resolve on a domain name doesn’t mean it’s not being used or is worth less money.
Demand, want, need, finances, ownership, education, connections are the key drivers in domain name sales. Things change, sometimes for the better, sometimes for the worse.
Ask for professional advice about domain names if you are not an expert. Having read this article, you are now further educated than most people about domain names. Each domain name is unique and each buying experience is and will be unique. Demand and need are the two biggest price driving factors in a domain name's value.