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Why Does a Good Domain Name Cost so Much

Monday, March 16, 2009
By admin

 

A few years ago, a good domain name wasn’t really worth all that much, a couple of hundred quid would have found you a short, brandable, memorable, gem of a name with quite a bit of development potential. But not any more and there’s a good reason for this as back then the Internet was still finding it’s feet (shortly after the .com bust) Businesses and investors were licking their wounds after the easy riches didn’t materialise, and the only area that was a guaranteed money spinner was the Porn Industry.

Fast forward to the present day and the Internet is a very different place. It has proven itself to be an incredible communication tool where individuals and businesses can thrive and prosper, reaching contacts and markets it would have been almost impossible to previously. Also the costs associated with setting up a website have decreased dramatically. Hosting prices are very reasonable now, web development is something everyone can do or at least find a very competent freelancer who won’t charge the earth. There is advice in many different areas so what once was quite a scary and expensive prospect is now something you can set up in a couple of hours for $100.

All this is very good news, but there is a one downside – Competition, and there’s lots of it. The web is awash with billions of pages of information and if you want to stand out from the crowd you’ve got to do something special and this is where domain names come in. As the right name can capture your customers imagination and help market and brand your business online. But all the good names have long gone and competition for generic and premium names is fierce and is only likely to intensify as more business start competing in the same spaces.

Some of the prices domains sell for are truly staggering: Fund.com (10 million usd), diamonds.com (7.5 million usd), business.com (7.5 million usd) and beer.com (7 million usd). These figures might seem incredible to you, but each one of these names is a business in a box and the buyers were willing to shell out some serious cash to be able to control the kind of brandability and extremely high traffic potential these sites can fetch them.

And these are by no means the only domain names that sold for millions. Sometimes a site sells for a high price also because it has been developed well, boasts of impeccable and original content, and draws a sizable amount of traffic through links and affiliates.

The potential loyalty of the user base and their lifetime value is another important factor, because if a domain name already attracts loyal visitors on a regular basis it will never want for traffic or ad revenue. A good domain name that attracts traffic is also easier to develop into a flourishing website, and the asking price would naturally rise proportionally.

The corporate world has begun to see the value of internet advertising which is prospering due to an explosion in the number of internet users and the burgeoning popularity of online shopping. A potentially huge targeted audience can be reached, especially through avenues like Google Ads. This awakening towards the potential of internet advertising has further pushed up the value of good domain names.

With the internet increasingly taking a larger part in urban life, good domain names will continue to be snapped up at high prices. Just as a good high street location is essential for the success of a retail outlet.



2 Comments »

  1. by Troy |  March 16, 2009, 4:01 pm  

    As I was reading your post I started to think about website sales vs. domain sales. In the end it is the websites that command the biggest money, that is why YouTube.com, a pretty average domain at best sold for 1.6 billion and sex.com (one of the most profitable domains ever) sold for around 14 million. So YouTube.com sold for over 1000 times what Sex.com sold for.

    Domainers need to become business men, they need to learn to create a profitable project, to fiance, the build it and promote it. Those abilities, with the right domain will make multi millionaires and billionaires out of domainers, while the “perfect name” will never make you more then 1/1000th of it full potential.

    Troy

  2. by admin |  March 16, 2009, 5:25 pm  

    Troy - i agree 100%. The domain model of investing has worked quite well so far for me - but i’m now getting much more involved in development. I’m currently building out one of my names which i feel has good potential, then once this has gained traction start on another. I’m not going to rush around building multiple sub par sites - i’d much rather focus on a few that have “real” potential.
    Who knows what will happen with domain names in the future - you’ve got bulls and bears - and no matter how convincing their analysis and arguments - the fact is no one knows what’s going to happen. Every investment i now get involved in i try to de-risk as much as possible. I see good development as a way of achieving this as it could offset any future pain from domains.

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