Domain Names: There’s Value in Those URLs

CATEGORY-DEFINING WEB ADDRESSES ARE GOLD FOR BUSINESSES CHASING INTERNET CUSTOMERS

By Aron Meystedt

IT IS NOT uncommon for premium domain names to sell for six and seven figures. In fact, the top 150 domain sales of all time are all over $500,000 each. Premium domain names can range in price from $5,000 to $10 million. The most common question I am asked is: “Do I have one of these fine assets?”

To better estimate domain name values, it’s wise to understand why domain names are in demand by businesses and investors.

First off, a category-defining domain name offers several advantages for companies operating on the Internet:

▸ Instant trust and credibility in the eyes your prospective consumers
▸ Authority status in your industry
▸ The ability to rank higher on search engines with proper development
▸ The ability to use existing type-in traffic to generate additional sales
▸ A moat against the entry of other potential entrants/competitors into your marketplace
▸ The ability to advertise a single URL and convey exactly what business your company operates

A premium domain helps customers remember your company whenever they are ready to do business. Remember, naming is about recall. A short, concise name is simple to recall and type.

There are 280 million registered domain names on the Internet, yet a very finite percent of these are truly premium assets. Since these premium names are coveted by both investors and end-user businesses, the supply-demand dynamic is what keeps domain values solid.

So let’s talk a bit about what make a domain name a premium asset. The following are commonly referred to as premium, or valuable, domain names:

Exact match words that name a product, service, industry or location: A one- or two-word domain name that represents a large business category or geographic location will always command a premium price. Examples of this include: Computers.com, Chicago.com, Furniture.com, RunningShoes.com, and Tickets.com. Names like this are often referred to as “category defining” domain names.

Short names and acronyms: Acronyms are always in high demand because they are easy to type and easy to remember. Two-letter domains like AA.com and HA.com have a high value, and three letter names such as KLO.com are worth a significant sum as well. We are seeing great demand for short domain names of two to five letters. Heritage Auctions has sold these short acronyms for more than $500,000. Since Internet browsing has gone “mobile,” shorter addresses are ideal because they are simple to type on a mobile phone. The shorter domain names are also easier to remember for potential customers.

There are only 676 combinations of two-letter .com domain names. There are 17,576 combinations of three-letter .com domains. Based on the supply shortage, two-letter .com domains command prices starting in the low six-figures and can sell for well into the seven figures. Since the availability of three-letter .com domains is greater, these assets start at about $10,000 and also can sell in the six-figure range, depending on the letters in the domain name.

.com: While there are a few exceptions to this rule, in order for a domain to be classified as a true premium name, it should be of the .com extension. There have been several solid historical sales for other top-level domains, such as Meet.me and Date.me, but most highly valued domain names are .com. In the domain aftermarket, a premium name on another extension (such as .net or .org) may be worth a minimum of 10 times less than its .com counterpart.

One word branding names: Domain names such as Blue.com or Slide.com have value as a brand name for a corporation or business. Even though they don’t name an exact product or service, these names are always in demand as branding assets. For sample, Heritage Auctions recently sold Luxe.com for $173,000. This URL is in use by a parking and valet service startup. Companies are buying these names because they are easy to remember and they offer creative branding opportunities.

Domains with a high search volume: Premium domains typically name a word or term that is searched often in Google. The volume of searches can be found by using different domain tools available on the Internet. If a word or phrase is searched often in Google, there will be more advertisers competing for the eyeballs related to these searches. The exact matching domain name for these highly searched phrases will have value. For example: More than 90,000 people per month in the United States alone type the exact phrase “running shoes” into Google. This volume of searchers (shoppers) is part of the reason why RunningShoes.com sold for $700,000 in 2011.

Names with high advertiser competition: If you Google a product or service and you see a lot of high-level advertisers competing for the traffic, then the exact match name in that space will have value. For example: If you Google “mortgage” or “office furniture,” you will see numerous well-funded advertisers competing for pay-per-click traffic. Therefore, it can be assumed that these URLs have value.

High-traffic volume: Similar to physical real estate, virtual real estate becomes more valuable as the volume of traffic increases. If a domain name has a large number of visitors, business can turn these people into profitable leads and sales. Several premium domain names have a high traffic count and this increases the potential value of the asset.

Next column: Estimating domain name values.

ARON MEYSTEDT is director of the Domain Name and IP Department at Heritage Auctions. He can be reached at AronM@HA.com.