Domain Value Essentials

What’s in a name? Evidently, a lot: In 2010, Facebook paid $8.5 Million for the domain name “FB.com”, and Bankrate (NASDAQ: RATE) paid $26.5 Million for the domain name “CreditCards.com.” Why do smart executives pay multimillion dollar premiums for some domains, while others cost $9? Read on for some compelling answers.

Credibility: Which site do you trust: Hotels.com or Coolroomz123.info? Anyone can register Coolroomz123.info for $9 and start a business overnight. In contrast, many generic dotcoms were established at the dawn of the Web. So, customers have learned to associate generic dotcoms with well-established and well-funded companies. When we’re uncertain, we gravitate to category-defining generic dotcoms because they’re often at the heart of great businesses. We’ve learned to trust generic brands like Match.com and Hotels.com because they’re often backed by billion-dollar companies. Category-defining generic dotcoms command authority, prestige, and trust. The bottom line: 360 degree benefits like new customers, financing, M&A attention, media coverage, etc.

Generic Domains Tell and Sell Your Story: Just say “Hotels.com”, and anyone can guess what services you can expect to purchase there. “Hotels.com” is a generic brand, which means it’s synonymous with the product or service (finding hotels). In contrast, fanciful brands are made up names (e.g. “Qwikster.com“) that can confuse potential customers. Generic brands like Hotels.com leverage customers’ existing knowledge and positive associations with your product and industry. Fanciful brands burden customers, requiring them to memorize new names and associations. Generic domains offer instant brand recognition, making it easier for your customers to understand, visit, and remember your business.

Better SEO: Search engines like Google give preferential treatment to relevant domains. They raise your rank when searcher’s terms are contained within your domain name. That means more free traffic from Google, Yahoo, and Bing.

Stretch Your Ad Budget: Research shows that generic domains outperform fanciful brands in paid search results. Why? Several reasons. For one, search engines embolden domains that match search terms, attracting visitor attention. For example, visitors searching “hotels” tend to click on the bolder “hotels.com” more than “marriott.com”. That translates into greater return on investment for your ad budget.

Direct Navigation Traffic: 38% of internet users surf the net by typing in destinations like Hotels.com directly into their browser URL bar. They save time, bypassing search engines altogether. Generic domains are a magnet for this “type-in” traffic. Many top generic domains, with no marketing, attract thousands of unique visitors daily (millions annually). Visitors find you directly, bypassing your competition in the search engines. Since these visitors may never be exposed to your competition, you gain more exclusive access to their business. Research indicates that direct navigation visitors convert to sales 86% more frequently than visitors from search engines.

“Image Is Everything”: Your domain name is perhaps the most public face of your organization. Consider how often your domain creates an impression:

Online

  • Website
  • Social Networks
  • Search
  • PPC Ads
  • Directories
  • External Links
  • Email Addresses
Offline

  • TV, Radio
  • Billboards, Signage
  • Newspapers, Magazines
  • Business Cards, Letterhead
  • Products, Product Packaging
  • Product Literature, Manuals
  • Trade Shows, Conferences

Business Bedrock: A great dotcom supports virtually every part of your enterprise: Corporate Identity, Brand Identity, Sales, Lead Generation, Communication, Infrastructure, Customer Relations, Public Relations, Investor Relations, Marketing, Advertising.

Asset Appreciation: Premium dotcoms are an asset class with a proven track record of appreciation. Even undeveloped dotcoms purchased for premiums have delivered stellar ROI. Business.com bought for $150k, sold 3 years later for $7.5M. Annualized return: 1,667%. Men.com bought for $15k sold 6 years later for $1.3M. Annualized return: 1,444%.

Low Maintenance: Unlike traditional investments or assets, domains are easy to own. Compare to traditional real estate, which requires mortgage payments, upkeep, insurance, property tax, management, etc.

Self-Defense: Can you afford the competition to beat you to the industry-defining dotcom? Latecomers may find themselves acquiring the competition for hundreds of millions in order to gain access to domain assets:

Domain Domain Acquired For: Acquirer Itself Was Later Acquired For: Source
Business.com $7,500,000 $340,000,000-$360,000,000 Reuters
CreditCards.com $2,750,000 $350,000,000 ($26,500,000 just for the Domain) Bloomberg

Window of Opportunity: Savvy buyers believe that premium domains are still under-priced… for now. Why? Financing for virtual real estate (domains) lags behind traditional real estate. Imagine real estate values in a world without mortgages or leases: Families paying all cash to buy homes. Startups buying buildings outright before they can open for business. Domains are still in this embryonic stage, where scarce financing impairs prices. Once domain financing options increase, so will the pool of potential buyers who bid up prices. Executives with financial clout are using the current window of opportunity to acquire domains while prices are still relatively low.

Long-Term Value: Once you’ve invested in a premium dotcom, whether $10k or $10M, it only costs 3 cents per day to own and renew. Other ways of growing your business, like PPC, SEO, TV/radio/print require large ongoing budgets to sustain. Domains, in contrast, deliver year after year for just 3 pennies a day. Once purchased, premium domains deliver tremendous long-term value.

Legitimacy: The antiquated “one domain per company” regulation of the early 1990′s is extinct. A single entity may now legitimately own and operate many domains. Publicly traded companies like Demand Media (NYSE:DMD) and Marchex (Nasdaq:MCHX) own vast portfolios of hundreds of thousands of domains. They and others have legitimized the business of premium domain sales, monetization, and development.

You’re In Good Company: A wide variety of Fortune 500 companies acquire and develop generic dotcoms. A few examples:

Fortune 500 Company Generic Domains Owned and Operated
Citigroup Finance.com, Mortgage.com, StudentLoan.com
Honda Motorcycles.com, Scooters.com
Johnson & Johnson Pregnancy.com, Baby.com
Comcast Movie.com, Movies.com

Executives at the highest level understand and invest in generic dotcoms.

DotCom is King: Avoid the painful mistake of lesser-known extensions, such as .pro, .biz, .co, etc. As the CEO of Overstock.com discovered “…of 13 people who were trying to visit us through O.co, eight were typing O.com … O.co was my bad call”. If this experience is typical, picking a lesser extension means losing 61% of your visitors to your dotcom competitor. This loss is known as “traffic leakage”. After learning this lesson, Overstock soon returned to the tried and true dotcom (Overstock.com) as their primary US domain.

DotCom will rule for many years. It’s 2014. What about new extensions (gTLD) like ‘.club’ and ‘.tattoo’? Vested interests will peddle hundreds of alternatives to dotcom, hoping to be the next big thing. Yet, these new kids on the block don’t mention 13 real-world experiments that may foreshadow their fate. In the year 2000, seven gTLDs (.aero, .biz, .coop, .info, .museum, .name and .pro) went live. In 2004, six more gTLDs (.asia, .cat, .jobs, .mobi, .tel and .travel) went live. These 13 gTLDs have been live, and promoted, for many years. Yet, have you heard of them? Probably not.  Have your customers heard of them? Probably not. After about a decade of trying, these 13 combined drive less than 2% of all internet traffic. The clear winner was dotcom. These 13 ‘new’ gTLDs have had about a decade or longer to make an impact. Yet, the vast majority of internet users are still unaware of them. As hundreds of new extensions shout to be heard, they are drowning each other out. If you know your domain name history, predicting a winner is easy: dotcom. Companies that naively build their business on less popular extensions suffer a fatal flaw: traffic leakage, just as the CEO of  Overstock.com discovered. Consider this scenario: A new hotel booking company registers the domain “find.hotels”. When customers see ads for “find.hotels”, many will visit findhotels.com or find.hotels.com. This leakage of customers means ad dollars are wasted. What’s worse, these lost customers arrive at the dotcom competition’s front door. Competition that had the vision to invest in the dotcom. If history is any indication, real-world customer behavior will reward dotcoms for many years.

Options: Each dotcom offers multiple paths to success:
+ Create a new world-class brand and destination like Hotels.com.
+ Win additional business with direct navigation (type-in) traffic.
+ Build a generic site (baby.com) to drive even more business to your established brand (babycenter.com).
+ Showcase and leverage your world-class domain with SEO, PPC, and traditional media.
+ Invest in assets that have yielded 1000%+ annual returns.

To learn more, explore the DomainValue.com site for further examples of notable acquisitions.

Just say “Hotels.com”, and you already know what services you can expect to purchase there.