The Challenge of Turning Domain Name Investments Into Profitable Business
June 23, 2008
Domain name market
The domain industry has seen enormous growth in recent years
and many people have grasped at the opportunities to invest in domain names. It is true that domains have
made a handful of people wealthy but investors who earn millions of dollars a
year are rather exception.
Everybody has read stories of the 'good old days',
when anyone with $50 and a little doze of good luck could reserve a domain
name that would be worth thousands of dollars just a few years later.
All 'good' names were available. Some people saw the potential and turned it
into a lucrative business.
Since then, the situation has changed and all memorable
combinations of words that might be translated into a domain name have already been
reserved. Today’s domain name market is driven by the insufficiency of
“good” domain names. The market for distinctive and unique domains such as
Business.com for example is very strong and the demand for them is permanently growing and
driving prices up. The quality of a domain name depends on its length,
extension and brand potential. But only a high quality domain could be sold at
a premium price.
Some believe that 'long names' have triggered what is called
the Second Great Domain Rush. Partially, it is true because the prices on the
secondary market are rising. But for domains with “good" combinations of two words the success on the aftermarket is
determined not only by the inherent value of the name but mainly by the ability
to find buyers for it. On the other hand, the demand for descriptive and
keyword domains that might play significant role in search engine game is also
on the rise.
As a whole, the domain name market fluctuates between the two
poles: the one of a very high return on investment for the "good" domains and the other
of losing the entire investment when a domain fails to generate revenue or find a buyer.
2007 witnessed a significant increase in the domain name
market. According to Sedo’s Secondary Domain Market Study 2007,
the volume of sales was increased by 60% reaching nearly € 50 million. There
was an augmentation in both the number of domain names sold through Sedo and in
the values for which the domains were sold. The average price rose by the
following amounts: .com (+54%), .net (+37%), .org (+27%) and .biz (+27%).
At the same time, a study of high value domain name sales on
the aftermarket conducted by Domain Name Wire pointed that 65% of domains are
purchased by investors and only 35% by end users. This makes the future of
domain names aftermarket a little bit incertain because the industry can’t flourish when relies on selling domains to each other.
Things to consider
before investing in domain names
Investing in domain names is a way to make money by selling
a domain for a higher price than it was purchased for. Savvy domain investors are
willing to acquire domains with the highest profit potential. But only a small percentage of all
domains for sale have a potential value of
$10,000 and above. At the same time, the domain name market is highly illiquid which
means that it may take months or years to sell or lease a domain.
When acquiring domains, there are some important points to take into consideration:
1. Before investing in domain names, it's important
to have a clear idea how you're actually going to make money from your domain portfolio.
You can choose between two options: resale a domain name for
better price or lease it. It would be better to find ways to generate revenue from a domain
name (for instance parking it or using affiliate marketing services) while
you're waiting for a sale or leasing transaction.
2. Before purchasing a domain name, you need
to answer a few questions about your prospective buyers: whether this domain might be
of use for small or middle businesses, a large movement or a single person. Never
forget that approximately 70% of domains fail to be sold due to a lack of
3. Don’t Pay More Than the Current Value. It is important to research for
current sales prices of similar domain names in order to get an adequate idea
of the value of your domain and some projections how its value may change in
the future. You also need to search for really valuable names because the higher the
potential profit, the more you have a chance to succeed in domain investing
4. Attempt to Predict the Future. Predicting domain names
that will be successful in the future is not an easy task but it could pay you
off. If your predictions come true, you will surely turn your investment into a
always advise to invest money solely when you can afford to lose.
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