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The Challenge of Turning Domain Name Investments Into Profitable Business

Derek Iwasiuk
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 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.

Domain aftermarket findings

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 buyers.

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 market.

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 good profit.

Experts always advise to invest money solely when you can afford to lose.

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