Domain names as an investment, fact or fiction? Maybe this article will help you decide whether domain name investing is for you.
Domain names are now so inexpensive that anybody can afford to build up their own portfolio of names at very little cost. The choice of domain name sellers is huge and in turn, this has led to downward price pressure. Whereas only a few years or so ago, a new domain name could cost in excess of $100. They are now available at next to nothing. Sometimes they are offered totally free.
The drop in price opened the market to speculators across the world. You can live anywhere and still buy a .com, .net, .org, .info or other suffixed domain name and people naturally took advantage of this fact. It is estimated that over 80% of registered domain names do not currently have a web site attached to them. This doesn’t necessarily mean that the name is for sale, because some people just use the domain name for email purposes or perhaps they have the name pointing (redirecting) to another site for marketing purposes.
However, it can be assumed that a large number of these names are held by individuals or corporations that are simply using the name as an investment, hoping to resell the domain name at a profit at some time in the future. Sometimes, these people are incorrectly labelled as “Cyber Squatters.”
The term “Cyber Squatter” describes an individual who takes an established name of a company, product or individual (usually famous) and registers their name as an internet domain. Sometimes, in order to force a sale, they will direct the domain name to an unsuitable web site, such as a pornography or other such site offering offensive content, hoping that a rightful owner will be motivated enough to offer a large sum for domain name. In many respects, this is akin to kidnap and blackmail and governments world-wide are faced with the problem of trying to legislate against this practice.
Most domain name investors are not cyber squatters. They take a responsible view and look for generic names that will appeal to a large number of organisations for marketing purposes. They know that the internet offers a much broader audience for their services or products than traditional media and consequently any name that describes that product or service could represent a valuable investment, regardless of how much it cost in the first place.
Nearly all domain name sales sites will quote the sale of Business.com which sold in 1999 for a reputed $7,500,000. Clearly if that name had been purchased for just a couple of dollars, that would represent a phenomenal return on investment. What these sites rarely divulge however is that this name was actually purchased by the seller in the aftermarket. The risks taken by that particular seller were actually greater than the risks assumed by Business.com in acquiring the name for $7.5 million because the ensuing publicity ensured that the brand was already built, long before the site was launched in mid 2000. The original purchaser might be kicking himself now that it’s sold for that amount, but as he made an initial return of many thousands of percent on his original low-cost investment, he shouldn’t be too hard on himself. He was probably very happy at the time and probably still is. I believe he got over $100,000 at the time.
Of course, the reason that domain name sellers quote the example of Business.com is that it creates the impression that ALL domain names are worth something. Certainly, the impression is that all names are worth more than the original registration fee. Unfortunately, that’s just not true.
As with all investments, the chances are that you if you build a portfolio of names, you’ll end up with some that are completely worthless. People have strange ideas about what constitutes a good name and if you look through any domain name auction site or listing, you’ll see many that simply aren’t even worth the original registration fee.