What’s a domain worth?

Can finding the right domain name boost your business? Josh Mehlman examines the domain name industry from every angle and finds out how you can make the best choices.

Chances are, more about finding the right domain name that won’t make you a millionaire overnight. However, capsule it’s a decision that weighs heavily on the minds of many people just starting an online business or making their first foray into the digital world. Should I buy .com or .com.au, troche, or both? How do I choose the best domain name for my online business? And what should I do if the one I want isn’t available?

First things first, what makes a good domain name?

“The best way to find the right domain, is to find a name that people would be most likely to type in when they are looking for your business or products,” says Brendan Yell, one of the pioneers of domain name trading, now chief executive of free offers directory ShopFree. “Also, because Google weighs domains names highly, a good name that describes your business as users would search for it will help in search rankings.”

Remember that your domain name will be one of the main ways people find out about your business, advises Jen Sale, business development manager at domain name reseller Domain Distribution Network.

“Ask yourself, ‘Does my domain pass the billboard and radio tests?’ In other words, would someone remember the domain if they saw it on a billboard, and could they navigate to the domain if heard on the radio?

“Keep it short and simple, avoid hyphens and numbers and choose a leading registrar. Consider protecting your brand by registering multiple related domain names.”

Think global or local

By far the most common question Nett hears from its Kick Start session participants is, ‘Should I have bought the .com or the .com.au?’ In many cases, the answer is both.

“In Australia, .com.au is king,” says David Lee, general manager of .au domain name marketplace Netfleet.

“If you stopped someone in the street and told them your business name was called Hugo’s, 95% of them would guess your domain name was Hugos. com.au. Only 4% would say hugos.com and 1% would pick hugos.net.au.

“However, if you are appealing to an international audience, .com is pretty much a necessity.”

“.com is the most popular extension worldwide and is typed into browsers by default,” adds Sale. “On the other hand, .com.au address also generate local search engine traffic and there are more to choose from.”

First come first served

More than 1.2 million .au domain names have already been registered, so it’s possible your ideal name is already taken. Two main options are available: find an alternative or buy it from the existing owner.

If your first choice isn’t available, domain name registrars usually offer you a range of alternatives such as substituting .net.au for .com.au, or a range of synonyms. However, it is important not to rush this important decision.

“Don’t compromise on the domain name,” warns Lee. “Registering the .net.au because the .com.au is taken is risky: any promotion you do for your website risks losing significant traffic to the .com.au equivalent. Similarly using dashes, numbers or excessively long domain names may confuse potential visitors and severely impact any advertising cut through.”

However, a bit of lateral thinking doesn’t hurt if it gets you a better domain name.

“If SydneyMortgageOptions.com.au is taken, check whether the acronym SMO.com.au is available or a variation such as SydneyHomeLoans.com.au,” suggests Lee. “A domain name doesn’t have to match your business name letter for letter as long as you use that opportunity to concisely describe your business.”

A tightly defined domain name can improve search engine rankings.

“If I wanted the name Milanos.com.au for my homewares shop but that name was already taken by a restaurant, I could try some variations like milanossydney.com.au or milanoshomewares.com. au,” says Yell. “That would increase my search engine rankings for people using ‘Sydney’ or ‘homewares’ as search terms.”

That said, a good domain name doesn’t guarantee search results. Search for ‘sex’ in Google and you have to go a very long way down the list to find sex.com – a domain name that sold for US$14 million in 2006. Even searching for ‘sex.com’ won’t find it!

If all else fails, buy it

No matter how clever you get, sometimes there’s one perfect domain name. What do you do if someone else already owns it? “Just because someone else owns the domain name, don’t assume it is unavailable,” says Lye. “If your major competitor has registered it and runs their business off it then yes, you’ll have the struggle to acquire it!

“But if there’s no website at the address or a parked page – one consisting mainly of advertisements – you might be in luck. That suggests a domain investor owns the name and, like many types of investor, they may be prepared to sell the domain for a fair price.”

These advertising-heavy ‘parked’ domains are one-way domain name investors, also called ‘domainers’, who make quite a bit of money – more about them later.

Until mid- 2008, it was illegal under Australian Domain Name Administrator (auDA) policy to resell .au domain names. This didn’t prevent under-the-table deals.

“The reality is people in Australia have been selling domain names for many years,” says Yell. “I have bought and sold many .com.au names dating back to 1998.”

In June 2008, auDA changed the rules and now allows owners of .au domain names to resell them after owning them for six.

Companies such as Netfleet and Domain Distribution Network are part of the growing .au domain name aftermarket – a marketplace where domain name owners can put their valuable or unwanted names up for sale.

“There are benefits to purchasing an existing domain: you get the domain name you want and it may already have a search engine ranking or generate targeted traffic,” says Sale.

How much should you pay?

Like any business investment, you should consider paying as much as a domain name is worth to your company. How do you quantify the value of a good domain name?

One way to value a domain name is by the amount of traffic it brings to your website. This is a combination of search engine results and ‘type-in traffic’, where people type your domain name directly into the browser.

“Type-in traffic generates highly targeted visitors to your website,” says Sale. “However, a good domain goes beyond this. It is the foundation of your online identity. It can improve advertising and sales conversion, and assist in relationship building. It will shape your brand in print and traditional marketing, and inspire trust in online campaigns.”

Sounds great, but can you put a dollar figure on that?

“When Telstra released 1300 phone words a few years ago companies paid hundreds of thousands and in some cases millions of dollars to secure phone numbers like 13TAXI and 1300MORTGAGE,” says Lye. “That illustrates how important it is to have a memorable call to action. When it comes to your website, that lies squarely with the domain name.

“A cumbersome domain name that’s difficult for clients to remember or hard to spell will impede your marketing efforts. Get it right and you will see a dramatic difference in return on investment.”

“The fewer words in the domain name and the shorter the name, the more value it has because it is easier to remember and type in,” adds Yell. “A good name could easily be worth more than $100,000.”

Million-dollar domains

Some highly sought-after domain names are worth millions. One domain name has been sold for more than US$10 million: sex.com in 2006. Fund.com sold in March 2008 for a scrape under the US$10 million mark.

Will an Australian domain name ever be worth that much?

“The market won’t be lucrative as in the .com space but there will be some names that will hold great value,” says Yell.

“Obviously .au caters to a much smaller market, however, there certainly have been some blockbuster prices paid over the years,” says Lye.

Many of these sales are unofficial since they happened before auDA lifted its ban, he explains, but they include “flowers.com.au for $153,000 and cars. com.au for $141,000 way back in 2002. Obviously, these domains would be worth many times those prices today.

“Like any new market, it will take time to develop and most people still do not realize that domain names are tradeable assets.”

Domain name investment

If domain names are tradeable assets, can you make a living just by buying and selling them? Absolutely.

“Buying and selling domain names is a speculative business, and to be a successful speculator, you need to predict future trends,” explains Yell. “If you are good at predicting trends and act fast once they appear, there is an opportunity to buy names that will increase in worth.”

But buying low and selling high is only part of a domain trader’s business. While they wait for the value of a domain name to increase, many traders try to make an income by placing content on the site that attracts traffic and advertising.

A somewhat controversial way of doing this is ‘parking’ the domain – putting up a single page stacked with pay-per-click advertising links. American domain name entrepreneur Rick Schwartz told the Sydney Morning Herald he made more than US$1 million a year from ads on the parked domain porno.com, a site he bought for $US42,000 in 1997.

Many internet users and online businesses dislike domain parking because it makes it harder to find genuine information in searches and profits from people’s mistakes, such as incorrectly typing in a domain name. (For more on this topic, see ‘The internet is full of rubbish, p38, and ‘The new era of AdSense nonsense’, p20.)

Of course, you don’t have to park your domain name if you don’t think it’s ethical – there’s money to be made without doing it.

“If you’d like to become a professional domain trader, you must learn how to value a domain so you can spot the bargains and resell for a profit,” says Sale. “Keep in mind that like property, some names will sell and some won’t – it’s important to follow the trends and know your market.”