DomainTools Blog

I was just asked a question by a friend. The questions was not your simple question, it was out of the ordinary for him. You see he does not know much about the Internet. So it was a shock to hear the words come out of his mouth. He asked about these “mysterious domain names” that only show ads. He knows my job is running DomainTools and Name Intelligence so I am sure that is why he asked. It was like asking a comic book collector about superman issue #1. He could not have come to a better person to explain the basics about domain names. I have been watching this industry for 10+ years and I dumped some knowledge on it.

It is pretty basic, I explained, people type domain names into browser expecting to find something. “uh yeah”, he agreed. Well, people buy domain names so they can make websites. It is about being found. If the domain buyer places ads on the site and the site naturally starts makes money and in that case the buyer has struck Internet Gold. Nothing was done except buying a domain name. No search engine optimization, no in bound link building, no marketing, nothing. The thing just makes money. His eyes shot open. “You mean they make money forever and no work is required?” It was like waking a sleeping giant.

My friend works as a repair person for a cell phone company and doesn’t have any easy life. This revelation that anyone can find Internet Gold was amazing. To this day I am shocked that people do not understand the basics of the Internet. He asked a second question, “How does someone get started?”. Ugg, what a loaded question for me to answer. I hate anwsering this question for a few reasons. It takes a level of determination to find a good domain and a commitment to learning about domains. I decided to give him the quick answer, “register names that people type in”. A quick follow up proceeded, “What names do people type in?”. Well I guess there are two types, 1) Sites people already know about and 2) Sites that people think should exist but do not. If they already know about the Seattle Mariners for example then they type in Seattle Mariners.com. However sometimes they try shortcuts like Mariners.com instead. (Actually that shortcut will not work but that doesn’t stop people from trying.)

The second type of domain is the one you want to try and register. If for example you type Visit Places.com I am not sure what people are looking for, but I would suspect they want to find a place they can visit on a trip. I registered this domain a few years ago because I wanted to build a travel site. Never got around to doing it, so I parked it until I do. I opened up my laptop and loaded the control panel that showed my income on the name, as an example this domain made $1.28 this month just sitting there. It only had 16 visitors the whole month. It costs me about $8 a year to own a domain name, so I make about $15 a year in revenue or $7 in profit. If a person is able to buy enough domains like this they make a good passive income stream.

I want to stress that it is not that easy to just find good domains. You just don’t pull them out of a hat. But if you watch the news and stay informed about new developments you can register what you think will be good names for the future. The traditional professional domain collectors does not speculate on future names very much, they like names that are instant hits. Local domain names are getting more and more popular. People type in things like Seattle Plumbers.com and expect to find Seattle Plumbers. So if you can find names like these that would be the place to start. I do not expect anyone to make a full time occupational change overnight, it takes years of work to figure out what names are good and what names to delete our of a portfolio.

I have domains in my portfolio that do not make any money at all. But I would never delete them. I own Official Value.com and it gets zero type-ins a month, makes zero money, and costs me money every year. The reason I keep it is for the bigger picture. I name can be sold in twenty years from now for huge amounts of money. That $200 that is cost me to own the name for 20 years should net several thousand dollars in the future. If I sold land in downtown Seattle for $500. Would you buy some? “Well of course”, he said staring at me like an idiot. Well that is exactly what I have done, I have bought land in downtown Seattle in 1889. I expect land/domain to increase in value. Two words strung together that possible mean something is tomorrows Gold. A few years ago we had 5 million .COMs now we have 65 million. In a few more years we will be above 100 million names. If you think it looks good, then hold it. Just because a domain name doesn’t generate money now doesn’t mean the domain is worthless.

The trap to avoid is falling in love with bad names. Don’t get crazy and start registering sentences or bizarre sounding names with numbers in them. Keep it generic and keep it in .COM.

It was a lot for him to absorbed, but he really wants to try it. I am sure I just created a monster.

On Tuesday, I presented at the Harvard Business School Club. Domaining is now about smart financing as well as a lot of other things. Domains can be bought, sold, leased, and leveraged against. Domains are virtual Real Estate and the offline world is starting to invest in them. One of the questions I asked the audience was which of the following scenarios they would rather have.

Scenario A

Buy 10,000 unregistered domains that have fair type-in traffic. Then renew those 10,000 domains every year for $7 a year (Cost: $70,000). The domains earn $120,000 a year in revenue.

Scenario B

Buy a secondary domain with a heavy down payment for 10 times revenue. The name costs $70,000 to purchase. The domain earns $7,000 a year in revenue.

In Scenario A, the owner nets $50,000 a year on his annual investment. A 58% return on investment per year. In Scenario B, the domain earns $7,000 a year and the renewal cost is $7.

This is a hard questions to answer and has a trick to it. The trick is, are you using your own money or are you leveraging borrowed money. Without that knowledge, how do you begin to answer the question. Scenario B is very attractive if the buyer can leverage borrowed money. However, Scenario A is good for short term self financed ventures. Scenario A will cover his investment seed money in less then two years, while Scenario B will take 8-9 years to recoup their money.

Don’t forget that the cost of domains will go up every year. So Scenario A has a limited lifespan, however it returns on its investment rather fast.

What is the best Scenario? I never answered the question because I am not sure there is a right answer. The smart person would not choose one or the other, they would choose both. But IF you were forced to choose, now that would be tough.