Why Would Anyone Pay Thousands for a Domain Name?

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premium domain name for your businessIt’s not cliche to say that today every dollar counts. Times are tight — for some, times are very tight — and business owners across the country are looking at every dollar they spend to make sure they are getting the return they need from the money they invest.

So why then, in times such as these, would anyone be willing to pay thousands of dollars for a simple domain name? The answer is easy: because those simple domains (often called premium domains) can make a difference.

THE AGE OF THE PREMIUM DOMAIN

A premium domain is a domain that has been registered previously and is back on the market for resale (it’s like a used car lot for domain names but these items have not depreciated in value — in fact, it’s quite the opposite situation).

You see, today there are about 76 million dot com names registered worldwide. That means the chances of finding a very intrinsic dot com (shopping.com, flowers.com) are slim. These names were snapped up years ago but now, these early domain registrants are increasingly willing to part with their prized domain names for the right price. Some of these sales live in infamy (consider Pizza.com that sold for $2.6 million in 2008 or Business.com that sold for $7.5 million in 1999) but the average premium domain price tag ranges from a few hundred to a few thousand dollars.

SO WHAT CAN A PREMIUM DOMAIN NAME DO FOR YOUR BUSINESS?

  • The Impact of the Instant Online Brand: First and foremost, a simple domain name gives your online business an instant brand. Premium domain names are generally easy to remember, easy to type and instantly associated with a product or service (Cars.com, Meat.com, Vodka.com). A business owner need not invest much to help potential visitors understand what they might expect to find on sites like these. The domain itself creates an instant online brand that continues to define your online business for as long as you have it.
  • More Traffic from Direct Navigation: Your instant brand will generate traffic from direct navigation. As surprising as it may seem to those of us who use Google multiple times per day — some internet users simply type what they are looking for into their internet browser address line (Shoes.com) if your site resides at a no nonsense domain like this, you will reap the benefits of what’s called “direct navigation” (customers coming directly to your site because they typed you domain directly into their web browser) without spending one dollar on marketing your site.
  • Increased SEO ranking: Your domain names do have an impact on your search engine rankings, so the more basic and easily associated your domain name is with the product or service potential customers are searching for the more likely it is that you’ll rank high in the search results. (Just type hotels into your Google search bar I’ll bet Hotels.com is one of the first links returned).

About 80% of US adults are online (that’s an audience size that’s hard to reach through traditional offline marketing). What’s more, the brand you build online can keep working for you long after your catalog or most recent flyer has been discarded.

So the bottom line is: what may seem like an extraordinary expense on first glance is actually not so outlandish considering the benefits you could reap from the right domain name.

My advice for small businesses is not to count out your domain name when you’re planning your marketing spend. Compare the return you could receive with your other marketing efforts (online and offline) and do a little research to see if the right domain name is available for your business. (Register.com — and other domain registrars like us — have search tools to help you understand what domains are available to best represent your brand). At a time when every dollar counts, a premium domain might just be the best way to put your marketing dollars to work for you.

* * * * *

Wennedy Kennedy, Editor of Register.com Small Business Learning Center About the Author: Wendy Kennedy is the creator and editor of the Register.com Learning Center (an online resource site for small businesses). Wendy has also served as a consultant with over ten years of experience developing marketing and awareness programs with small businesses and entrepreneurs.

27 Comments ▼

Wendy Kennedy




27 Reactions

  1. Good point. You may have to pay a large sum initially but the gains will far outweigh that in the long run. With better visibility, you have the potential to significantly increase your sales and make that initial cost back quickly.

  2. Great article Amanda but this is probably only a realistic solution for only a few select business in America as the more generic domains cost several million dollars to buy as stated in your article. Small business owners might get more bang for their buck by buying domains that are more targeted to the products they sell then trying to buy their industry .com domain. Example instead of a car dealership trying to buy cars.com they may want to pick up carsforsale.com usedcars.com, by buying these more targeted domains they will spend a lot less on a domain and the returns tend to be higher in most cases since the visitors typing in the domain are more targeted.

    Small business can start their research by using google kewyord tool https://adwords.google.com/select/KeywordToolExternal

    Type in a word that describes your business and google will return similar words along with the number of times the word(s) are searched for in a month. This will give you a good idea of what domains may be worth buying and how much they may be worth.

  3. It’s probably important to note what kind of business you’re in. Some businesses, like local service or store fronts, will probably not be able to justify the expense of buying such domain names. But it is definitely something to consider and weigh in on.

  4. Interesting stuff. Seems like aggregators like Hotels.com fare best with the general URLs– suppose it all depends on what your brand needs. Jim Beam should be optimized for searches on the term “bourbon” but I wonder if Bourbon.com would be a true benefit to the brand. Thoughts?

  5. A while back I wrote up the example of the Karcher Group. They snapped up a 3-letter domain they had been eye-ing for several years. They bought it on the after-market as a premium domain. One of the reasons they gave for investing $15,000 in a premium domain is to be able to put their domain name on printed documents and billboards, allowing people to easily remember the domain (rather than their much longer one which no one could easily remember).

    http://www.smallbiztrends.com/2008/05/changing-domain-names-small-business.html/

  6. Very interesting. It took me a while to come up with my domain name idea, but didn’t think to register particular product names or types in itself as well. (wondering how much greenandchi.com is “worth”. – ha!)

  7. I am also surprised with this. Paying thousands of dollars for a domain name is really quite expensive. But of course, like YFCNG said, this requires a careful deliberation and research so that the cost is worth it.

  8. Wendy Kennedy: Could you please explain BuyDomain’s price strategy to give my expired surname domain Lindeskog.com a starting price of $688? I have written a post on my new domain name Lindeskog.name. Click on “Martin Lindeskog” Says:

  9. Hi Everyone,

    I have been selling domain names and consulting for companies large and small for almost five years. The uncontested facts that no ad agency will tell you is that the money you invest in a keyword generic domain name that defines your products or services is the best investment in marketing there is.

    A domain name is an “appreciable marketing asset”, which mean, you buy it for whatever cost ($100 – $1000 – $10,000, and higher) and that domain name will work for you 24/7/365. That’s one advantage.

    Next advantage, the domain name defines your product online, and it literally eliminates your competitors from that market of ‘direct navigator shoppers’, internet users as Wendy pointed out, who just type in the word/phrase that defines their product they’re looking for, and add “.com, .net, .org” or other domain extension, including .us and .info. Once you own the generic description of your product, such as “audiocabinet.com”, your competitors selling “audio cabinets” can’t benefit from the specific demographics of those users who type the phrase as a domain name into their browser instead of “searching” for it on Google or Yahoo.

    Third advantage, your domain, especially the longer you use it, gains value. Sometimes the value is so great that it becomes your main source of marketing return, and the domain itself could be more valuable than your company itself. This isn’t a crock, this is true. During the internet bubble burst of 2000, many domains were sold at prices valued more than the company that owned it. Your domain name, if it’s a true generic word or phrase, will continually appreciate in value each year.

    The domain industry used to be secretive because a few hundred people who understood the value of domains bought up as many as they could. They didn’t want others to participate, thereby limiting the pool of possible domains to purchase.

    However, domaining has gone mainstream now, and companies ARE looking to purchase domains that generically describe their product or service. If you had a business that sold advertising on candy, you’d do pretty good to own “candyad.com”, even if it cost you $3,000. If you spent the same amount of money on a newspaper ad, the ad would run, and a week later you’d stop getting responses, and your money would be gone. However, the domain CandyAd.com would be branding your company for as long as you kept it renewed.

    Fourth Advantage: Spend a few hundred or a few thousand or more on a good domain, put it to good use, and reap the above advantages… but the best advantage of all is all those above advantages return for an investment of $10 to renew the domain the following year. As good advice, I’d just pay the aftermarket seller his price, then renew the domain for 10 years at $10 a year. So for the aftermarket price, plus $100, this domain will work for you at many levels for 10 years.

    If you have doubts, first ask why Johnson & Johnson (baby.com), Proctor & Gamble (toothpaste.com), Barnes & Noble (Book.com and Books.com) and hundreds of other powerful companies invested millions into purchasing these domains.

    Because these domains bring better ROI than any other marketing/advertising medium, AND they increase in value. So just look at buying a domain name as investing in property.

    I would advise any business owner selling online to seriously consider using their 2009 ad budget to buying generic domain names, but first, learning about domain name value.

    Stephen Douglas
    Blog: Successclick.com
    DomainRelevance.com
    “Own Your Competition™”

  10. Nice article. A premium domain is like a prime location in the market. You do have the advantages.

    But running after a premium name should be justified. It must suit your budget and more importantly it must add to your business.

    People do good business in non premium locations too. If you are not getting a premium name for any reason, you can always take care of traffic with good marketing.

    It is not wise to invest much in domain name if you are just starting. If you could save dollars here, you could use them to grow your business.

    Try to find a unique name even if it is not premium. The focus should be promoting whatever you have secured.

  11. I agree, Arun Pal Singh. After have bought a premium domain name, it must be justified or else, you have put your investment to waste.

  12. Our new start-up just bought the domain Alice.com for six figures. We stayed away from generic names (like hotels.com) because they are way too expensive and way too limiting for your business. I’ve started three businesses and all three were different at year 3 than at launch. Domain name speculators have driven prices on names up to ridiculous levels and this is an expense that every small business is going to have to factor in. You can read about how our company struggled with the domain name industry and decided to go with Alice.com, here: http://flywheelblog.com/2008/08/we-need-a-company-name-part-i/

  13. Good article. :)

    Thousands would be cheap — unless we’re talking about runtogethernonsenselikethis.com.

    Maybe a hyphenated keyphrase could go for thousands.

    Generally domain names are still undervalued — CBS got a bargain for the CNet portfolio.

    What most people don’t realize is that the vocabulary of “worthwhile” domain names is EXTREMELY limited. So eBay was also very smart to acquire shopping.com and rent.com several years ago.

    Live will ultimately decimate Google.

    OK, got naysayers? Bring ‘em on!

    ;D nmw

  14. I remember one tip Anita said in her article – The Unwilling SEO, is that Spend Money to Make Money. Well, this premium domains are just worth to spend for but in my case, for now… I can’t afford yet so I have to maximize what blogger can offer and other free hosting sites as well. :)

  15. i need to sell my website , please contact me .

  16. Great idea for some, but worst-case-scenario for new-product-innovations and branding…

  17. Excellent article, Wendy. You nailed it.

    Note to Anonymous Ad Guy: Click Scotch.com or Rum.com.

  18. Great article! Well written and on point in all aspects. For those looking for the perfect domain name for their business, now is the perfect time to get it. Not only will your investment appreciate over time (as Wendy pointed out) … but with the right SEO (search engine optimization), it will rank really well in the search engines whether it is a category defining name, such as Weddings.com or a geographical domain name like SanDiegoWeddings.com.

    What makes this such a good time for buying domains is: the economy.

    Because the economy is currently flat, domain name prices are much more affordable for the average small business owner!

    For example, names that you would normally see sell in the $x,xxx – $xx,xxx price range years ago, can easily be found in the range of $xxx in the current market. Of course, all domains will continue to increase in value (just like any other valuable asset), but with the economy the way it is, there are very high quality names returning into the market on a regular basis.

    @Anonymous Ad Guy, here’s another name to add to the list of names that David listed: Brandy.com (this name is being use by a company to get the direct navigation to its website … they have lots of brands besides “brandy”).

  19. Hi again,

    wow, nice followup on this article after more than a year. Congrats on that.

    At the same time, there are new points to consider about buying an aftermarket domain. I’ll review a few of them stated before and then add to those points:

    1) Buying a domain name that defines your products/services is an INVESTMENT LONG TERM, or what I call an “appreciable marketing asset”. This means you aren’t throwing your money into the toilet to advertise traditionally with banner ads, radio, TV, magazine and newspaper ads, all of which have a short life, or more bluntly, a VERY short life, for the value of your marketing investment. But a good domain name that clearly describes what your company offers, will work for you as a “backbranding” tool to use that will identify your product/service (“prodservs”), such as “NutritionalGuru.com” which for a nutritional reseller or nutrition coach would define your supplement/health products or nutritional advice clearly. This domain could probably be bought for under $500 (cuz I own it!), but as an example here, it would provide you with a “back brand” to your company name, and a brand that is easily remembered.

    2) The more you use your defining domain name, the more value is applied to it, because over the years, you will increase its Search Engine Optimization (SEO) which adds more value to your domain, gain more incoming links from other relevant sites (Page Rank for SE’s) which adds more value to your domain, and build the recognition factor of your company’s “backbrand” which adds more value to your domain.

    3) Best of all, and this is a little evil twist to online marketing — it may be more expensive at the start, but the more you spend for a Premium domain, the FASTER that domain gains value exponentially. FOR EXAMPLE:

    -Let’s say you are a manufacturer, distributor, or retailer of “microfiber comforters”. If you owned the domain name “microfibercomforter.com”, you would use that when you advertised your products. (You’re “backbranding” the phrase “microfiber comforter” to your company). Forget using your company name in advertising microfiber comforters, because the potential buyer will instantly find out who you are when they come to your site after clicking on the domain name “microfibercomforter.com”.

    -The really insidious damage you will do to your competitors (who also sell “micro fiber comforters”) is that EVERY TIME THEY MENTION THEIR (YOUR) PRODUCT/SERVICE, they’re promoting YOUR domain name /website. So if Competitors A & B write up copy for an ad or marketing campaign to sell a “microfiber comforter”, they’ve just promoted your domain name! And that domain name leads to YOUR WEBSITE. This is the “coup de grace” in online marketing. This is the “inside secret” that the Fortune 500 companies know, and why they are still buying up hundreds of domain names defining their prodservs.

    -When you own a premium domain phrase that describes your prodservs generically, that forces your competitors to STOP (or worry) using that term in their ad copy, or they will risk promoting your website because you OWN THAT PHRASE as a domain name that points to your website. In another EXAMPLE: You own “BloodPressureProducts.com” domain name. You have your competitors “over a barrel” because they’re hurting their online marketing if they use the phrase “blood pressure products” that you own as a domain. The “crusher” strategy for your company? If your competitors don’t use the phrase, they can’t promote their product/service.

    -Owning a premium generic descriptive domain name that defines your prodservs, even if it eats up your year’s ad budget (just for that year, because the following year is only a $10 renewal cost), even if you’re a small business and only have a few thousand $$$ to spend, that investment is NOT going to fail for you, and even better, that investment will work for you nonstop while at the same time growing in value each year you own it. And if you nab that generic descriptive domain name relevant to your prodservs, you OWN YOUR COMPETITION™.

    I can’t state how important it is for ANY business, from small/local to major franchise, to SERIOUSLY research the value of buying a domain name that is relevant to their business.

    Stephen Douglas
    BLOG: http://www.Successclick.com
    Successful Domain Management™
    http://www.DomainRelevance.com
    “Own Your Competition™”

  20. its fine haveing a great domain ,but pointless unless you have the stock, shipping,pr,stock control, staff etc etc in place to justify the purchase .
    so many great names are parked and are probably loosing money, for their owners, i read half of decent doms are parked.
    as for live.com decimating google ,well live is now bing as i understand.
    since when does the word amazon relate to books,google relates to maths, the list goes on.
    my point- sometimes the name takes second place..
    just my ho

  21. @Marko

    I can see you’ve never hired a fulfillment center, or built a directory website, or a simple affiliate site. A powerful domain name will make money with the eyeballs — how you understand the monetization process and implement it to what fits your budget or expectations, is up to you. But your statements about “having stock, shipping, PR, staff, etc etc”, those are exactly the reasons WHY investing in a premium domain name puts you ahead of the game — because you don’t NEED all of that to make a lot of money with a good domain name. You described the domain name as if it was a brick and mortar operation when it isn’t, unless you want it to be.

    As far as I know, not one premium domain name is “losing money” for their owners. A domain that cost me $1,200 is making me $50 a month just “parking” it. My cost annually? $7.50 domain renewal fee. My gross profit? $600 a year. The domain will pay for itself in another year, and all money after that is cash cow. Imagine owning 100 domains that make you $50 a month just by parking them. ($60,000 a year). No staff, no stock, no inventory, just parking it and renewing it.

    You have a lot to learn… and you’ll enjoy learning it!

  22. Very good post. I enjoy your approach. I’m going to pass some time browsing your site. I hope you mean to write a little more about this.

  23. This post may be a year or two old now but it is just as valid as when it was written. If anything, Google has recently given more strength to aged trusted domains and with keyword rich urls they get an even bigger boost in the rankings.

  24. In some ways I have to agree with your article about the relevance of a great domain name, however I just cannot see the value when paying millions of dollars for a domain.

  25. @BotNinja

    Would you pay $2 mil for a domain name that made you $50,000 a month in adlink revenue at a parking service? Of course you would if you had that money and the domain was a premium one word domain that wasn’t just a “fad” name.

    You’d start making a profit on your domain after 2 years. That means, after 2 years, your $50k a month income would add up to $600,000 in straight profits every year for as long as you owned the domain. Oh… and your cost? $10 a year registration fee.

    Oh and finally, your domain after several years of you owning it, has probably appreciated to being worth double what you paid. So profits on running the site after 2 years (recoup your investment), and then everything else is cake and icing, and your great aunt leaving you her 10 bedroom house in the Hamptons in her will.

    No other simple investment matches a good domain name purchase. Period.

  26. Domainers have gotten completely out of control. I’ve inquired about domains that aren’t even a real word, have no traffic, no site, no anything, no branding power besides the fact that ‘it’s 4 letters’ and they want 30k+ for it. They are so out of touch with real world value of these names…just pricing it based on their hunch of what it might go for in 1998.

  27. @Mike,

    It’s not the domainers who are “completely out of control”, it’s the failure for some business owners or startups to fail to see if they find an empty lot with nothing on it, weeds and maybe some old shed falling down on it, IT IS STILL PROPERTY.

    If that property isn’t “built out”, does that mean the owner of the property needs to give it to someone who wants it for free? Of course domainers buy domains that make no sense, because a lot of companies make up names that make no sense and brand them with a lot of money through traditional/online New Media advertising.

    Just because every “dotcom” word/phrase is taken doesn’t mean domainers are “out of control.” They invest in domains, they wait, they monetize the domain maybe, it doesn’t matter what they do, just like it doesn’t matter what a land owner does with his 10 acres of weeds off the freeway. At some point, they’ll either delete the domain or fail to renew it, or sell it or do something with it.

    Your issue is you’re surprised at how many people invest in INTERNET PROPERTY — domains. Also, don’t forget you can always buy an aftermarket domain (a domain someone owns and isn’t using) for sometimes very cheap. It’s just a part of doing business in ecommerce, so don’t get bummed if a domain is taken. If it’s not being used, contact the owner and ask for a price.

    Our company does this for hundreds of business owners a year. We handle the whole process. It’s quite easy and fast, and usually the price for our work is only 5% of the price of the domain you want. Think of it as getting the RIGHT domain for YOU.

    Good luck!

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