An Intro to Investing in Domain Names

While this blog was initially created with  domainers from Namepros in mind, it has rapidly begun getting visitors from outside the Namepros community. For that reason, I feel that now is the right time for an intro to domain name investing post. This is a modified version (to suit what’s changed in the last 5 months and make it a bit easier for a newcomer to digest) of a post of mine made at Namepros which was very popular. Enjoy!

Spend your whole first month (at least!) reading about the domain name market… Understand why prices are the way they are. Look up current trends and attempt to extrapolate. Do not spend all your money starting out on a few good names. You’ll probably end up getting ripped off and the whole domain experience will become sour for you. Keep thinking of ideas, researching new trends, areas of interest, and checking expired domain lists. Expired domains are domain names for which the domain name registration has lapsed.  Lists of expired domain names can be obtained for free on sites which allow backordering.

Backordering is basically paying a company to acquire a name who’s registration is about to lapse for you. Many people scan (look through) expired domain name lists daily and for this reason, there’s alot of competition for domain names which are set to expire on any given day. A way to get an edge on the competition is to use a backordering company. Pool.com, Snapnames.com, and Namejet.com are currently the 3 largest domain name backordering companies. They have contracts with registrars (the companies who facilitate domain name registration) that entitle them to all domain names who’s registration has lapsed at those registrars. They also own registrars of their own. They use the registrars they own as a means of attempting to catch (acquire) domain names for which none of the 3 parties mentioned above have exclusive contracts with. The whole process is quite complicated and well beyond this introductory lesson, however, what should be retained here, is that if Pool, Snapnames, or Namejet are interested in a domain name, they will almost always get it. It’s always smart to backorder at all 3. That way, you’re most likely to get the name you want provided you can afford it. When more than 1 person is interested in a domain name at these backordering companies, the company who manages to backorder the name sets up an auction with the winning party being the person willing to pony up the most cash for the name. Backordering is often very expensive and there are set fees (only if you are the winning party in the end) established by each backordering company which are well in excess of the fees you would pay if you were able to register the name yourself without employing them. For this reason, it’s important to consider whether you think you need the help of a backordering company or not to acquire the domain name you’re interested in. As a general rule, I don’t backorder anything I don’t feel is worth at least $100. This will vary from person to person, but when backordering a name often costs $30+ and once you factor the time and energy it will take to resell (more on this later) this name into the equation,…

Backorder or not, always remember to strive for the best names you can get for your money. It’s not necessarily about spending your entire budget on 1 name, but it is about getting the best name you can get for every dollar you put in. If you can get a $100 for $10 or a $100 for $20, which would you choose? It sounds easy, but it does take a bit of practice when those domain names are represented by letters — say, ZQVJ.com versus XKOX.com? This is all the more reason why I recommend everyone thoroughly research the market before investing heavily in it.

If you choose to go the hand reg route (registering names without backordering), only reg the very best ones you’re able to find. Don’t reg a ton of them at the beginning… Dabble in it a bit.. Try and sell these names. Are you able to sell them? Do you now have a reasonable grasp on the potential value a name has under usual circumstances? Take that knowledge you’ve acquired over your first month or two… Now, consider investing in a quality .com. Don’t get suckered into spending x,xxx (shorthand for thousands) on a different tld (top level domain) or worse — a cctld (country code top level domain). You’re new — you need things simple… And it doesn’t get simpler than .com 😉 For those wondering what a tld and cctld is, I would ideally tell you it doesn’t matter — that all you should focus on right now is dotcom (.com), however since I know you’re going to google it if I don’t tell you… A TLD in it’s common domainer meaning (screw Wikipedia!) is any sTLD or uTLD (I bet that cleared alot up!). sTLD’s are domain name extensions which are sponsored by an independant organizations who monitor and impose rules to be followed by the registrants (the people like you who own a domain name in this domain name extension). Examples of sTLD’s include .mobi and the soon to be released .asia. UTLD’s or unsponsored top level domains, are domain name extensions which do not have sponsors. Examples of uTLD’s include .com, .net, .info, and .biz. The main difference of importance is that there are generally no rules to follow (although certain names may perform better in certain uTLD’s) when registering uTLD’s. If you wish to build a website with a domain name in the .mobi extension ( an sTLD) in comparison, you would need to make it mobile compliant, as defined at www.ready.mobi. This most certainly sounded like gibberish to you if you really are a newcomer to domain name investing. No worries… Read it 10 times, then read it another 10. Investing in domain names really isn’t a foot race… Make sure you thoroughly understand everything mentioned above before going forward. If you can’t understand a certain point, search for an answer on Namepros or ask a question about it. There are plenty of friendly members willing to give every newcomer a helping hand. And never forget to stick with .com at first (I’ll say this so many times you’ll be sick — but these really are words of wisdom).

When you make the next step up — when you’re considering investing in a good .com, ask yourself what’s important to you. Do you need the revenue that could be generated from a parked name? Are you interested in finding a name which has a high ppc value and could easily be developed into a profitable site?

I bet I lost you once again! Revenue generated from a parked name you ask? But I thought I made money by selling names…” The world of domain name investing, it seems, is much more complicated than that 🙂  Parking domain names is a fundamental part of monetizing your domain names before you sell them. Domain name parking is to put it bluntly, loading your domain names with advertisements that pay you real greenbacks everytime someone clicks on one of the links or ads (before you ask, you’re not allowed to click on your own and they can find out and close your account if you do). For a newcomer just starting out, I’d recommend creating a parking account with Sedo and Namedrive. There are better (higher paying) parking companies out there, however many of them are exclusive, requiring a certain amount of traffic (people visiting your domain names), revenue (people clicking on advertisements displayed on your domain names), a combination of both, or a set amount of domain names. Many of them also make you wait for several days before deciding whether to accept you into their program or not and may cut you off if you cannot maintain certain performance requirements. For this reason, I recommend sticking with Sedo and Namedrive until you gain further understanding and appreciation for the domain name monetization via parking sector. Experiment on Sedo and Namedrive with your names. Play around with the keywords with the goal of increasing your click through rate. Tools such as Wordtracker and Keyword Discovery can help you find terms which are frequently searched for and hence more likely to generate clicks. At this point in time, I wouldn’t worry about how much money I was receiving per click.. You can worry about maximizing your earnings per click (EPC) once you’ve learned to maximize your click through rate (CTR). I won’t discuss EPC further here. It requires alot of dedication to find the perfect balance between CTR and EPC and isn’t something you need to worry about until your dealing with names earning you dollars daily, rather than the cents you’ll likely earn at best on your first few names. Always remember that slow and steady wins the race! At some registrars, you’ll be able to renew your domain name (and hence keep you domain registration from lapsing) for as low as 2 cents per day — most registrar’s annual fees amount to the equivalent of less than 3 cents per day. So if you can make 5, or 10 cents on your name each day, don’t fret! Try and repeat that success over, and over, and over again.

Before regging a name… Ask yourself why you want/need this particular name. Think long and hard about it. Think of the best ways to monetize this name. Stay away from names with traffic stats being sold based on these traffic stats… Get a good .com that “sells” itself on it’s own merit. Traffic stats can be easily forged (another concept we won’t get into here.. I told you to stay away, so do otherwise at your own peril) and we really don’t want to worry about all that this early in the game.

When it comes to making your first large investment, after having decided what you plan on doing with it (parking, developing, reselling, etc), try and figure out a ballpark figure of how much money you’ll be able to generate off this name. It doesn’t have to be exact — it won’t be exact. But having an idea of around how much you can make, is a good way to start planning for the future. My recommendation — a LLL.com, a couple premium CVCV.com or a good dictionary word .com. Don’t get fooled into paying exhorbitant prices for a name just because it’s listed in a dictionary… Shop around. You’ll be surprised at some of the deals available out there! Look at names listed on Sedo, Afternic, and other domain name exchanges. When looking at these exchanges, take the prices with a grain of salt. It’s easy for anyone to ask $10k usd for a shoddy name. It’s not what you ask for it… It’s what you can get for it. Check resources such as NameBio and DnJournal. These provide a concrete sales history. Unlike Sedo, these are not asking prices — these are what names have sold for in the past. You can use tools such as Estibot and Premium Domain (Domain Score) to compare a name to another one or attempt to guage the value of a name in question. Don’t pay prices based on what these free services report. Rather, look at the value reported and attempt to understand why the automated program reported the value that it did. High prices reported by automated programs are no guarantee that your name is great — but be extremely weary if the name you’re paying xxxx+ for is reported as being worth reg fee (you get the idea) by Estibot, or non premium by Premium Domain. If it isn’t premium or scores low on Estibot’s valuation, ask yourself why that is. Is it something new that hasn’t hit mainstreasm yet (think of wikis or blogs a few years back)? A low valuation does not necessarily imply that you’re being ripped off, rather that you should proceed with caution.

Make sure to toss most of your profits back into additional names. Take some money out so that you can convince yourself and your significant other that this really is real. If you have deep pockets you may choose to now begin looking for a second high quality name (still sticking with .com at this point). If not, get your name monetized (however you choose to do it) asap so you can start saving towards your next name.

Use this downtime (if you’re like most people) to further expand your knowledge of domaining. Read up on the latest trends (and always continue doing such…). These change fast, so don’t think that what was hot 2 months ago is necessarily the real deal today.

Since you probably will have a few months before your name generates enough money to consider investing in another .com (and even if you have the funds to re-invest right now) , start learning about the other markets available to you. Since your money supply is likely limited, you won’t be able to buy premium .coms week after week… You’re likely still not ready to experiment with speculative extensions like .tv, .mobi, most cctlds, LLLL.com (not CVCV/VCVC), so don’t go there. The biggest way a newbie can be burned is by getting into speculative extensions when they don’t have the requisite knowledge and appreciation of domaining to truly grasp the liquidity of this market. Since your money supply is limited, you need names that are either liquid, generate a steady stream of income, or optimally, both. This means you should focus on .coms and premium .nets only, for the time being. As you gain more experience and a thorough understanding of the value of .coms and .nets (and hopefully a fatter bank account!), you can slowly move into markets that aren’t as liquid. Start with .info… Good .infos aren’t that hard to sell. Once you get the hang of waiting a bit longer for sales — and having enough money that you can afford to wait on sales, you can start investing in speculative extensions. Rule #1 of investing… Never invest more than you can afford to lose. We can all agree that a LLL.com, premium 1 word generic .com, etc are solid investments, likely to go nowhere but through the stratosphere in years to come. The same cannot necessarily be said about speculative extensions.

Nobody really knows whether .mobi will become the mobile standard or whether .tv will become synonymous with online video. While LLLL.coms look promising today, they didn’t look so promising 5 months ago when I plunked down $10k on 1500 of them.. These investments have an inherent risk that investing in the former (.com) does not have.  I would never put more than 20% of my investment in a speculative extension — it’s just too much money to potentially lose — not to mention the fact that speculative extensions can be a plague for anyone who doesn’t understand the importance of spreading registrations throughout the year. Zero liquidity (or near zero) means that you end up selling your names at a loss (or under what you presume to be their market value), because you need the money. Don’t fall into this trap. Don’t invest more than you can afford — especially if investing in speculative extensions.

Here’s a few more tips to consider when entering domaining…

1. Length — how long is your domain name? One word domains are usually easier to sell and sell for higher amounts than 2 word domains from the same sector.

2. Pronouncability — Is it easy to pronounce, or is pronouncing the name really stretching it? Prounouncability leads right into…

3. Memorability — how easy is it to remember this name? A memorable name is generally a non-hyphenated name, composed of 1 or 2 words which go well together. Stay away from numbers — especially the use of numbers as letters (such as one and 1) to form words (a few exceptions here, including domain name related sites, such as this one which deal with topics commonly talked about using letters [eg. 4 letter domain names]). A memorable name probably has…

4. Brandability — Could a company center a product or website around this name?

5. Grammatical Tense — Use a tool, such as Wordtracker to ensure you use the right one. What seems like the most used tense to you may be different from how the rest of the world sees it. Also use Wordtracker to identify whether the term is more popular in it’s plural or singular form.

6. USPTO.GOV is your friend — remember that! Don’t be a n00b and get into TM or typosquatting. You can make plenty of money in domaining without stooping to that level.

7. TLD/ccTLD — What extension is it? I use a 1/10/30 rule for .com, .net, .info — meaning that I first attempt to determine the approximate value of a .com, then, I associate approximately 10% of that value as a maximum value of the .net and then assign one third of the .net value (or 1/30 of the .com value) to the .info. I use these as maximum prices I would pay. So if I feel a particular .com is worth 100k, I wouldn’t value the .info at more than around 3k in example. Seeing as I want to make a profit, I wouldn’t consider going higher than 2.5k under such a scenario. As for offering… Most domainers are pretty reasonable to other domainers (i.e. dealing with another Namepros member). If I’m dealing with a individual who I’m not sure if they’re a domainer or not, I’ll typically start off by offering them 10% of the maximum I’d be willing to pay for their name (in the above case, that would be $250). If they know me and I know them, I’ll usually start off around 40-50% of the maximum I’d be willing to pay. No matter what you offer on your first offer, people will generally figure that your first offer usually isn’t your best offer (and usually it isn’t), so keep this in mind when beginning negotiations — leave room to negotiate.

8. Target Market — Who exactly is going to buy your name? If it’s a generic .com or LLL.com, okay, you need not worry. But what if it’s not? Obviously the larger the target market, the better. A name like health.com is worth more than a name like healthstore.com for several reasons — but 1 of they key reasons is because health.com has a bigger target market (as well as greatly increased traffic, but that’s another matter). How many potential endusers would this name have?

9. Traffic — The big T! No traffic, no money. Easy as that. If you’re name receives no traffic whatsoever, the only way you’ll be able to generate income is by selling it. This makes it a less attractive option than buying a name which receives plenty of free traffic even when it hasn’t been developed.

10. Plan for the future — Hedge your investments and hedge them well my friend! You can’t predict the future, so prepare for it in advance. Use strategies such as diversification to minimize risk. If you plan on investing some of your money in speculative extensions, put at least three times that amount in solid .coms, so as to minimize the damage done should your investment in speculative extensions not pan out. Don’t forget to spread out those renewal dates.

11. Keep coming back to Namepros. There’s always new stuff to learn!

Source: An Intro to Investing in Domain Names

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~ by Reece on December 8, 2007.

12 Responses to “An Intro to Investing in Domain Names”

  1. Hi Reece,

    Thanks for the link , i have learn alot from it as a beginner. I know you are very busy now, but just a quick question , you mentioned the importance of USPTO.GOV, what should i look for or what kind of information should i expect from USPTO.GOV

  2. Hi Richard,

    USPTO.GOV is a good site to make sure that the domain name you’re about to registered isn’t trademarked. If you were interested in starting up a business, it would be a good idea to visit USPTO.GOV as well to make sure that someone isn’t already using your proposed business name with a trademark granted in the market you were interested in targetting. It’s a very useful site and you can really learn alot from browsing through it. Wish you all the best with domaining and if you haven’t done so already, I highly recommend signing up for a free membership at http://www.namepros.com 🙂

  3. Thanks alot Reece

  4. Hi Reece,

    Help on alphabet categories and definition. How do i know which alphabets are quad premium,anti-premium, etc. Any link to where i can find such info.

    Thanks for your reply.

  5. Hi Richard,

    Premium Letters = A,B,C,D,E,F,G,H,I,L,M,N,O,P,R,S,T

    Quad premium refers to 4 letters from the above list. Triple refers to 3, double 2, single, 1. Anti-premium generally refers to an absolutely ghastly LLLL.com. This is somewhat subjective and it may contain 1 premium letter, but certainly not more than one.

  6. Thanks Reece

  7. Hi Reece,

    When you buy a domain name that has sponsored links, do you still get paid for generating traffic through those sponsored links?

  8. Hi Richard,

    Existing traffic — including traffic generated from search engines and sponsored links will generate legitimate parking revenue that you’ll be able to profit from. You aren’t allowed to create new links after having parked the domain however and parking companies may choose to withhold some (or all) parking revenue which they believe to have been generated in such a fashion. Some parking companies may also permanently bar you from using their services for doing such.

  9. Thus, is it better to buy a park free or a park domain.

    thanks

  10. Hi Reece,

    I have been reading through a whole lot of information, still trying to learn more about domaining.

    Can you please tell me where you buy and register your domains and what is the best place to buy on the aftermarket. For a start i am looking for a domain that will generate parking revenue through real estates in WPG and SK. Any suggestions in domains affiliated to real estate parking?

    Thanks and have a nice week-end

  11. Hi Richard,

    Sedo might be a good place to start in your search. You can enter whatever keywords you’re looking for (example: Winnipeg) and then scroll through the results. With over 9 million domains listed there, I’m sure there are some that will fit exactly what you’re looking for — hopefully some for sale at the right price too 🙂

    I register my domains through Godaddy and find their aftermarket (TDNAM) an excellent place to purchase domains at reasonable prices. You can often find great names for under $100 there — sometimes even under $20.

  12. Thanks Reece, i really appreciate your assistance

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