The domain name space seems hotter then ever these days, and lots of my friends and contacts from the internet advertising industry seem very aware of this space, as compared to just a year or two ago. As companies like iREIT ramp up significantly, and as other potential acquirers like march-ex stay in the game, competition for purchasing already-registered names and portfolios is really heating up. Additionally, the market for purchasing recently-expired domains has really become efficient with a large number of smaller players bidding snap prices right up to what I believe to be their immediate resale value in many cases. The number of companies pursuing new registrations has grown significantly too over the past 6 or so months, with more and more companies taking advantage of the trial period through various registrar partners. Only those with the best and most timely data sources combined with very efficient operations seem able to make a buck here.
I’m not an expert in the domain name space compared to many of the more-knowledgeable people out there. I am however reasonably informed as compared to people that don’t have a lot of background in the space, and as such have been fielding a lot of inbound inquiries and briefing a significant number of people on some of the basics of the space. As such I thought it might be interesting to talk about some of the characteristics of a domain name, and how they relate to a domain’s resale valuation.
When trying to value a domain name for resale, I normally start by trying to understand it along following dimensions:
1) What is the traffic and revenue to the domain?
· How is the domain being monetized, and does the methodology appear optimal?
2) How likely are you to lose the domain name due to TM issues
· Domain names with potential trademark issues typically sell at a significant discount.
3) How permanent is the traffic to the domain name?
· A domain name that used to have a site on it will typically lose traffic quickly, as inbound links and repeat visitors disappear
· A domain name that is a misspelling of an existing site may quickly lose traffic if the existing site becomes less popular.
· A domain name related to a recent event, seasonal event, or new term may lose traffic if that event or phrase receives less attention moving forward.
· A domain name that receives it’s traffic simply because it’s composed of generic words, that has never had a site on it, that is not receiving traffic because the name is similar to that of an existing site, is likely to have little or no loss of traffic over time.
4) What development potential does the domain name have?
· Not all generic word type-in domains are created equal. While its possible eExams.com and eTests.com might get a similar amount of traffic of similar value, eTests is probably more valuable from a development perspective as it looks more natural then the double-e present in eExams.
Considering the above criteria, one can start to evaluate the potential resale value of a domain or portfolio of domains. Domains without TM issues, composed of generic words, whose traffic is stable and permanent per #3 above and that are not very brandable, might sell for 6-8 years revenue in this market, if the proper buyers were found and the deal was of appreciable size.
Domains with TM issues, or domains that had sites on them very recently where one might lose the domain quickly or where traffic is declining quickly, often sell for as little as 1-2 years revenue based upon the existing revenue run rate.
In the end valuing a domain or a portfolio is a fairly complex art, but I hope the above helps get some folks thinking headed in the right direction.
And on a more personal note, a plug for one of the domains I am entertaining offers on and thinking about selling. FreeEssays.com. Averages 337 visitors per day and $56 revenue per day over the last month or so. No TM issues, very stable and permanent traffic. It’s a somewhat developable name, although the three consecutive “eee”s make it a little hard to look at. Looking for offers around $200,000 or 10 years revenue (net to me). Since most potential acquirers have better revenue share deals with whomever they monetize their domains through, 10 years revenue to me may only mean 7-8 years revenue for them. Not a bad potential return on investment if you pick up a stable domain at 7-8 years revenue….that’s an anticipated annual 12.5% - 14.3% return on your money if traffic and revenue stay flat – and to date traffic and revenue to the domain and many with similar characteristics have only been increasing.