Imminent Domaining - Entrepreneur.com

Imminent Domaining
July 25, 2008
By Laura Tiffany

The domain name market is a hot investment opportunity for entrepreneurs.

One hundred domains. Sounds like a good, round, impressive number. And 100 felt like a lot for Howard Hoffman, who began snapping up domains like HealthWater.com and SportsWater.com to help redirect web surfers to his bottled water company's site, taking advantage of what's called "type-in traffic," when users just enter words or a guessed-at domain into the browser address bar.

Hoffman then went on to purchase cityMagazine.com-type domains, like SantaFeMagazine.com and MontereyMagazine.com. Then he found out just how big his new hobby could get: "I e-mailed or spoke with people who owned a thousand or more domains," Hoffman recalls.

That was more than 10 years ago, and today, Hoffman still runs his water company (recently rebranded as o2cool.com), reinvesting any and all profits in the company, while earning his living strictly from domaining.

"Like most people in the business, my wife thought I was crazy, wasting time and money on domains," says Hoffman, who lives in Palo Alto, California, and also runs PPCIncome.com, a review site for domain parking services. "However, she now understands how good it's been that I stuck with domains."

While the real-world real estate market has taken a nosedive, the domain name market is hotter than ever. GoDaddy.com recently announced its 30 millionth name sold; the company registers, renews or transfers domain names at the rate of one per second these days.

"Domains have held up remarkably well," says Ron Jackson, a domain-name investor as well as the editor and publisher of DNJournal.com, a magazine that compiles statistics on the industry. "In the first six months of 2008, total reported sales in the domain aftermarket rose 11.6 percent over the first half of 2007 when the overall economy was in dramatically better condition than it is now."

There are a finite number of domains available--especially .com names--and as more folks go online (1.4 billion at last count, according to Internet World Statistics), internet real estate is growing ever more valuable.

"Domains have been able to defy economic gravity," Jackson says, "because so many traditional businesses are moving online to take advantage of the cost savings and global reach."

Domain-name investors (otherwise known as domainers) purchase domain names from registries like GoDaddy.com; auction sites like Sedo.com, which recently auctioned pizza.com for $2.6 million and vodka.com for $3 million; or from the domain owners themselves. Then they have three options for monetizing the site: They can "park" the domain, placing relevant ads on it to generate money; they can sell the domain to an interested party or at auction; or they can develop the site into a real business. Most domainers seem to park sites--either permanently, if ads bring in enough cash, or temporarily, while waiting to sell the name or develop the site.

Getting Started
The barrier to entry for domainers is nil to zero--great if you're low on funds but bad because the competition is stiff. In a market where Fund.com sold for $9,999,950, iReport.com for $750,000 and even 248.com for $175,000, you can see why so many people are viewing this as the latest gold rush.

"You can definitely do it part time, and, in fact, I think that's the best way to start," Jackson says. "This business is open to people from all financial backgrounds. A domain costs less than $10 most places, so you can start with very little. Those who already have a lot of money can afford to buy more attractive assets right away, but others can certainly build up to the major player level. Over the years, I've seen many people become millionaires."

To just leap in is to risk wasting your money and time, however. Much research is required if you're going to be successful.

"First, domaining is not a get-rich-quick scheme," says John Motson, author of the e-book, Domaining Manifesto, proprietor of industry blog DNXpert.com, and owner of more than 1,000 domains, including a few valued at more than $100,000.

"Yes, you can earn a lot of money with the right investments," he explains, "but first you have to put the hours in. You should do a lot of research, follow popular domaining forums and domain news blogs and, in general, feel your way in."

Motson describes the current domain name market as a ladder--a few on top have the most sought-after URLs and are bringing in big bucks. The midlevel is full of domainers who've been working at this for awhile or who, according to Motson, "saw an opportunity to invest in quality domains at the right time." The "bottom dwellers" are the newbies trying to get into the game by flipping small-time domains.

"The thing you have to remember, though, is that due to the nature of the domain industry, the road from the bottom to the top can be quick," Motson says. "All it takes is one smart investment."

An Ever-Changing Market
While it's inexpensive to enter the domain business, you've got a steep learning curve and immeasurable competition. You also have a perpetually shifting market to follow.

There are many more top-level domains (TLDs) than .com, .net or .org. Country-code TLDs (ccTLDs), two-letter extensions such as .uk or .ca, can be popular if the code is catchy, like .tv (Tuvalu) or .me (Montenegro). The Montenegro code, which was released this month, caused a frenzy in the market, and technical difficulties (and bad press) ensued for GoDaddy.com when some buyers were told, minutes after making their purchase, their desired domain was no longer available.

Paying attention to these ccTLDs and other gTLDs (the 21 generic TLDs like .com, but also newer ones like .asia and .travel) can be a smart move, but it's all part of the research and due diligence.

Both Hoffman and Jackson have a soft spot for the .us domain. Hoffman says he "holds a significant portfolio of great one-word and city domains" like desk.us, Honolulu.us and grandparents.us.

Says Jackson, "I like America's country code, .us, as a long-term growth play. With most good .com domains long gone, I can see small businesses in the U.S. utilizing their country code, doing what their counterparts in Europe, Asia and other parts of the world have already done."

Motson believes that newer codes like .asia and .me can provide great flipping opportunities, noting that someone recently purchased LasVegas.asia for $4,350 in an auction on Pool.com and then flipped it for $30,000 at a Sedo.com auction.

"That's quite a profit in anyone's eyes," he says. Motson also predicts that all the good .me domains will soon be gone, but that "the future will bring new domain name extensions and new investment opportunities."

ICANN (the International Corporation for Assigned Names and Numbers), the body that's responsible for domain name and IP address assignment, shook the industry up even more in June with the announcement of the new gTLD program, which would allow established "entities" to apply for new gTLDs outside of the current 21 offered--presenting the possibility that sure-to-be-popular extensions like .nyc or .bank, for instance, might soon be up for grabs. The program is set to begin next year.

This latest news, however, may only affect those corporations and organizations with budgets large enough to advertise their new and unusual URL.

"Personally, I think it will have little impact at all," Jackson says, "especially on .com, which has been permanently branded into consumers' minds through billions of dollars' worth of corporate ad spending over the years."

No matter what effect the new extensions have on the market, the bottom line is that there's still room for players, both big and small, in this ever-changing, online real estate market.