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The Domain Name Business

Understanding the domain name business

“Domain Names are Internet Real Estate.” So declared Marc Ostrofsky, a person who has earned millions of dollars through domain names. He became an overnight sensation after selling business.com for $7.5 million; he had bought it for only $150,000.

And like Marc, there are many others who’ve made big bucks in the domain name business. Rick Schwartz, probably the most famous of them all and affectionately known as the “Domain King”, has created a multimillion dollar business empire working alone.

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So why are some domain names so expensive? How do people earn from domain names? And, the most important question, how can you get into this business? I’m going to answer these questions one by one. We’ll first delve into the domain name business and, then, I’ll offer tips on how you can get into this industry and profit from it. I’ll even share some personal stories. Let’s get started.

Business worth millions – all based on names!

“A rose by any other name is still a rose”. Hmmm. NOT!
It seems Shakespeare’s wise words do not apply to domain names. As per my research, there are hundreds of million dollar domain names… and these are only of sales that have been made public! The domain name business is huge and still going strong. The most recent case is of Qihoo, a Chinese company, who bought 360.com from Vodafone for $17 million.

What makes a domain name so costly? There can be several reasons. Here is what I think.

The generic domain name

A generic domain name is bound to attract a lot of online traffic. Take the example of CarInsurance.com. It is the most expensive domain name ever and was bought by QuinStreet in 2010 for $49.7 million. As per the online market research company Compete, the domain used to get 200,000 unique visitors a month. And this was without any web site!

You see, there are several ‘not-so-bright’ web users who, instead of using a search engine, simply type in what they are looking for followed by a dot-com. This is probably why QuinStreet has spent millions purchasing other “insurance” themed domain names like insurance.com and insure.com.

A domain name that adds value or extends the company brand

Coming back to the above example. Qihoo already owned 360.cn and were doing very well in China. The company sought 360.com when they decided to expand their business globally. In such a scenario, the Chinese country-code TLD (third-level domain) would simply not have been trustworthy. Qihoo had to buy 360.com to help their brand get worldwide acceptance.

Another example is of Facebook – the world’s largest social networking web site. When the company realised that many users refer to them simply as “FB”, they decided to purchase FB.com. The domain was owned by American Farm Bureau Federation and, in 2010, Facebook bought it for $8.5 million.

Create a new brand

Sometimes, a company may like to buy a domain name at a premium because it goes well with the names of their other products. iCloud was an ideal name for the cloud service Apple planned for their customers. It gelled nicely with .Pad, iPhone, iMac… Unfortunately, the domain was already in use by a Swedish company Xcerion who had their own cloud service. Apple purchased it in 2011 for $4.5 million.

The domain name holds prospect for a huge business

An apt domain name can result in a whole lot of business for the company. Even if the initial cost runs into millions, this can be recovered quickly by the sheer volume of business the domain attracts. A great example is of hotels.com. It was bought by Hotels.com Worldwide in 2001 for $11 million, an enormous amount. Years later, David Roche, the President of the company remarked that even though others thought it was “a crazy sum of money… Now we look back and think, what a bargain“.

You see, hotels.com has got so much business for the company, it’s initial acquisition cost seems small.

I’m sure the examples detailed above would have set your mind thinking. The best part about the domain name business is that it requires very little investment. Domain names cost about $10 for a year, if you get them directly from a registrar. Check out www.GoDaddy.com – they are the world’s largest, and probably the cheapest, domain name registrars.

Now let us see how people have earned money in the domain name business. You can also go through my other article on how to make money from domain names for tips, advice and my personal experience in this field.

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