Domain Name Basics

What are the benefits of investing in domain names?

* Cost of purchase. As of 2005/06 new domains are able to be purchased for amounts as low as $8-9 USD. I.e. Low cost to get started.
* Any sale price of a domain will be significantly more that the initial price.
* You generally have rights in perpetuity to the name, if you pay your registration fee's and act with the regulations of its issuance.
* Easy to maintain with minimal effort once registered.
* The ability now to "park" your domains and receive revenue from clicks on your adverts. This can potentially be enough to pay the registration fees, and more! with the appropriate names.
* The growth rates in domain prices are above 30% across the market. Driven by more time & purchasing spent online.

What are the negative aspects?

* Most useful commercial names are gone.
* There are many more sellers of domains than there are buyers.
* Domains are not a very liquid investment, with resale periods taking quite long periods of time (or never!).
* There are annual registration fee's to pay for each domain.
* To understand what comprises a "good name" takes more experience than most new domain owners (Newbie's) realise.

So what makes a good domain name to invest in?

Generally there are two main types of domain names.

* Those that describe "the request"
* Those that promote "the brand"
* Those that are "Hybrids"

Both of these approaches have unique features and obviously a strategy that can encapsulate both themes is going to be even more successful

The Request

This is satisfying an often generic request for a need. As an example consider discountbooks.com. This is instantly obvious as to its target market. Generic request words will often get numerous type in's by general users who guess that it would be a website to satisfy their need (And out of curiosity - interest).

As to be expected, virtually any name (that is a .com) and with straight consumer satisfaction attributes has been registered. Obviously a secondary market exists to buy these domains but you won't be getting them for registration prices!

These domains also because of their likely type in's will invariably be able to pay their annual registration fees when parked for "PPC" (Pay per click adverts).

The likely end user market for these 2nd line premium names is mid sized companies (and larger) that are looking for an additional generic outlet on the internet. For instance with the above example this may allow a company to tap into a more price sensitive market as well as trade through their own brand name.

The liquidity of these domains (Ability to sell) is higher than the brand names below because of their direct business application and the free traffic (Keying in the name) they generate.

The value of these domains has increased significantly in last few years due to their keyword relevance in search engine rankings

The Brand

This is registering a name that may be "cool" "catchy" or have good recollection value with the purchasing public. A name like Microsoft, EBay, KidsRus and many others fall into this category.

The actual intrinsic value of the domain name is low (Nobody is initially typing it in, so it won't pay its way through parking revenue) but, it can become a defining and recognisable advertising element over the longer term.

The likely end user for these domains are start up companies (Many new companies are registered every day) and would like to have the .com of their name. There are also businesses that may be starting up and they look in advance to buy a domain that fits, this is especially important if the business has a large connection with the internet (Say, a flower shop taking orders online).

Generally names in this category do not sell for the higher amounts, although they can command prices in the low $xxx to low/mid $x,xxx. The notable exception is if a company does not exist at the time of purchase (or is overseas etc) and has expanded considerably and now really would like its own name as the .com. Prices in this area have achieved mid $xx,xxx to high $xx,xxx

You need to appreciate that the liquidity of these domains is far lower (In terms of resale) and they invariably don't pay their way in parking revenue. Effectively you must be able to subsidise the holding costs until hopefully the appropriate buyer comes along. However, in response to this some investors sell these at wholesale prices to release funds, i.e. they would ideally like $2,000 for the name but will sell for $200 given they only paid $10 a year previously.

The Hybrid

These are domains that are sought by end users for specific uses. Often these are acronyms such as abc.com (American Broadcasting Corp). It should be noted that all 3 letter .com's (And all TLD's) are long gone. Most 4 letter .com's are also now taken, however the secondary market tends to value these in the $20-60+ category. Care must be taken as to specific letters as various combinations including z,q etc are unlikely to form partnership names and so forth (Although China could be a huge future market for these combinations!).

Where domains can be purchased

New Domains ("Hand regged" / "Off the shelf") - These domains have either never been registered before or have been registered and not renewed. It is a simple matter to approach a registrar online with a credit card and purchase.

Secondary Market domains - These domains are currently owned and registered by another person/entity. These domains can be owned by an unsophisticated user or by a professional holder/investor. Generally these domains are bought by end users or professionals looking to develop into website. You may be able to purchase at a low price and sell in the future to an end user.

Drop Market - This is where (generally) professionals sift through domains that are going to drop back into circulation due to the previous owner not renewing. The basis for acquiring these domains is through an auction format if there is more than one prospective purchaser.

Different types of general domains

There are a number of Top Level Domains (TLD's) (World wide and generic) these are generally used when referring to .com, .net, .org, .info and .biz. However, there are more and more TLD's being "issued" by ICANN all the time so this is not a fully inclusive list.

Then there are Country Level Domains (ccTLD's) which are specific to a country. Like .co.uk is for United Kingdom, .de for Germany and so on. It should be noted that there can be restrictions on who may purchase a ccTLD, this may involve whether you are a resident of that country and so forth. I.e. to purchase an .us (USA) domain you must be a resident or have a verifiable business connection.

Please refer to your legal advisor where necessary - This does not constitute professional advice Copyright UFO.ORG^TM(c) 2005