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Making Domains Your Business – Part 1
More people who asked me about domains, or told me that they've started their own portfolio of domains. I registered my first domain in 2000. I wouldn't suggest that domaining has gone mainstream y et, but the industry of domaining does seem to have sparked interest in a far wider demographic over the last twelve months than it had previously.

What is Domaining?

The classic definition of domaining is to buy domains for the sake of buying domains. A domainer is someone who purchases domains as an investment without planning to develop them. I know clients who register domains, develop them, and end up with a portfolio of sites, but I wouldn't really consider this to be domaining in the true sense of the word. Of course, many domainers also register domains in order to develop them, so there is significant crossover here, but in this blog we'll look specifically at domaining without developing. To make domaining work for you, you need to start out with a strategy that details how you're going to make a profit on a domain without developing that domain.

Making Domains Your Business

There are two primary strategies for domainers:

1. Buy a domain because you think you can sell it for a higher price than you'll pay for it.
2. Buy a domain for the traffic it attracts, which, you hope, will produce a steady stream of revenues.

Most clients that I know use both strategies, but buying domains on a speculative basis, with the intention of reselling them for profit, is certainly the most common approach.

How to Value a Domain

As with property, there's often a lot of hype around domain purchases. When you're planning a purchase, it's very important to remain calm and rational, and not allow yourself to become too invested in the idea of acquiring a specific name.

You'll hear comments from domainers along the lines of, "this is a 'category killer' domain, "but I personally don't buy into this hype. Even though having a premium domain is a great start for a new web site, I don't believe there's such a thing as a 'category killer 'domain. If there were, would have knocked out long ago. Amazon would be a rainforest in South America and we'd buy our books at would have surpassed ebay .com years ago.. And did I mention Google? It should be easy enough to knock them off, right? After all, their domain is just a typo of a word that nobody knew anyway.

Having said that, it's important to understand that there is a basis for the hype. I think big business is missing a huge opportunity because of its lack of understanding about the quantitative and qualitative values of web traffic that high profile domains naturally receive. Companies that don't take web domains seriously now are going to be behind the curve -- and they 're going to pay for that mistake.

Of course, understanding the value in a domain can be a matter of perspective. One person might view recent sales prices of domains and be astonished by the high prices, while another wishes he had more cash on hand to take advantage of the bargain pricing. To illustrate the point, imagine you had the vision to get years ago, or even now, when there are still undervalued domains. "Millions of people type directly into their browser each month. This could equal millions of new customers for a fixed, one-time expenditure.

Pricing domains based upon revenue is fairly simple. You'll find that many sources will quote a valuation of "10 x annual revenue" as a good starting point for traffic domains (that is, domain names that attract type-in traffic which produces measurable income -- typically using a domain parking service). Don't even bother trying to argue with a domainer that the multiple should be more inline with the market for web sites (generally 1 to 3 times the annual revenue). The key difference is that parking a domain takes absolutely zero effort. You don't even need to make a trip to the bank to cash the check, as most domain parking services pay by direct deposit these days. This is the reason why it can be difficult to convince a domainer to sell a revenue-generating traffic domain in the first place.

Other types of domains can be more difficult to value. The best advice is to see if you can categories the type of domain you're after and search out comparable sales. You'll notice, after observing the market for a while, that domains of a given type often sell for similar prices. For example, currently there's a trend towards four-letter domains. Naturally, four-letter domains that form common words buck the trend, but otherwise you'll notice four character domains selling at around the same price regardless of the marketplace at which they 're posted for sale.

You can use this kind of knowledge to your own advantage in pricing. You'll always find domainers who will hold out for prices much above what the market justifies, but armed with knowledge of the market you'll be able to avoid those domains and go for the ones that are priced below market.

How Do You Identify a Great Domain?

Before you begin surveying the market for available domains, you need to identify in your own mind the reason why you're buying a domain. There are many legitimate reasons for buying a domain -- more than I could list here. Some of the more common reasons are:

• because the name fits the business
• because you know it's already receiving significant traffic

When you buy a domain because the name fits a business, your goal is usually to establish it as a brand. Traffic domains are self-explanatory for the most part -- you want them because you immediately get the boost of attracting relevant traffic to your web site without having done any thing other than build the site and buy the domain.

Buying Brandable Domains

Since buying brandable domains is a more opaque business, we'll start there. It's easy to lose sight of the fact that it's the buy er who holds the upper hand when you're buying brandable domains. When you truly understand what a brandable domain is, and why you should buy it, you'll realize why .

A brandable domain is a domain that's unlikely to receive much type-in traffic, usually because it doesn't consist of a dictionary word -- for example, It could also be a keyword domain, but one that doesn't receive a significant amount of type-in traffic (one that gets significant type-in traffic is a traffic domain). Remember the brand? A keyword domain that would work in the same field is . Take away the established branding and user loyalty to these domains, and I doubt there'd be much (if any ) natural type-in traffic that pre-existed the web sites.

The task of finding a great brandable domain is intertwined with creating the company name. It can involve a much more intense creative process than finding keyword domains, which is more a matter of crunching data. If you're looking at
brandable domains, you'll want to find something that sticks in the memory and is easy to pronounce -- usually , the shorter it is, the better. I usually look for a single word that contains fewer than twelve characters. However, a two -word domain might also be perfectly suitable. Some companies make up new words, like Wufoo. Two-word domains that are descriptive often work very well -- for example, WordTracker and RapidShare work well to evoke a sense of purpose.

Buying Traffic Domains

Traffic domains are another animal altogether. It's much easier to place a value on a traffic domain, and they 're usually more expensive than brandable domains. As I mentioned earlier, the industry standard for a traffic domain sale is ten times the yearly revenue. The most common problem with traffic domains is convincing the seller to part with them. It's also important to make sure that the traffic isn't fake (fake traffic is usually created by bots, or may be the result of a click farm. You also want to make sure you're not buying a domain that infringes on an existing trademark, but for the purposes of this blog, I'm speaking about generic domains. For domains that are product-oriented, or can be utilised in lucrative service industries such as mortgages, health, and so on, you may consider paying a higher multiple of revenues.

To be continued ….
Webnetics UK Ltd.

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