Mike gives some fantastic advice about dealing with trademark names and the subsequent UDRP or C&D that might ensue. Not only is Mike one of the premier domain investors in the world. he is also an attorney with an extensive legal background. His advice is on the money, and I think it’s a very good read.
Check out The Domains blog when you get a chance today.
Much like New York City taxi cab medallions, which are always highly coveted at auction, category killer domain names will always defy current market conditions. While I do think much of the domain industry is in the midst of a slow down, there are always going to be sectors of the industry that perform particularly well, regardless of of the health of the economy. Because category killer generic .com domain names are irreplaceable, when one is put on the market, the price can go through the roof.
On the flip side of things, I think people are spending less money on average domain names, which may be felt by many in the industry, since a vast majority of people own average domain names. I also believe some people think their domain names are worth more than the market will pay, and they are setting the prices far too high to have success. I am not really referring to a specific domain name here, but I am speaking in general terms. If you are going to entrust a domain auction house to sell your domain name, and you are going to allow them to lock the name up for 60 or 90 days after the auction, you might as well make the price reasonable.
Unless you own a genuine category killer domain name, I think you might want to reconsider your asking prices. Instead of trying to get rich on a single domain name, why not reduce your price, sell a name for a handsome profit margin, and reinvest it in other great domain names? There are plenty of times I have sold names for prices I believe are far less than optimal, but I have reinvested in more and better domain names every time, and I haven’t regretted a sale yet.
While it is generally a good business practice to keep an adequate amount of cash on hand to cover expenses for at least a few months, there are plenty of reasons why it is necessary to do so if you are in the domain industry. Aside from the lost opportunity of not being able to purchase a domain name that can help your business, you never know when unexpected liabilities will pop-up, and money will be needed.
A perfect example is the LH.com legal situation. While we can all assume FMA has adequate cash to pay for the defense of LH.com, smaller domain investors might not have had the cash. I would peg the re-seller/need to liquidate quickly value of LH.com in the ballpark of $300,000 (not taking the offers received or anything else other than the 2 good letters into consideration). Had a domain investor saved up and purchased LH.com as his prize investment, there is a good chance he would have been drained of his cash reserves. While he holds a high value domain name, you can’t really pay the bills with this paper worth.
Now say a UDRP is filed against the domain name. The ballpark cost for a UDRP defense is anywhere from $5,000 – $15,000 (very high) if you hire a competent domain attorney. With that said, if the UDRP defense was unsuccessful, the domain owner would be on the hook for the defense fees, and he would have lost this $300,000 hypothetical paper value. If a federal lawsuit would follow this action, as it could be the only way to recover the domain name, the cost of this could be in then tens to hundreds of thousands of dollars. While it is possible to sue for attorney’s fees, I don’t know the success rate of that.
The point of this is that we often jump on great domain deals when they come up, but as business people, we need to be mindful of the cash we have in reserve. Even though the interest rates in American banks are very low and we all assume that most of our premium domain names are fairly liquid, we need to realize that our domain names could be frozen and contested by overreaching corporate entities, and we need to be prepared to defend them.
A while ago I discussed buying domain names to capitalize on industry trends and recent sales. For example, VideoShop.com sold for $30,900 last week, so very similar names like VideoStore.com or VideoShops.com would be great buys in a similar price range, as the sale of VideoShop.com could be used as a comparison point to make a profit (if you are buying for flipping purposes). Using relevant sales for comparison and valuation purposes is a great idea, and it’s a good way to pinpoint the value of a very similar domain name.
However, people should be cautious to not go out and make stupid registrations to try and capitalize on these trends and sales. Recently, Pizza.com sold for $2.6 million at auction. Since then, I can’t tell you how many pizza names have been listed for sale on various forums and sales venues at ridiculous prices. Just because Pizza.com sold for $2.6 million doesn’t mean GetYourHotPizza.com or NeighborhoodPizzaPlace.com are automatically worth anything, and in many cases, they aren’t worth any more than the registration fee.
Understanding why a domain name sold and buying similar names for the same reasons is good. For example, names like PizzaShop.com and PizzaDelivery.com are great because they make sense. Simply appending a word to the front or back of “Pizza” don’t automatically make it a good name. When you are trying to capitalize on a trend, do some keyword research to see why the name sold, and try to find similar names. Just because a name sounds like another name or looks close to another name, it doesn’t mean it has similar value.
When an end user contacts a domain owner to purchase a domain name, the challenge of negotiating a sales price begins. Oftentimes, the domain owner has a certain sales price in mind, while the buyer has a number in his head, either determined by his budgetary requirements or his own personal constraints. A domain seller needs to play part psychologist and part savvy businessman to determine how to read between the lines of an email to yield the best possible price, but to ensure the negotiation isn’t ended prematurely.
When the negotiation dance has begun, I think less attention should be paid to the buyer and more to the domain name. Sure, if the buyer really needs the name and has an unlimited budget, the sky could be the limit for the sales price. However, if the seller misreads this need, a sale could be easily lost by drastically over-pricing the domain name. One of the most important things to keep in mind when negotiating is that category killer names (such as LaptopComputers.com, HomeMortgage.com…etc) usually can’t be replaced easily, and the price can be reflective of this . Brandable names (such as CoolGadgets.com, FunTrips.com…etc), on the other hand, can usually be replaced much more easily, and the buyer may go out and find an alternative at a much more attractive price rather than over-pay for this type of name.
An example of this was when I was looking to acquire a home decorating domain name a few months ago. I negotiated with a few domain owners to try to buy a brandable name for an affiliated site I wanted to build. I am sure each of three names I inquired about received no natural traffic, and they weren’t developed, so the true value was in the name and what a buyer would pay. While two of the names were very over priced and not even worth making a counteroffer, a third person replied “you sold xxxxxxxxx.com for $x,xxx and the price of this name is a little less,” which I found to be ridiculous since the names were completely unrelated. Just because I can afford to pay more for a domain name, doesn’t mean I will pay more, especially because I have a feel for domain valuation. Needless to say, I decided to simply register an expired name for $7.44, and I bought DecoratingDiscounts.com, which is much better than the others in a cost/benefit analysis.
Yes, a domain name is a one of a kind piece of Internet property that only one entity can own. If an end-user tries to buy the domain name, the seller should balance his knowledge of the end user’s finances with the value of the domain name. Sure, great deals can happen, but just like in a game of double down video poker, you never know what price is going to lose you a sale. People don’t like to be taken advantage of, and if they feel the seller has increased the price simply because of who the buyer is, the negotiation may be ended.
For me, when I buy a domain name that I plan to sell, I have a value in mind. If/when I receive an offer in that range, chances are good that I will sell it. While it’s great when people sell a domain name a huge sum – and there are plenty of stories like that, I know there are many more stories where the buyer says “no thanks” and moves on to another name. There have been plenty of times when I would have paid more for a domain name, but the asking price was unreasonable. Sure, name your own price if the money isn’t life changing and you don’t need to sell your domain names. But if you are “rich on paper,” over pricing domain names isn’t going to help put you in a strong cash position.
People often ask me what I look for when buying a domain name. While there are many factors that I consider, I think the single most important thing about a domain name is its potential commercial usage. When evaluating domain names to acquire, I ask myself, “how can this domain name be used, and would it make sense to build a website around this domain name?” If you are able to know exactly what will be on the website before even navigating to it because it’s a category killer name, you probably have a good name.
I hardly ever buy a domain name based on traffic or revenue numbers. There are too many non-controllable factors when buying based on these statistics, so my buying decision is not determined by these stats. Yes, I do ask about a domain name’s traffic, but that is to make sure the name “has a pulse” to get a feel for whether it is worth sinking money into a development project. The single most important thing to me is commercial usage.
Whether I am planning to build a website on the domain name or whether I plan to sell the domain name to someone who will build a website, I want to know whether the domain name makes sense to have a website. Sure, there are plenty of great “brandable” domain names out there, but why do I want to spend my time trying to convince someone about how great it sounds or why that particular domain name would be great for a particular site? I would rather be able to contact someone in the industry or someone in the domain industry and say, I have the category killer name for this particular niche, and the domain name is actually the name of a particular category or niche.
A person should never have to say, “this domain name would make a great xyz website.” A great, commercially viable, generic domain name shouldn’t need any explanation. For example, my newest acquisition is EstatePlanners.com. I believe this domain name needs no explanation, and that’s why I like it.
