Buying Domain Names

I know a number of companies and individuals that have spent a lot of money buying domain names based strictly on revenue multiples, and there are many reasons why I think this is a bad idea. I personally have never bought a name strictly based on the amount of money it generates because of the reasons I outline below. I am sure there are plenty of people who have done well buying on multiples, with the “industry standard” previously being 10 years, but I strongly believe much more money has been spent on bad buys than good ones.

1) PPC will probably continue to decline. A 10 year multiple last year is probably a 14-18 year multiple this year – if not more.

2) Revenue might be seasonal, so if you buy a winter-related domain name in the spring, the last few months of revenue will be strong, but it’s probably not indicitive of how the domain name will perform year-round. If a seasonal domain name is bought on a 10 year multiple, when you consider it could be most active just 25% of the year, the actual multiple could be 40 years rather than 10.

3) A domain name may have been a developed website before it was parked. As time goes on, the site will presumably steadily lose traffic as search engine links disappear, and the money won’t continue to be generated as strongly.

4) A developed website that generates revenue will have costs associated with that revenue, including inventory, hosting, fulfillment, website design/updates, and the time it takes manage. An affiliate-based website will have less upkeep, but there are still management issues that take time and effort.

Sure, if a generic domain name is making money, I will take the revenue into consideration and probably pay what would be a greater multiple than whatever the industry standard is. However, I don’t like the idea of buying a domain name simply based on the revenue it is generating in its current form. In my opinion, there are too many risks to buying domain names based on a revenue multiple, whatever that multiple may be. It’s too difficult to evaluate domain name values based on a fixed strategy like revenue multiples.

** I am out of town for the weekend, so comments may take extra time to be approved, and questions may go unanswered for a bit – but I will get to them of course **

When you are trying to buy a domain name and your offer is turned down, I recommend giving the owner one last opportunity to consider your offer, and add a time constraint to it to make him consider it quickly. Oftentimes when a person rejects your offer, it’s a tactic to increase the amount of your offer. If you specify that you won’t increase your offer and that you will give him a few days, he might realize that’s the best offer he will get from you and potentially change his mind.

When I was negotiating to buy Burbank.com, negotiations came to a head after a couple of weeks. I really wanted the name and had to increase my offer a couple of times. Finally when the offer was rejected, I replied that my previous offer was final and that I would move forward with another significant purchase if the owner didn’t change his mind over the weekend (it was a Friday afternoon).

Several hours later, the deal was verbally confirmed and all parties seemed happy. I don’t know whether the former owner was using his reply as a negotiation tactic or if he just didn’t want to sell until he realized that my offer would be off the table. However, putting a time constraint on a reply can get you a final answer.

Just don’t use this method if you made a lowball offer, because you will probably just get a snark reply   🙂

I frequently run into the problem of locating domain owners when the Whois information is invalid or outdated. When I want to purchase a domain name, I generally send personal notes to the Whois email address on record – or the historic information if necessary. Oftentimes, I receive the “Delivery Status Notification (Failure)” message that is standard for invalid or inoperable email accounts.

When this happens, I typically call the phone number of the registrant to make contact that way, but I often find that the phone numbers aren’t working either. Depending on the domain name, I will either give up and consider it a lost cause, or I will use a few different ways to get in touch with the owner.

1) Search for the owner’s last name and city on WhitePages.com to find a current phone number. A big DING goes off in my head if the phone number listed is different than the Whois.

2) Search for the owner’s name in Google (in quotes). Oftentimes you will see that the owner is either associated with other companies or email addresses, and you can use those to get in touch.

3) Search for the email address in Google. Sometimes you will find the email address associated with different websites or listed on a particular website along with a more current phone number or alternative means of contact.

4) Search the domain name’s website for info – both the current site and archive.org record. Sometimes the most obvious way of contacting the owner is overlooked.

If all else fails and you need the domain name, you can always visit the last known address. Usually this doesn’t work out, but it is a good way to get information. Sure, most people are reluctant to spend $1k+ on travel and associated expenses to visit a location, but if it can help you buy a $250,000 domain name, why would you give up so easily?

A whole lot of effort went into purchasing Customs.com in September of 2007, and if it wasn’t for going the extra few miles, I would not have been able to acquire it. Sometimes it takes a lot of effort to get in touch with a domain owner, but if it was easy, someone else would have acquired the domain name long ago.