I read an interesting blog post written by Tim Berry on Entrepreneur Blog Network. Tim discusses a brief email conversation he had with the owner of SWOT.com who had cold-called him regarding the sale of the domain name. It’s interesting to see Tim’s (and his reader’s) perspectives of domain values vs. my own perspectives. I was going to comment in his post, but it was fairly long and I decided to respond below.
Just wanted to clear up a couple of misconceptions about domain names. Just because there isn’t a website, doesn’t mean there isn’t traffic as your reply to the domain owner would indicate – “However, you have no traffic. [Ed. note: He doesn’t. The domain is owned, but there’s no site.]” Direct navigation traffic, where people type their keyword and .com, is one of the most powerful forms of traffic. Before CNN paid $750,000 (yes, $750,000!) for iReport.com, there was no website, but some people probably typed-in the domain name. The name sold for such a high amount because CNN needed it and the previous owner didn’t need the money enough to sell it for less.
Domain names are virtual real estate. I live in Manhattan, and behind my old building on 34th and 6th (Herald Square), there was a parking garage. If a developer wanted to buy that space to put up a building for condos, he couldn’t tell the garage owner he would pay him based on a parking revenue multiple if the owner didn’t have a desire to sell. The developer would have to do a ROI calculation to determine how much he could afford to buy the space for depending on his business plan. The price he could afford and the price the garage owner would sell it for could be vastly different, but if the developer really wanted or needed that space, he would have to spend the money.
A real world real estate example is that of Donald Trump trying to buy Vera Coking’s home in Atlantic City. Was her home worth what she was asking? Probably not, but her reluctance to sell caused Donald Trump to alter his development plans.
Even in the tough economy, domain names continue to sell for record amounts of money. While virtually all other types of investments have seen pretty large decreases, domain values have continued to increase. An unknown lawyer in Iowa owning a name like TrademarkLawyer.com would get him much more business than simply using HisName.com.
I am not in the travel or real estate business, but owning Lowell.com and Burbank.com gives me a considerable leg up. Even before I developed them, they had significant traffic, and it has grown since developing. Yes, some names like TropicalBirds.com wouldn’t get much direct navigation traffic on their own. However, after owning and developing it, I’ve seen a considerable increase in traffic and return visits. It’s much easier to remember than a cutesy web 2.0 domain name like CoolTropicalBirds.com or something like that – and I think Google prefers keyword rich domain names.
In any event, domain names are worth what someone will pay. Knowing the market (and having a MS in Direct & Interactive Marketing), I would pay $5,000 for SWOT.com right now, so that’s the price floor. I don’t really have a plan for the name right now, but I think it would make a great site for companies to learn how to perform a SWOT analysis. In this day and age, many brick and mortar companies face a huge weakness in that a competitor’s domain name is the industry defining domain name and it’s difficult to overcome.
