Why your business needs a Domain
Taking your business online is now a necessity to keep up with the competition, to do that; you'll need a domain name.
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Choosing the Best Name for You
You've decided that you want to own a domain name. There's just one problem, you're not sure how to choose a good one.
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Direct Navigation
As the Internet matures, the number of potential customers online is growing and with it, the number of ways to promote your business online. More...
Capital
Retail aftermarket domain buyers unknowingly pay between 50 – 500 years traffic revenue multiples when buying domains. These extremely high multiples offer a clear indication that retail buyers are not basing their judgement of purchase on the traffic or revenue that a domain produces. This is particularly true of domains worth less than $5,000 which is the lion’s share of the market volume.
Buyer's agents should be professional domain industry analysts. It is important that buyer's agents have intimate knowledge of the aspects of domains and the underlying nature that makes them valuable.
A domain is only worth as much as the value that can be extracted from its ownership. This value can be attributed through a sale, but for most retail buyers its worth is in the form of the long term value extracted through their business or personal venture.
The agent must understand why the buyer is seeking a domain, how it will be used, and what the expected benefits are. This becomes a framework for establishing the domain value to the owner and the basis for research and acquisition.
Four main values are offered to the buyer from buying agents:
- Proficient research
- Domain valuation
- Professional negotiation
- Specialist industry knowledge
There are a variety of tools and resources for professionals to find and purchase domains that are officially "on the market". Alternatively, an individual can do their own research and contact the owners directly. Buyer's agents should be able to ascertain the client needs and offer the buyer an investigative report that details all the domains for sale that meet their criteria. It is important that these reports are comprehensive and that clear recommendations are made for purchasing behaviour.
Domain Valuation is not an easy task. There are no clear cut formulas for establishing the true value of domains. Domain valuation is also confused regularly with establishing a fair price for a domain. The difference between a fair price and an honest valuation is liquidity. The more liquidity a domain has the closer the proximity between fair price and valuation. The current market's lack of liquidity causes a clear disparity between these two values.
Market Value
Market Value is largely based on a combination of the historic sale prices and what the perceived value is to the potential buyer. The specificity of any given domain creates a product that is unique and impossible to replicate. What is harder to establish is what unique domain characteristics may have a special perceived value to the buyer. These two factors represent the total value to the buyer.
Factored Value
Factored Valuation is not about pricing a domain. Valuation should represent a combination of the historic sale prices of similar domain names and the rate of sale expectation. A domain is only worth the price that it can be sold for over a period of time and its traffic revenue. Hence the following formula:
Domain Valuation = ((historic sale price * annual rate of sale) + annual traffic revenue) * year multiple
Example: (historic sale price ($2,000) * rate of sale (2%)) + $20 traffic revenue) * 10 years = $600 valuation*
*Note – valuation assumes that after the number of years used in the valuation the domain has no resale value. This is based on the concept that domains which are actively sold and appropriately priced will have little value if they haven’t been sold in the time frame considered. The difference between market value and factored value only comes into consideration when domains are purchased in volume (see Buyer: Portfolio). Single domain purchases are usually purchased at or near the market price.
Buyer's agents can add considerable value if they understand the perceived value of each domain from the owner's perspective. One of their major tasks is to negotiate a common ground between the buyer and the domain owner. When this process is handled through an established open market method it can be seamless, uncomplicated and should occur in near real-time. Alternatively negotiations can be executed through established communication technology, via an open market system or directly.
The biggest thing that buyer's agents bring to the process of aftermarket domain sales is experience. Many retail consumers have never purchased domains before and have no understanding of the aftermarket. A buyer's agent can provide educational, consultative, and persuasive abilities to a process that can be very foreign for new buyers.
The purpose of buyers is to serve their own self interests. They need to:
- Establish their domain requirements
- Seek out the best domain options
- Negotiate domain purchases that have value to them
- Pay for ownership and ensure that the transactions are suitable settled.
Buyers come in four major buying segments. The way that each of these buyers approaches the purchasing process is unique and requires further scrutiny. The major segments are:
Retail Buyers
Retail buyers have a specific purpose in mind, have established a need to buy, and have very little interest in revenue or traffic volume
Most retail buyers have a specific purpose in mind when they buy an aftermarket domain. They have started a new business, want to upgrade their current domain to a better one, or have a personal interest. Generally, retail buyers want to develop a domain into a website with a unique look and feel and original web content. They are not typically holding the domain as an investment; rather they are using it as "land" for a website.
These buyers, unlike many others, have little interest in the volume or revenue of traffic from their domains of interest. When sales agencies offer traffic and revenue statistics to potential retail buyers they severely compromise the retail buying process. Effectively they influence the buyer perception towards a wholesale buyer's mentality. Retail buyers have their own esoteric value of the domain brand.
These buyers are willing to pay any price that is below their own perceived value of the domain. Usually they are prepared to purchase these domains without any external valuation or advice as they are fulfilling a business or personal need.
If a buyer asks for traffic volume or parking revenue they are not a retail buyer –they are a wholesale buyer or an investor
Auction Buyers
Domain buyers that participate in auctions do not want to pay full retail price. A conflicting reality is that many auctions exceed what the domain owner would have been willing to sell the domain for in a direct process. These cases are the exceptions and not the rule. Online auctions are likely to become more common in the future for domain name sales. However, the inherent nature of auctions highly dissuades true retail buyers from participating in auctions. Most retail buyers have a specific requirement that needs to be addressed and it may be time sensitive. Due to these considerations it is likely that the best use of auctions in an open market is to offer domain owners a means to "liquidate" small volumes of domains in a pseudo retail environment. Although the buyer base is probably closer to being a wholesale buyer than a retail buyer, domain owners are potentially going to get a better price than by having to negotiate wholesale or whole portfolio deals by attracting alternative buyers in a competitive process.
Wholesale Buyers
Wholesale buyers primarily buy domains as an investment. These buyers tend to be more focused on traffic volume and revenue when valuing domains. Their intent is to make a profit on the domains either through development or resale at a later date. Ideally they try to buy low and sell high.
Included in this group are domains that have very low brand value or are ethically questionable, but maintain high traffic volume or revenue. Domains of this classification are of interest to some wholesale buyers because they produce a short to long term revenue stream and if bundled in groups can be sold at a higher value than the purchase price to larger investors.
Portfolio Buyers
Portfolio buyers are wholesale buyers – the only way they differentiate is that they have more buying power and may also be a strategic buyer
Portfolio buyers purchase at a significant discount when acquiring small groups of domains on a wholesale basis. These buyers purchase domains strictly as an investment. Portfolio buyers occasionally purchase portfolios at a premium. The premium they pay is directly proportional to how rare and valuable the domain portfolio is. These portfolios must have significant critical mass and are likely to provide large volumes of traffic and revenue.
Domains that have a strong visual brand, traffic volume, and commerciality are rare. Portfolio buyers tend to either buy along one of two fronts; they buy strictly based on potential traffic revenue regardless of the resale value, or they only buy brandable domains with traffic revenue and resale potential. Currently this polarity is due to the under-development of the aftermarket domain sales industry. If the market develops and evolves into a truly open market, domain sales will become a major factor when establishing domain portfolio valuations. In the long term, portfolios comprised of domains with clear generic and brandable domain names will improve their values due to increased resale liquidation potential.