Should You Invest in Domain Names?

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In 1848, gold found in California sparked the Gold Rush, a dash for wealth and glory. In the 1990’s a similar gold rush played out, only this time prospectors weren’t looking for pieces of gold in the dirt—they were looking for domain names, the real estate of the web. In both of these periods, despite the hype, only the smart and the lucky actually got rich.

In the tech bubble that followed, domains registered by investors for $10 sold for millions of dollars. Yet while the hype over domain names has dampened, demand is still strong. Domains continue to sell for millions of dollars, and a select breed of digital entrepreneurs continue to make real money in this digital gold mine. Is domain investing right for you? Let’s explore the market and find out.

Master the Basics

Domain investing is a based on a simple concept—buy low, sell high—but like all simple investment ideas, the details can be complicated. Before you splash out a ton of money on domains, be sure to do your research. Prospective domain investors are often shocked to learn that you can never truly own a domain—you can only rent them. You need to learn the basics of domain name investments, how web registration works, how to avoid scams, and more. Knowledge is power, and if you try to get into the market with ignorance as your friend, you may soon end up on the wrong side of a bad deal.

Understand the Risks

Investing in domains carries several important risks. If you register a name that is trademarked or even similar to a trademark, lawsuits may follow. For example, Microsoft sued a man who registered Microsof.com and forced him to surrender the domain. Celebrities, governments, and other businesses have taken similar legal actions. If you decide to buy or sell an expensive domain, further risks abound. Use an escrow service to be sure you get paid, and consider hiring a lawyer to negotiate a contract.

Anticipate Trends

Once you’re ready to dive in it’s time to talk strategy. Although most generic domains (e.g. coffee.com) are taken, you might be able to register a website about a product or trend that is just getting started. New videogame systems, car models, trendy foods, and slang words all offer domain investors rich investment opportunity. For example, btc.com sold for $1 million in 2014. Someone who anticipated the Bitcoin craze could’ve picked that domain up early and made a pretty penny.

Knowledge of new industries can serve you well. Just as those who were aware of the Internet early on received some of the choicest domain real estate, so too can those aware of new trends register new domain names before the rest of the world catches on to the trend.

Look Where Others Don’t

What does youxi mean to you? If you don’t speak Chinese, the answer is probably nothing. Yet in Chinese, youxi means game, and thus youxi.com sold for nearly $2.5 million in 2014.

There are many countries around the world that are just beginning to develop. Burma is opening up after years of stagnation. Many countries in Africa are beginning to rapidly grow. These countries and regions that are just coming online will need their own localized sites. If you put in the work to research and understand the languages of countries with an underdeveloped web infrastructure, you may be able to get in early and make good money.

Think Geographically

Geographic locations are one of the strongest ways to make money in domains. While a local domain like newyorksbestcoffee.com may not make you millions, a local business may spend thousands for it. Moreover, names related to large geographic areas or the service industry, such as coloradochiropractors.com can also be lucrative.

Buy Expired Domains

Domains are never truly owned, they are simply rented from ICANN for periods of up to 10 years. Owners must renew the domains to keep ownership of them. People get lazy, and occasionally a great domain will not be renewed. Sometimes, even extremely valuable domains can accidentally get back on the market. In 2015, a man was even briefly able to purchase Google.com, proving that even the web’s most famous company makes mistakes.

Be Versatile

Buying domains for speculation is only one way to make money on the Internet. If you’re going to speculate on domains, be sure to capture all the sources of income you can.

A well-rounded strategy involves a portfolio of domains, and multiple sites that you develop for ad revenue. We’ve already learned how to make passive income on the Internet—if you’re going to purchase a large number of websites, offset that cost by monetizing some of them.

Buying domains and waiting for someone to buy them is like buying a house and having nobody live in it. Buying a domain and putting ads on it is like having a renter provide you with income. Moreover, creating a website that already has traffic and makes passive income further reinforces the value of your domain.

Is the Gold Rush Over?

In the late 90’s and early 2000’s, the domain name gold rush was in full swing. Names like loans.com sold for millions of dollars. This heated atmosphere of deals made some believe that investing in domain names was an easy way to make money.

In some ways, the party never ended. Top quality domains will be valuable as long as the Internet is used. Z.com sold for nearly $7 million in 2014, and a few adult oriented domains recently sold for $9 million or more. Other focused domains continue to sell for six figures and will continue to do so.

Yet there are also headwinds. The rise of apps means that people often do not type in domain names to access the services they love. Detached from web browsers, mobile users increasingly find information through links on social networks, making a catchy domain less important than a great app. Moreover, the proliferation of many domain name extensions means that it is easier than ever before to choose an acceptable name. At first, there were only 7 top-level domain extensions, the most popular among them being .com, .org, and .net. Today, these guys are not the only game in town. Today, there are 1,096 top level domains, including .book, .sports, .download, .xyz, and more.

What this will mean for the market long term is still unclear. On the one hand, there is now a vast new pool of investable assets. On the other, it is now much easier for a company or user to find an alternative domain, instead of just buying yours.

The Future

The days when anyone could get rich on domains through luck are gone. There are profits in today’s mature and competitive domain market, but you’ll have to fight for them. A sound strategy and a true understanding of the marketplace are key. Those looking for easy money should look somewhere else. However, tech-savvy individuals looking for a challenge with potential profit opportunity may find that investing in domain names suits them just fine.

In the end, those looking for a quick buck will only find fool’s gold, but those who know how to invest may just strike the real thing.

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Alexander Webb is an author and freelance writer. He is the co-author of Shock Markets, published by the Financial Times Press, and recently made substantial contributions to a book published by National Geographic. He founded Take Risks Be Happy, an online magazine on entrepreneurship, and was shortlisted for the 2015 Bracken Bower Prize.