Spot the next big trend, nab the ".com" first and you could make millions for just $10, says Dominic Frisby.
When a prospector strikes gold, it is invariably followed by a mad rush to stake all the land nearby. Once land is staked, there's often no need to do anything else no drilling, nothing you just ride on the coattails of your neighbours. It's enough to own land in the region. Such is the way with prime real estate. In the late 1990s the internet came into our lives, and something similar happened. There was a rush to register every conceivable domain name.
Those who got the good ones could just sit back and watch them appreciate in value. They didn't even need to build a website. Owning the name was enough. After the dotcom frenzy passed, I rather deludedly thought that the market for domain names would pass as well, particularly as there were so many other options. After all, if somebody staked DominicFrisby.com, then I could just stake Dominic-Frisby.com, or DominicFrisby.net, or whatever. Surely nobody is going to bother staking all of the conceivable alternatives. How wrong I was.
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Hot virtual property
Domain names remain hot commodities. By the year 2000 the most expensive publicly reported domain name to have been sold was Business.com. It went for $7.5m in 1999. The vendor, US entrepreneur Marc Ostrofsky, had bought it a few years earlier for $150,000. According to SEC filings, today Cars.com (a US website for buying and selling cars) values its domain name at $872m. That's a third of the value of its total assets. We can't know for sure if anyone would actually pay that kind of money for the domain (we'd only know if it went up for sale), but we do know the prices of the publicly reported sales. Porn.com, for example, fetched $9.5m in 2007. Internet.com went for $18m in 2009. Mark Zuckerberg paid $8.5m for FB.com in 2010, and in the same year Sex.com went for $13m. In 2011 Hotels.com went for $11m and Marijuana.com for $4.2m. In 2012 PrivateJet.com fetched $30m. The most expensive of all? Insurance.com $35.6m in 2010. One wonders what Elon Musk paid to acquire X.com in July of this year.
The space continues to grow. The first domain name, Symbolics.com, was registered in 1985. Today there are more than 330 million registered domain names, and the number grows by about 2% a year. There are now more than 1,000 extensions (ie, alternatives to ".com") including 255 country-codes as well as combinations of numbers, letters, and hyphens, not to mention internationalised domain names. For example, the Polynesian island nation of Tuvalu has enjoyed an unexpected spate of domain-name registrations in its land because its internet country code domain is ".tv".
However, ".com" is still the Oxford Street of domain names. According to sales reports, the most valuable domain names to own include short English dictionary words, number combinations and one-to-two character ".com" variations. These types of domains enable users easily to discover, remember, share and recognise a company online. Many leading brands, including Apple.com, Gap.com, Hotels.com, Slack.com and Uber.com have secured their exact-match, one-word ".com" domain name. In fact, more than 60% of the top reported domain-name sales of all time have been one-word ".com" web addresses.
Virtual estate agents
Given all the money in the area, it's unsurprising that there are now brokers whose role is very similar to that of estate agents. I spoke to one, Jen Sale, co-founder of domain broker Evergreen. "If you picture your domain name as your dream home, the same service offered by estate agents is now on offer by domain-name brokers," she says. "Demand for niche domain names is increasing and brokers work behind the scenes to secure the dream home' for leading industry brands. It can be tricky to navigate the ins-and-outs particularly if a deal involves custom lease-to-own terms or a payment plan spanning years." That's where a broker comes in.
In a recent report, Evergreen analysed 107,000 popular words from the Oxford English Dictionary. Only 4,000 of them (3.7%) were not registered. Thus the vast majority of popular one-word ".com" names can only be obtained on the secondary market, with prices starting in the tens of thousands all the way up to the tens of millions. "While the top inventory was snapped up by savvy domain-name investors over a decade ago, there is still opportunity," says Sale. "Being able to spot a trend before it becomes mainstream could earn you a small fortune if you play your cards right. You could buy a domain name for as little as $10 and potentially cash out with millions. Who knows? Maybe you'll spot the next blockchain' or selfie' trend before anyone else and nab the .com' first."
She's right. Money can still be made just by using your loaf and keeping your finger on the pulse. BitcoinCash.com was only registered in March this year. It then sold in July for $48,000. It doesn't seem enough to me, given the potential of bitcoin cash (the cryptocurrency offshoot of bitcoin), but there you go. When the blockchain platform Ethereum was launched in 2014, its founders registered the domain Ethereum.org. Ethereum.com is on sale for a reserve of $10m. The highest bid is currently $6.99m.
Given that individual words have all mostly gone, the aftermarket is where the big trading goes on. Sales of domain names have now generated more than $1.5bn. Building a portfolio of names is one method for budding domain squatters to consider now. In 2015 GoDaddy.com invested more than $50m to acquire several premium domain portfolios. I own BitcoinTheFutureOfMoney.com and LifeAfterTheState.com if anybody's interested?
How to cash in on domain names
Like any other collection, building a quality domain portfolio of your own takes a long time, probably many years. The key lies in divining what names may become popular. If you can sniff out some new word that is not yet in common parlance, but is destined to be perhaps you've heard your teenager utter it than that is the way to go. Once you've got an idea, you can then hedge through numbers by purchasing hundreds of domains though that can get expensive and time consuming. Like ethereum, words that describe a product or service, including new and emerging products, can be a great investment. But bear in mind that copyright or trademark issues could result in domain forfeiture.
Names of locations towns, cities, even countries can be great investments that can eventually be sold to web developers looking to build businesses centered on those communities. A good strategy is to combine the two RichmondDentist.com, for example. Another combination strategy is to time dates with events 2020WorldCup, for example. I notice, by the way, that at the time of writing 2020FACup.com is available.
Technically, you can still register a domain name through ICANN the Internet Corporation for Assigned Names and Numbers. And the cryptocurrency sector is opening up new ways to register and trade domain names. But it's often simpler to do it through a registrar, suchas GoDaddy.com or Names.co.uk. Even if your idea has already been registered, you might find that it's up for sale. Type in the website address and often, if it is for sale, you will be told. Another option is to choose some domains that are already fairly high profile, then sit on them and hope that they appreciate in value. Sedo.com is worth looking at. There are auctions galore, and other ways in which you can buy and sell domains. I saw that English.tv is up for sale surely that's worth something. All in all, it's quite a creative exercise guessing what might or might not make it. It's a bit like buying car number plates, only there are many more options.
Companies with exposure to domain names
For those with less time on their hands, or who are less inclined to take a punt on the domain names of the future, there are other ways to play this theme in terms of listed companies. While none of these are pure plays, all have exposure to domain assets. Endurance International Group (Nasdaq: EIGI), which provides cloud services to small businesses, paid $44.9m to acquire BuyDomains (a domain-name portfolio consisting of around 950,000 domains) in 2014. Rival GoDaddy.com (NYSE: GDDY) paid $35.5m to acquire Worldwide Media's domain name portfolio (roughly 70,000 domains) in 2015 and $28m to acquire 200,000 domain names from Marchex in 2015. Finally, in 2008, internet services group Tucows (Nasdaq: TCX) reported that it owned more than 150,000 domains in its personal portfolio.
Dominic Frisby (“mercurially witty” – the Spectator) is the world’s only financial writer and comedian. He is MoneyWeek’s main commentator on gold, commodities, currencies and cryptocurrencies. He is the author of the books Bitcoin: the Future of Money? and Life After The State. He also co-wrote the documentary Four Horsemen, and presents the chat show, Stuff That Interests Me.
His show 2016 Let’s Talk About Tax was a huge hit at the Edinburgh Festival and Penguin Random House have since commissioned him to write a book on the subject – Daylight Robbery – the past, present and future of tax will be published later this year. His 2018 Edinburgh Festival show, Dominic Frisby's Financial Gameshow, won rave reviews. Dominic was educated at St Paul's School, Manchester University and the Webber-Douglas Academy Of Dramatic Art.
You can follow him on Twitter @dominicfrisby
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