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Investing In Domains – One Noob’s Experience (Part 1)

After reading several posts on investing in domains, I decided to give it a try. My experience thus far has been time consuming, expensive, and not terribly rewarding. Admittedly I’m a complete newbie, so the fact that I haven’t done well in my first month can be easily attributed to not having enough experience. Hopefully you’ll find this post helpful.

I know very little about investing in domains, so please be sure to share some of your insights in the comments.

What’s In A Name?

The first step was reading as much as I could stand on “domaining” over the course of a couple of weeks. I poked around in a lot of places and read whatever I could find on the subject including John Chow’s Making Money With Domain Names and a year-old — but still useful — Masters Of Their Domains at CNNMoney.com. (Links to more articles at the bottom of this post)

Like any investment, it’s important to have a strategy (or exit strategy). My research turned up three:

  1. Flip It. Buy it to turn it around quickly and sell it. Some people will engage in name “squatting” (buying a name that’s related to an existing company or organization) which often falls into this category.
  2. Park It. After buying a list of domain names, employ the services of a domain parking service to earn money from your virtual assets. This strategy relies pretty heavily on mistyped domain names. The domain parking services vary in how much help they give you, the way ads are setup and displayed, and your percentage of the ad revenue. Virtually all the parking services will indicate somewhere on the webpage that the domain is for sale. They may even help negotiate a sale — for a fee, of course.
  3. Develop It. Like ThoughtfulConsideration.com, you can build a blog, online store, or any other type of webpage. This requires more time than the other strategies, so it’s more the quality approach (vs. quantity, like the other two exit strategies).

I decided to focus primarily on the second option, though at this point I’m thinking about using the third option on some of them (more on that in a minute).

Depending on your exit strategy, you’ll look for different types of domain names. Flipping and developing names means that you’re probably looking for high-quality, short, memorable names. It’s safe to say that almost all of these are already claimed so you can’t simply zip over to GoDaddy.com to register them.

The CNN article describes “direct navigation” which is the phenomenon where people, instead of Googling for information on a subject, will simply type the word(s) into their browser. You can develop or park that kind of domain name

If you’re going to park your domains, you might purchase a domain name composed of popular terms (e.g., www.eatingdisorders.com) when they’re not already in use by an organization. Otherwise there’s a good chance you’ll look for misspellings of existing, high-traffic domains. Here are some of the misspelling tricks people use – these examples use www.novell.com:

  • Extra letters: www.novelll.com — an easy mistake to make
  • Easy mistypes: www.movell.com — “m” is right next to “n” on the keyboard
  • Alternative spellings: www.novale.com — maybe someone heard the name wrong or is just bad at spelling
  • Leave out the “.”: wwwnovell.com — people may forget the period
  • Different TLD: www.novell.org — sometimes these are used for nefarious/deceitful purposes

There are tools, both free and not free, for generating misspellings on an entered domain name. Since I wasn’t going to start with a huge volume, I did this manually. I spent quiet a bit of time coming up with 500-600 names that seemed like they might be worth picking up.

Alternatively, there are sites like JustDropped.com that list all the domains that have recently become available. Some names are much better than others, but I picked up several ideas from them.

After (or while) coming up with the list of domains that you’d like to buy, you’ll need to determine if they’re available. Because I didn’t know any better, I had several IE windows open to GoDaddy.com with a different lookup going in each one. This was time consuming and frustrating because IE automatically pops up whenever there’s something to report, kind of like a dog who’s anxious to please you but in the process excitedly pees on your leg.

If I were to do this again, I’d use http://www.domaintools.com/bulk-check/ which lets you copy and paste a list of domain names and checks them for you all at once. That would have saved me quite a bit of time and effort!

Where To Buy

Armed with a long list of the valuable domain names that have somehow gone unnoticed (or someone would have bought them already), you must determine where you’ll buy/register the domain names. There are lots of places, but I had previously used GoDaddy.com and they had been helpful with other domain name purchases in the past. When you’re buying more than 2-3 domains, the sales rep you talk to will want you to send them an e-mail with all the domain names, sans “www.”.

GoDaddy.com either owns or partners with DomainsByProxy.com which offers a nice service. When you register a domain name, you’re required to list your contact information. For many reasons, that might not be something you want to do. DomainsByProxy.com will have their contact information listed in place of yours, and if anyone ever contacts them about one of your domains, they’ll forward the e-mail on to you.

GoDaddy.com will give you DomainsByProxy.com’s service for FREE when you buy several domains at the same time (I think it was seven domains). Here’s the trick: that service is only free for the years you buy up front, not on renewals. For example, if you register seven domains for one year, you’ll save $69.65 (7 domains * $9.95). After that, you’ll pay to renew the domains but you’ll also pay the $69.95 annually for the DomainsByProxy.com service, if you don’t cancel it. On the other hand, if you know you want the domains for, say five years, pay for them all up front because you’ll save $348.25 (7 domains * 5 years * $9.95).

I ended up buying roughly 50 one day, then another 60 a week or so later. Initially I thought I’d start small to minimize my losses if things didn’t really take off, but then I worried that I hadn’t done a good job picking my names

Some people will try out the domain names for 4-5 days to see what kind of traffic they’ll get. If the traffic isn’t good these people will cancel their registration on the names that aren’t doing well. I knew about this approach going in, but it seemed a little unethical. In retrospect, it may just be part of the game and I might try it next time, especially while I’m still so new at this.

Being the first person to register a domain isn’t the only way to get them. Many, especially the good ones, are only going to be available on the secondary market. Other investors, who know a good deal when they see it, pick up domain names to park a flip. Determining the value of a domain name is a tough thing to do because the value depends on many factors. Despite its difficulty, accurately appraising domain names — or at least being able to see a given name’s intrinsic or potential value — is a critical talent for succeeding in domaining.

Continue on to read Investing In Domains – One Noob’s Experience (Part 2).

November 19th, 2006 | Category: Finance, Investing, Etc., Misc. Investing, Non-Finance, The Net

151 comments to Investing In Domains – One Noob’s Experience (Part 1)

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