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Domaining 101 - A Complete Guide to Domaining

Posted on December 3, 2007

By Michael Gilmore

Above.com Parking Manager

Part 1 - What's Your Business Model?

I was approached to write a series on starting a domaining business and revealing some of the opportunities and pitfalls for the unwary.
Whenever I view any business the first thing that I look at is the underlying business model. If there is no business model then there's no business, just a gamble. In many instances you'd get better odds playing in any one of the casinos at Vegas.

When you look at the domain industry there are three models that are distinctly different from one another although they are not mutually exclusive. One of the great things about domains is that a single domain may exhibit qualities that reflect all three business models.

  1. Monetize domain – get revenue now, sell for revenue multiple later.
  2. Capital growth – treat domain as a stock item and sell domain to natural owner in the future.
  3. Development – design business for domain, monetize and sell in future.

When viewing a domain it's a good idea to think about what type of business model does this domain supports.

For example, if I have a domain with considerable traffic that I can monetize now then this will reduce the payback time on my investment. If on the other hand I purchased "asdcffddsc.com" then I would have to be prepared to continuously reinvest the cost of re-registration until the domain sold to a natural owner or speculator.

Always, always, always think in terms of the underlying business model. I've seen so many newcomers to the domain industry spend a lot of money on what they thought were terrific domains only to get a near zero return on their investment.

For example, "SeattleMedicalBenefitsSchemeForOlderPeople.com" is likely to take a long time to sell to a "natural" owner of the domain and is unlikely to have any traffic. Developing such a domain into a website is going to become a branding nightmare.
I know that you may think it's a great domain but remember that ultimately you need to subject your personal opinion to that of the business model. Just to reinforce what I'm saying picture yourself sitting before a table loaded with $10 bills. Now picture yourself tearing them up, one at a time, hundreds and then thousands of dollars being sent to the trash can. That's what domaining is like without focusing on the business fundamentals.

If you insist on tearing up the money then send some of it my way and sponsor whizzbangsblog.com ?

In Part 2 I'm going to unpack what are the basic building blocks you need to start domaining and who are some likely partners that you may want to approach for underpinning your business


Part 2 - Buying domains

As mentioned in part 1 domaining can be divided up into 3 categories:

  1. Monetization
  2. Capital Growth
  3. Development

When purchasing a domain the first thing that needs to be considered is, "What business model are you purchasing the domain for?" This will help determine your purchase price.

For instance, if you are purchasing a domain for development into a business then the purchase price for the domain should be a part of the overall plan and cashflow for the business. It should then be reasonably easy to determine your maximum price for the domain.

As an example, I'm sure that the recent purchase of seniors.com for $1.8m would not be tied back to revenue generated from a parked page. There will be an overall plan which shows how the new owner is going to get a reasonable return on their overall investment, not just the domain.

I find purchasing capital growth domain quite difficult and more of an art rather than a science. I've made quite a number of purchases in this area and all of them seem to pay off quite well but I find it difficult treating a domain as a stock item that will one day be sold off for a thousand percent return on my investment.

The best thing that has happened to this space has been Dark Blue Sea and BuyDomains developing a channel to market for all of these low to zero traffic "brandable" domains. One of the biggest problems for domainers with large portfolios of capital growth domains has been how to find a buyer that's willing to pay for them. These two companies have solved this problem and are working towards increasing the volume of sales through their own various networks.

Here's the other problem for capital value domains. What price should you sell a domain for? The classic rebuttal to this question is to say, "Sell for precisely what the buyer wants to offer." I think that it's another way of saying, "I have absolutely no idea but I'll hang out until it's big enough!"

For example, let's imagine that I owned "computer.com". How much is it worth? My friend who owns a computer shop says that he'll offer $2,000 because he thinks that it will increase sales in his business. I then get a call from the marketing director of IBM who says that they really want the domain for an international advertising campaign and would I be willing to accept $5m?

So which is right? I think that the price point is only partially in the hands of the buyer. There is a trade-off between what offers you are willing to accept and the price to maintain the domain. Remember this is not just the re-registration cost but the cost of actually maintaining a portfolio of domains. This means that you must include what you value your time at.

In the Part 3 of Domaining 101 I'll open up how I purchase traffic domain names.


Part 3 - Buying Traffic Domains

Part 4 - Buying Domains and traffic sources

Part 5 - Buying domains with CTR, EPC and Parking

Part 6 - What should I pay?


Above.com Parking Manager

About the Author

Michael Gilmore is a well respected domainer, a sought after speaker at various domain tradeshows and happy to share the secrets of domaining For more information on Domaining please visit http://www.whizzbangsblog.com/



 

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