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Website Valuation and Domain Appraisal Myths: A Cautionary Tale for Domainers

Online marketing information can change quickly This article is 4 years and 107 days old, and the facts and opinions contained in it may be out of date.

Firstly, I think domainers are geniuses. They are the only group of people that I know that can work as little as they do, and make as much as they do. Top level domainers are the TRUE optimizers, and saw the biggest gapping hole in the economics of the web ever created, and are now driving trucks of money through it. The true pioneers and geniuses within the community have started to develop an appreciation of what it takes to create successful online properties instead of just making money from parked landing pages. Unfortunately there is still a lot of laziness and blindness to some of the myths their community has helped to perpetuate. The thoughts below are from nearly a decade purchasing ~500 domain names of which I think only 10% at best hold very strong value. The rest are stinkers that I should probably not pay the $6 a year hosting if I was more dilligent with my accounting and renewal tracking.

I have been a lurker in domain and affiliate communities for years. I think it’s time to point out some of the domainer myths as the world’s of SEO’s and domainers start to collide, and the best domainers realize they need to actually develop their properties to continue to reap the rewards of their investments. Seeing “potential” through to fruition is both rewarding and extremely challenging (for a bit of credibility at this point, I invested, helped develop, and ultimately exited from CollegeDegree.com just over 3 years ago to help fund future projects.)

A perfect storm is brewing from the climate of need from marketers needing top domains and domainers needing marketing talent. It takes a lot to build a great site – so you might as well do it on a domain that people will remember when you finally put it in front of them. Landing page revenues are decreasing, and users are a bit more saavy, so many of the smart domainers are doing their best to at least develop sites on their domains to hedge their bets on big ticket domain valuations with some base level website monetization. It will definitely only continue to be more difficult to capture the “free traffic” of organic search, only as the myth that it should have ever been “free” in the first place is finally being dispelled.

We are FINALLY seeing tools to project the value of a site’s organic search traffic (like SEMRush, SpyFu, and Aaron’s awesome competitive analysis tool) to properly quantify at least a ball park range of the value of “free organic traffic”, and make projections of bottom line revenue based on these projections accordingly. The really sharp domainers, have been reaching out to folks in the SEO community, and have been attempting to learn about development and driving more traffic. To properly understand the myths, I think we must first take a look at how I appraise potential domain names (primarily for the intention of development).

  1. Search term value (cost per click)
  2. Exact match search term volume
  3. Overall query diversity (is there longtail from the exact match that is valuable?)
  4. Brand-ability (how easy is it to remember and type in)
  5. Domain top level extension (.net/.orgs are still a great deal worth 10 – 20% of .com value – everything else is 2nd tier)
  6. Potential type in traffic (only for very top level keyword.coms in select verticals, and really mainly good for branding)
  7. Ease of future development (How easy is it to realize the “potential” of a brandable domain creating content, software, etc?)

 

  • Ease of monetization (is the market liquid, or does it have a high barrier to entry?)There’s probably some others to add, but these 8 factors pretty much sum up most of the important areas up for consideration when looking at if you can earn a return from purchasing a domain name. For a more in depth guide to website valuation as a whole, you can see my older post on the subject – How to appraise a website – Website Value 101.

    Bargain domains has a good handle on what is important using cpc, volume, competition, ease of monetization. Doing business development for a site that does not have existing affiliate programs is among the most difficult barriers to entry for creating a successful site in a given space, and where a lot of errors from the below myths comes into play. I think a lot of domainers are discounting a lot of their domains – with little or no clue why, other than trying to cover costs. I’ve definitely snagged my fair share of nice ones in what seems to be a pretty good buyer’s market in the right places. I’ve also got a lot of garbage from mistakes like domaining after drinking;) To make the right buys, you definitely can’t fall for the top 11 myths domainers find themselves falling victim to:

  • Myth of the Type in.Type in traffic occurs at a very small level that is constantly diminishing. I make no argument that some percentage of people type in Cameras.com when thinking about purchasing a digital camera. However, the impact of this type of traffic, overall is quite minimal. Type in traffic comes through google, bing, yahoo, and your Internet Service Provider. If your ISP decides to serve a 404 page for the domain or country code it will render to their landing page. Richard Kershaw has more about the dangers of the type in traffic myth based on some data he dug up from Sedo, so I’ll defer to his better post to explain this one further:

    “… 0.001% of domains parked with Sedo get double digit per day traffic. Or to put it another way, 99.999% of domains parked with Sedo don’t hit double digits daily.

    Even Kevin Ham’s genius .CM wildcard tld strategy isn’t really working in most places anymore. What really perpetuates this myth is repeat visitors and DIRECT NAVIGATION. Direct navigation is much different from type in traffic. Direct navigation can easily come from other media sources and many times very easily owe it’s true attribution to a specific campaign or general “brand equity” which will likely always remain a somewhat vague metric for analysis and accountability.

    2. Myth of the 1 Word .com

    Just because it’s generic, doesn’t mean it’s good Crap.com is still crap. Yes, you can make an argument, that it is “brandable”, but so is Suudl.com or some other random character string of constants and vowels. There’s dozens of startups in Silicon Valley trying to build an awesome product on a garbage domain. Sometimes it actually works (Yoodle to go on and be better things.) Do you know how much money it costs to BUILD a true brand that people actually recognize?

    Sharp entrepreneurs like domainshane.com have some solid 4 and 5 letter domains for web 2.0 startups, but there’s a difference between selling a few domains for 3 figures, and creating a full blown startup company. I will say that I do think any 4 and 5 letter .com value will only continue to rise. There are only a limited number of these and they will often be held by large corporations. A good four letter .com is HIGHLY brandable since it takes up less space for more traditional advertising (print/ radio/ tv).

    The biggest myth with EVERY entrepreneur falls victim to is that it’s easy to build a company. Murphy’s law definitely applies to you, even though you think you’re the exception. You always hear the success stories of Mint.com and the like, but you miss the other 9 startups for every 1 that actually even gets a 2nd round of funding (as well as the thousands that failed to get to that point). You also miss the decades of misery endured by the executives and founders. I can count on less than two hands the number of successful entrepreneurs I know that have maintained their integrity. Any idea how hard it is to get the first round? 3 words: Tech Bubble, Recession

    Having 20 or 30 single word domains may prove to be more of a blessing than a curse to either sell or develop when you look at how much money a startup has to raise to take a company to the next level past several rounds of venture funding, or the difficulty of creating a company that will sustain through a public offering.

  • Myth of the “Category Killer”
    The underestimation of what it actually takes to build a real site that delivers value to real end users, and makes real revenue will be the common thread in most of these points. It’s real easy to say that you understand how to do it, and that you can do it. Even if you did it as a consultant, doesn’t mean you can do it all yourself and successfully pull it off (believe me, I fell victim to this myth for quite some time.)

 

Banca.com was a steal in a recent auction, but just because you own Bank.org, doesn’t mean you can build or run one and actualize the potential of such a domain.

4. Myth of “Revshare”

This begins with the fallacy that you’ll attract good people by offering them a revenue share of the project. Unfortunately, smart people realize it’s very difficult to craft these agreements, and setting expectations on the same page is a rare commodity. As a consultant, I’ve had lots of “rev-share” offers. Normally, building a long term working relationship works in a handful of ways through smaller projects.

The person who builds the house isn’t always happy to lease the land it’s built on, even if they get to share in the profits. Normally, they’d prefer to buy some less expensive land, and maintain complete control of the project, until they can be the master developer.

There are ultimately a few questions that get asked from both sides:

Domainer:

We would like to develop a site that makes millions from my genius idea of buying high quality domains in 1994.

Consultant: Did you live in Vancouver or nearby?

D: No, but I have been to some conferences around that area.

C: Cool – the domainer community fascinates me, and I’m a lurker there. I do a bit of domaining myself for myself as well.

So tell me about your site.

D: Elaborate beautiful description of properties and potential. Insert unrealistic expectations of marketing miracles.

C: screenshare examples of success.

D: More qualification of websites awesomeness.

C: More examples of wins, and answers to questions.

D: Sounds awesome, we’ll be in touch.

C: Okay cool. Have a good one.

The conversations sometimes go a few phone calls longer. The truth is, the cost of creating an amicable agreement, or in building the trust takes so much efforts, that both sides generally fall flat. The trust needed for such an arragement is generally too big of a gap to bridge in a few phone calls. The domainer opts for the cheap work with less than impressive results, and the consultant continues to consult and develop sites. Generally the domainers learn from the conversation and realize they should continue to further their search and social media marketing understanding.

A few examples:

Example #1http://www.namecake.com/venture-partners/
Some of our names experience a large volume of natural daily traffic. Couple this with their brandability and you have a powerful combination to immediately compete in your chosen field. All that’s needed to turn these domains into successful online destinations is a strong partner with the right resources.

…our ideal partners will likely have the resources to execute an entire business plan around developing the domain property. All aspects of the business will be the responsibility of the partner. While the preferred relationship is to partner with experienced companies/individuals on these projects, an outright sale of the domain name will also be considered.

A strong project manager with years of experience will likely always buy the domain outright (or find an alternative to use).

I understand that the core competency here is acquiring top level domains, but I’m wondering how many properties they have successfully built out to claim just how “easy” it is to immediately compete and make money with a top level domain. I have certainly heard the question before myself of “If you’re so good at this, why don’t you do it for yourself?” In fact, I heard it enough times that I decided I must build my own properties to disprove the naysayers. I’m sure the guys at namecake are super smart, and have made lots of money – but it if it DID come from underestimating the workload, and doing what was easy – they were extremely lucky.

Example #2 Reinvent, Marchex, and other companies have some amazing domain names, but each individual domain nearly warrants it’s own entire dedicated team to build out properly. I’m not sure some of these domainers have the true knack for creating gameplans for actual site development and launch that actualize the “potential” the domain names hold. Even though some of their large holdings are generic domains – the value in ranking for these phrases (and the business plan and development for monetizing them) often doesn’t justify the effort unfortunately. There are a handful of winners, and a lot of losers still left in these large, diverse portfolios. Focusing on one or two big areas could really do well, but trying to split the workload between a very large and diverse portfolio is spreading the resources very thin on some of the really GOOD domains they have like carfinancing.com, creditrating.com, or cheaptravel.com. By the time they realize this, the barrier to entry to start in these areas may well be much much higher.

Example #3

http://www.bigticketdomains.com/

Treatmentcenters.com – great site (doesn’t work in ff for mac), and awesome domain with the ability to create a great geo based lead generation campaign. Focus on the one site, and sell the others if you can to fund the development.

Focus on Brideloan.com, Tradeshows.com, NewYork.net, and develop StockMarket.com and MutualFunds.com. Those 4 domains could easily be enough for a lifetime. The rest might sell to an enlightened soul in one of their respective industries for fairly reasonable prices. I don’t imagine it takes lots of homeruns, and offering GOOD reasonable financing deals is a good step towards doing biz dev with saavy individuals and agencies.

5. Myth of Interlinking sites

Interlinking Explained by God.com

The lesson in learned when a large group of sites is wiped off the map in terms of search traffic. This is generally the point where they search around for someone to fix the problem, and claim they did nothing wrong. At the very least – interlinking your domains is NOT doing you any favors. Start splitting them off now, and quit convincing yourself that you’re Barry Diller and you own IAC. His sites have entire enterprise level teams to “co-brand” and “cross-promote) his sites. Until your parent company is worth a billion dollars, you’re still just cross linking (with little to no benefit, and potentially a lot of detriment)

  • Myth of Parking pages (slowly dissolving value)I bet it was awesome getting a 40% rip from the overture feed when type in traffic and search traffic was high for high value phrase .coms with little content and a phoney link profile. It’s a shame that things went down hill and everyone had to start working for a living. If it makes you feel better, SEO’s are providing an increasingly more commoditized service whose value at most levels is dimishing as well, and good folks are looking for better opportunities to monetize a skillset that is still not completely easy to build despite all the advances in search marketing training in the last three or four years.

  • Myth of Not Identifying and Underestimating Search and Social Strategy ValueSearch marketing can help build direct cashflow. The tools to project the value of search marketing are still just starting to grow to a point of decent accuracy. 4 years ago before Google Analytics became great, no one had PPC data. It’s hard to understand SEO if you haven’t done PPC. Their are important economic systems in play on both that affect bottom line business. Search marketing is at the core of consumer intent.

    8. Myth of Low Value Services Providing High Value

    Amazingly willing to spend xxx,xxx on domains, but not more than $x,xxx per month on development. A good strategy should probably spend anywhere from 10 – 30% of the budget on the domain. Depending on the project this can seem excessive to some – but I definitely strongly agree with the high value in good domain names. The trouble is that you can only develop a few (not 100′s or 1000′s). I find that I’ve been able to develop about 10 – 12 sites per year at various qualities. That’s about one per month – with about 2-5 coming out very good at the end of a year. This is with a very strong desire to sit at the computer for 40 – 60 hrs per week consistently, and work at your maximum mental capacity.

    9. Myth of Hype and Community Publicity

    Woohoo! Joe the domainer launched motorcyclehelmets.com – It’s sure to be a category killer! I’m not a huge hater, but I’ve seen people fall into the same trap within the SEO and internet marketing community. Just because you’re a big deal in your little niche community does not mean you’ll make money, or that anyone else anywhere will actually care if you do. Most the successful people I know that have maintained their humanity tend to have a great deal of humility (and try to minimize the hype). The hater in me comes from my self loathe of blogging and enjoying using things like foursquare and twitter. For a circle jerk of publicity and drama in a small pondof life, there are many forums and blogs to visit, but perhaps the rise of the fall for the seo community came with Threadwatch.org (I think because it was like a giant sewing circle). It is only by spending time in such a place that you have an appreciation of just how information on the web truly travels (and just how little most things really mean).

    10. Myth of second tier top level domain extensions

    I bought into .info’s too. I feel your pain. I think I even have some .travel, .us, .mobi and some other second tier garbage. Firstly, they’ll never gain acceptance. Secondly, they’ll never rank for anything. Thirdly, no one will remember your extension (and they’ll type in .com), and you’ll lose most of the “type-ins” you were hoping for. Lastly, remember how much it costs to build a brand? It costs even more to get your .com AFTER the fact. The cost of GREAT .coms /.nets /.orgs on the other hand continues to see growth.

    11. Myth that development is EASY

    The owners of MutualFunds.com have a retail price of $5 Million listed. How much more likely are your odds for success buying Mutualfunds.net for $100k, and spending the other $4.9M on product development and marketing? For that matter, why not buy a $6 domain, and redirect it later? Even if you DO have a $10M budget, does it ever really make sense to make this type of purchase? Sure it’s an amazing domain name – no question, but your domain is only one function of your marketing budget. I am a large fan of big ticket domains, but if you are top heavy in terms of percentage of your budget being spent on your domain, and neglect your product and marketing, you will be clamoring about the “potential” until the point your domain goes up to foreclosure auction, and someone else gets it at the price it likely originally should have sold for (far less than you paid).

    So why is it domainers (and most entrepreurs for that matter) underestimate the cost of development?

    The number one reason this happens is because business goals aren’t developed before the project starts. One of the most exclusive problems to a business that fails online is a lack of understanding in execution the marketing and business development strategies. Underestimating the true nature of the project is a realization that nearly always occurs at the end of a failed businesses’ lifecycle.

    In terms of one and two word keyword domains, domainers often forget that while there is a benefit in having an exact match keyword domain, it is still only easy to rank for that single term in the short term. Ranking for all the long tail phrases or other important phrases is an entirely different story. Even ranking for the exact match of a domain can be very difficult if the domain is in a already highly developed industry. To truly understand how difficult it is to rank for something, you must be able to do some competitive intelligence in a search result, and identify:

    • how many links will you need?
    • how much content will you need?
    • what will it take for development of the great ideas you will use to retain users?
    • will you be able to create content that will engage users, or is it highly specialized?

    How many links you will need is often the critical underestimation. While you CAN go out and buy links, there is certainly a level of risk that comes along with this to your precious investment.

    So what’s the moral of the story?

    1. Don’t believe the hype (least of all your own)
    2. No one will buy “potential” $1 worth of revenue is worth more than $100 in potential.
    3. Build a business model first
    4. Spend more money on engineering and strong development than hype and potential.
    5. Cut losses on a project that doesn’t succeed

    I think this is most important. If you REALLY want to make money on the web – follow these rules. Start working in one small corner of a competitive marketplace, and prove to yourself you can make a living at it. Most of the money is made from:

  • telling people how to make money
  • telling people how to improve themselves
  • telling people how to find things
  • comparing things for people in high dollar areas.
  • lead generation in the above mentioned topics with massive scaleable solutions (generally aggregations and user generated content plays).I understand that with writing this post, I will likely ostracize myself from a bit of the domainer community, but it is only out of watching and understanding a bit from the fringes that I understand some of the domainer “community” that I have been able to form these observations. It is with a great deal of respect that I have done so, and that I offer my constructive criticism. As mentioned above – I think most good domainers are among the smartest and luckiest folks I’ve ever heard about. I hope some day I get to catch up with some cool domainer folks and swap stories over boat drinks. If you want to train teams in the meantime – I’ll give a shameless promotion for MarketMotive – it’s a great place to train your teams on holistic goals with an understanding of business goals. If you got through this whole post, and got a little upset with some of the observations -it’s probably a great place to start, and I remind you that I criticize with the utmost respect.

    More sites and references:

    Domainer sites I like watching:

More information about Todd Malicoat aka stuntdubl.

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  • http://michaeldorausch.com/ Michael D

    Informative post Todd. One I can come back to and read again. Lot’s to digest. I’m with you on the worlds colliding, start ups could be getting far better brandable domain names, and domainers could get their domains out of parked status. Look forward to talking to you about the topic more.

  • http://www.gradeacontent.com Adam

    I couldn’t agree more on this, except I do talk to quite a few domainers in which we come to agreements about rev share. I usually take a 60/40 cut. But my stipulations are always based on if I know I can monetize the domains they have. So I only approach certain domainers.

  • http://www.advoltlegal.com Fabian Ahmadi

    Wow, great article diving into the world of domaining. If you want my take on domaining: Look abroad! The US market is already at a maturity level at which it is difficult to acquire undervalued domain names. In Europe, there is still a larger untapped potential, which is quickly disappearing, too. In Germany, 2 and 3 letter domain names were recently opened up for registration, which turned into a fast and furious gold rush for a day…

    At the end of the day I agree with you 100% in that the future in domaining lies not in the random acquisition of random single word .com names but in the strategic conceptualization and execution of building and developing domains into revenue (and traffic) producing assets.

    What I find interesting, working as a legal marketing consultant, is that many professionals don’t really spend any thought on their domain name. Working with a lot of law firms, 25 to 30 character websites aren’t unusual…

  • Angelo

    Great stuff but I have to disagree on the “Myth of Interlinking”…

    If you had a bunch of new sites you wanted to interlink, you simply have to be smart about it. Cover your bases and expose no or minimal ownership footprints and cross link only where it makes sense and you will see lots of benefit from those backlinks. The more your network of established sites grows, the more those links will be worth.

    Issues arise when people link all their sites to each other, use the same hosting IP and use site-wide links or “links” pages instead of linking within content.

    There’s nothing wrong with exploiting backlinks from your own sites if you do it intelligently.

  • evolvor

    DUDE Bargain Domains has Mules.com for sale ALL OVER IT! Wait…what’s a business model again?

  • http://www.johnon.com john andrews

    Nice essay Todd. I have to admit it must be super hard to swallow the idea that it takes serious work, wisdom, and insights to follow what matters in online marketing enough to execute reliably/successfully.

    From the outside, SEO looks pretty simple. Add in a few example cases where Joe’s brother Tom started a new site and his cousin Janet immediately linked to him from her company blog and now he’s PR6 and ranks #1 in all the search engines. How hard could it be? Why should it cost so much?

    I think the biggest piece of SEO is web strategy, something many category-killer domain owners think they have nailed down already.

  • http://sscommerce.com Rashid

    Hello Todd. I found this post through one of those “genius” forums. I skimmed through this post and a couple of your other posts and I must say your thorough, well thought out and detailed. As to this domainers myths idea if I understood you correctly, will apply to those domainers who don’t have premium domains and are looking for other ways to monetize them while not fully understanding development and what it entails. On the other hand, I’ve heard many times from those who hold premium domains that development subtracts from revenue. Of course the word “development” is subjective to some of the myths you pointed out earlier. However, take a look at this http://acro.net/blog/2010/04/06/why-build-web-sites-when-you-can-hold-and-park-domains/
    Perhaps some people sell land, other buy land and build on it. Pure domaining (as they say) is a separate thing.
    I hope I understood you posts & intent correctly.

    ps. are you going to be starting any Domainer Master Certification Courses in the future?

    Best regards……

  • http://www.website-seo.us Stuart Gilbert

    Great article and definitely debunks quite a few myths that exist – however, it is true that there are domainers on varying levels of skill and expertise and it isn´t all about high end stuff – having that said tying in SEO to pad out a site for quick high ranking can be very lucrative
    Stu

  • http://WebsiteBusiness.com Andrew@WebsiteBusiness

    I think you make strong points about parking sites and type-ins. Getting something for nothing is just too good to be true for most people, so why not hedge your bets by developing sites?

    Fabian’s comment, which suggests considering foreign domains as an untapped market, seems like good advice. It’s certainly a good idea to think outside the box, especially when the domain market in America is so crowded.

  • http://Internet-Marketing.com Webwork

    You talkin’ to me?

    You talkin’ to ME?! Huh?

    http://www.youtube.com/watch?v=4e9CkhBb18E

    :P

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    wow what wonderful post on domain appraisal. I would love to if u check out my blog Wpblog

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