How to Create Value in Domain Names: Build the Business
Domain name investors have done well over the past few years simply trading generic domain names. But with a little extra effort, savvy entrepreneurs are exponentially multiplying their return on investment by developing traffic and real business on top of those domain names before selling them off. And these days, it's not as costly as you might think to develop a real Internet business.
The owners of Chocolate.com for example, bought the domain for $300,000 and two years later have turned it into a business that generates about $2 million in annual revenues.
According to Business Week, "instead of flooding a site with pay-per-click ads and flipping the domain for a quick profit, they're trying to develop real businesses that will sell for much more."
In recent news, it's been reported by the Wall Street Journal that the company built around the domain name Business.com, which was purchased in 1999 for $7.5 million in illiquid stock, could fetch $300-400 million.
"Entrepreneurs Jake Winebaum and Sky Dayton were widely mocked for lavishing $7.5 million on a single Internet domain name -- business.com -- back in 1999. It was the single highest price paid for a domain name at the time... The company that grew out of business.com -- a search engine used by businesses to find products and services -- is now on the auction block, and could fetch anywhere between $300 million and $400 million, according to people familiar with the matter."
The domain name itself has become inseparable from the underlying business, but as a generic domain name without the developed business, it would likely sell today for about $10 million. The real value was gained through what was done with the domain.
No doubt the company Business.com put a lot of work and effort into building their business, and indeed has survived through some ups and downs. But even with a little effort—by building a directory or content website, gaining traffic, and promoting a site—domain owners can really ratchet up their returns.
If you're not a website developer, for a few hundred dollars you can find skilled designers and programmers to build a quality website or blog, complete with content management system that will allow you to easily publish content to the site.
Even if you don't have a million-dollar generic domain you can build a solid business on a shoestring and get 10x or even 100x return on your investment.
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