Domain Name Investing: Succesful Strategies for Domain Name Acquisition

• How much money you have to invest,
• Your level of expertise in understanding websites and how to drive traffic to them, or
• The amount of time you're willing to invest in reviewing lists of available domain names.

Investing in domain names is extremely accessible. Anyone with a computer and Internet connection can have access to a wide variety of resources-from informational guides and tools, to vast lists of domain names to sift through to find hidden gems.

It takes money, time, and some know-how, but domain name investing has proved to be extremely profitable for many enterprising investors, and the expected growth in the industry shows great promise.

One warning… start slowly. It's easy to get carried away and register 50 or 100 domain names on your first go. Even if purchasing inexpensive domain names, start slowly. Try obtaining a few choice domains and taking them through the process of acquisition, traffic building, and resale. The best way to learn is from research and experience: understand the trends, the mechanics and the market before risking a lot of money.

Three Domain Name Investing Strategies

This article will cover three domain name investing strategies. There are no doubt countless others, which readers should feel free to suggest in the Comments section.

New Domain Registrations

New domain registrations can be fun, but can also be extremely frustrating. It's truly amazing to search for available domain names and see that pretty much anything you can think of has already been thought of (and registered) by someone else already. But every once in a while you get a hit-an available domain name.

The key to new domain name registrations is vision and foresight. Often you can find good domain names in emerging topics or industries. When the Apple iPhone was announced, for example, hundreds of people honed in on iPhone-related domain names. There was one particularly clever individual named Michael Kovatch who registered iPhone.com well before the iPhone was announced because he had been thinking about Internet telephony years earlier. He reportedly cashed in with a $1 million dollar + sale. Foresight and vision can be extremely profitable in the business of domain name investing.

There are also some good domain names still available in less common extensions, like dot-info or dot-tv. While we consider this strategy a bit more risky because of the uncertainty around alternate extensions, there's definitely a market for these extensions, as evidenced by the recent sale of Travel.info for a record $118,000, the highest dot-info domain name sale to date. I've learned the hard way to never underestimate the value of any common word domain name in a high value industry.

It is recommended to diversify among different "asset classes" of domain names, spreading your capital among premium domains, short domains (2-3 character), alternate extension domains, and even some hyphenated two-word domain names.

Domain Name Lists

When time is your capital you can build an excellent portfolio of domain names for a modest investment of money. With this approach, which we'll call the Domain List Strategy (DLS), the bulk of the work is in reviewing lists of domain names and cherry-picking the most promising domains.

The daily lists can contain tens of thousands of domain names, so it's recommended to use available domain name tools to filter them down to a manageable level. For example, you can filter to display only dot-com domains, exclude domains with numbers or dashes, or limit the length of the domain name.

Since most common one-word domain names are taken, the Domain List Strategy is not likely to get you a domain name like Business.com, Dictionary.com or Heal.com, but it does allow you to build a solid portfolio of domain names with an individual value in the three- to four-figure range ($100 – $9,999).

For example, the very successful site NewsVine.com grew into a multi-million dollar business from an expired domain name purchased for under four hundred dollars ($400). And sometimes, a good domain name does expire, such as the recent expiration of Vibrance.com, which ended up selling in an expired domain name auction for $8,600.

Expiring Domain Name Lists – You're more likely to find a good domain name from an expiring domain names list. Expired domain names result when current domain name owners don't pay the annual registration fee. Some recent domain names on the expiring domains list included Vibrance.com, Bay9.com, VeteranNews.com, NewsTools.com, BatteryCars.com, and NightclubNews.com.

There are several excellent tools that will allow you to filter down the long lists of expiring domain names based on criteria such as existing traffic, domain extension (.com, .net, .info, etc.), length of domain name, number of links, and more.

Finding Domains by Instinct – It may sound funny, but many of the best business people develop a sixth sense. In general, there are two approaches when searching for these domains. One is based on your instincts— the ability to recognize a domain name that has good branding value—a domain that "sounds good" such as like FirstSecret.com or SmartInvesting.com, both of which were expired domain names. Two-word dot-com domains with no dashes are your best bet.

Be sure to keep in mind the business potential of a domain name. For example, FreeSoftware.com would have a lot more value than BrokenComb.com.

Analyzing Domain Name Popularity – This approach involves analyzing the actual existing return-on-investment (ROI) of a domain name. There are tools that will allow you to analyze factors such as how many links from other websites point to the domain name, the Alexa ranking of a domain name (measuring traffic popularity), and other factors that affect existing traffic value.

A newly-registered domain name (one that has never been active on the web) will likely have very little type-in traffic, so for such a domain, the profit potential is in the domain's brandability, and any sort of traffic that you can generate to the website before offering it for sale.

Domain Sale and Auction Lists – Every day, thousands of domains (and websites) are offered for sale or auction. Most auction sites have tools that allow you to narrow down your search. It also helps to specialize in a particular topic area, such as cars or health, or finance. This is particularly true if you're going to be developing businesses around your properties, as you can greatly benefit by the synergies created between each business.

Auction domains are generally more expensive than expiring domains (though often, purchasing an expiring domains can end up in an auction situation. See Mike Davidson's "How to Snatch an Expiring Domain Name for a good explanation). However, it's not as time consuming as poring over expired domain lists, and you generally can find domains in your topical area of interest. Most of all, auctions will usually have a lot better quality names, because most of the best names have been taken already.

All level of domain names are available at auction - from domains under $100 to domains for $5 million and up (Premium Domain Names). Because of the larger asking prices, buying and selling premium domain names can be a higher risk proposition.

Don't discount the potential value in alternate domain extensions, such as dot-info or dot-tv domain nanes.

According to Web Host Industry News, "Sedo says that as the secondary domain market begins seeing higher sales values for domains with alternate extensions to the .com, better returns on investment can be expected for all top-level domains including sponsored TLDs, such as .mobi and even country code TLDs such as .co.uk and .us. Other notable .info sales include newspaper.info for roughly $18,500, booking.info for $11,500 and names.info for about $10,500."

Even at these prices, I can see a lot of future value growth in these domain names, which have not yet been built out to fully exploit their potential. I think the buyers did well, and these domains are well positioned to build value with some modest additional investment in content and promotion.

Premium Domain Names – Buying a premium domain name or a website built on a premium domain name can be a big risk, but can also offer extremely profitable rewards. The big success stories are well known: Business.com or more recently, Dictionary,com are high profile domain names that have been developed into multi-million dollar businesses.

No doubt the recent buyers of Seniors.com (sold for $1.8 million), Cardiology.com ($550,000) and Bald.com ($400,000) have some plans to build some well-branded businesses on those websites, and I wouldn't be surprised to see them for sale again in a few years at $18 million, $5.5 million and $4 million or more.

Whether you're registering new domains, snatching expired domain names, or scanning the auctions for hidden gems, the DLS is an excellent strategy for contributing your sweat-equity to build a solid domain portfolio.

Approach Current Domain Owners

Not all current domain owners are aware about the real value of their domain names. Some ended up registering a domain years ago, but never really pursued monetization of the domain, or simply need cash and are not inclined to develop a domain name to generate revenue. While it can be a lot of work and cold-calling, many successful domain investors have made a killing this way, particularly when they are able to get a good initial price, build value after the purchase, and benefit from the overall rising value of domain names.

For example, investors who bought Beer.com for $80,000 developed the domain name, then turned around and sold it in less than a year for $7 million. Then they bought Chocolate.com for $300,000 and according to Business Week, the site now brings in $2 million in revenue annually.

On a smaller scale, you can read the inspiring letter from "Derek Giordano" about how he says he made $110,000 in a month by soliciting domain names to buy, and then turning them around for a quick profit. While it takes a lot of hard work, it's been done many times over by savvy domain investors.

Building and Growing Domain Name Traffic

On a final note, while this article is about acquiring domain names, don't discount the importance of adding value. Domains, like real estate, can simply go up in value as the market matures, the best returns come from adding value to your assets.

For some domain names, Domain Parking can earn some revenue from domains that have existing traffic through links, or type-ins. However, standard parking websites do not offer the opportunity to grow your traffic, because the search engines generally don't give these pages good rankings.

Once you've acquired a domain name, you can really boost the value of the domain name by building traffic to your new website.

This approach requires that you either have some knowledge of developing websites and traffic, or that you're willing to learn. You can also partner with companies who take on the technical aspects of the business, such as Argonaut Ventures, a California-based venture firm that provides expertise and tools for building value in Internet domain businesses.

To give you a simple scenario: If you can buy a domain name that has little or no existing traffic, and create a property that has a steady stream of visitors every month, it's not a stretch to say that you can easily get back 100x or 1,000x your initial capital investment.

While this strategy is not for everyone, it does allow you to profit from the intrinsic growth of the underlying domain name asset, as well as the additional return from the value added. It's like owning a vacant lot and either gaining only from the appreciation of the land, or owning a vacant lot and building a hotel on it to earn a regular income as well.