How much is a domain name worth? Listen to Alan Dunn explain how most people view the answer to this question from the wrong perspective.
00:45 In today’s episode, I want to talk about domain name values. The question, how much is a domain name worth, is by far the most commonly asked question of domain name brokers. It’s also an extremely hard question to answer. Although domain names are essentially digital real estate of the web, only so many comparisons between physical real estate and domain names exist. On the surface, both of these assets have location, location, location. Of course. For homes, the very best real estate may be a waterfront lot, depending on where you live, and on the web, especially if you are a global company, it’s usually the .com extension.
01:24 However, whether buying a home or a domain name, location is only one factor to consider. It’s the finer features where the comparable model seems to get lost. For physical real estate, property can be valued using the cost to rebuild, such as square footage, property age, indoor outdoor pools, and more. There’s even intangible factors like school district zoning. The key difference with physical real estate is that, no matter where you are, there’s usually enough localized data to build a model of comparison between home values.
01:59 Domain name sales data on the other hand, it doesn’t really scale in true comparison. Most of the value answers are uniquely specific to the particular parties involved, and a high amount of emotional valuation often plays a hand. In fact, maybe the only thing physical real estate and domain names have in true comparable value is location. Most everything else is arbitrary at best. So wait, what is the value of a domain name? Look, I get it. The fact that the answer to how much a domain name is worth isn’t always a defined number. This usually brings people back to asking the question again. It’s totally fair. However, you have to get comfortable and realize that the bottom line is there is no real answer. Every deal is unique and, more often than not, it’s simply an owner’s relative value of money combined with his or her desire or need to sell at that time.
02:56 For certain subsets of domains, such as two character .com’s, or three character .com’s, and dictionary words (popular dictionary words), it’s important to note there is much higher demand from domain investors. So if you’re trying to acquire one of these, then there is some kind of baseline value that’s already been established in the owner’s mind simply due to having offers before. However, for the most part, the arbitrary value each party decides that domain name is worth, is really the only formula that works.
03:24 If you want a domain name, then trying to understand how much the market value of that particular domain name is, it’s really not the right place to start. Rather, you should create a strategy to understand the owner’s relative value of money, his or her desire to sell, and then craft an offer that is within that window.
03:43 I’ll give you a perfect example of why strategy is important. Last year we were tasked with acquiring a domain name, and this particular owner didn’t want to sell. The domain happened to be a gift from her late husband and she had, as one would expect, a lot of emotional attachment to the name. It also didn’t help our cause that she lived in a very nice home in a very wealthy neighborhood, so her relative value of money was likely pretty high. After speaking with her, we knew any purchase would have to be more than just about dollars. So we rolled our sleeves up and dug in deeper. By doing so, we understood more about her late husband’s philanthropy, some important organizations to the family, and even some future goals of her children. We ended up executing an offer, which consisted of cash, a charitable donation, contributions to the childrens’ university funds, and even a site visit where her daughters can meet the company founder. For me, this was a very special win. We not only secured a domain name, but also gave back and helped forge possible meaningful future relationships.
04:53 A successful domain name acquisition or sale simply comes down to whether both parties find meaningful value in the terms of the offer. Everything else is pretty much strategy, relationships, timing, and a bit of luck. Don’t be afraid to get creative.