What are the benefits and risks of trading domain names? [closed]

Question

Recently I have seen many articles published online about domain name trading as a viable investment. The basic idea is to buy a (reasonably good) domain name that's not already taken, then auction it at domain auction websites, profit, then go back to step 1.

Naturally, all "get rich quick" schemes are to be taken with extreme caution, especially if it seems to involve minimal risk to the investor. However, taking a quick look at GoDaddy's recent domain name appraisal tool, it seems that some domain names might indeed constitute a good investment. An example is myquickexample.com, which is currently listed as being worth 565 USD, and GoDaddy sells it to you for 1.31 USD, thereby yielding a potential investment return value of ~43 000%. There are hundreds/thousands of similar domain names with very high potential returns, according to appraisal tools.

Obviously something is amiss here, but I can't quite get my hands on it.

• Is GoDaddy lying about the real value of the domain name?
• If not, then what prevents me from buying it for 1.31 USD, then re-selling it GoDaddy for 565 USD?
• Is it very difficult to sell a domain name?
• Are commissions so high that the investment is not worth it?

What are the other benefits and risks of trading domain names?

Answer 1

Is GoDaddy lying about the real value of the domain name?

Lying? No.

Useful or accurate? Probably not.

According to their valuation description: "Our exclusive algorithm combines machine learning with real-market sales data compiled from our 20 years of experience." So they look at your domain name, and what similar domain names, likely with similar dictionary words, sold for, and generate a guess. A guess is not guaranteed to be anywhere near accurate.

In your myquickexample.com example, it is basing that on similar sales for mysmartresume.com, mysmartbook.com, myfastmoney.com, etc. Obviously, there is the pattern of my*.com. But that does not guarantee that any domain that starts with my and ends with .com will have a buyer.

If not, then what prevents me from buying it for 1.31 USD, then re-selling it GoDaddy for 565 USD?

The fact that if there was a buyer, they would have bought it for $1.31. The fact that they have not indicates that there is no buyer. The possible profit lies in buying a domain now and hoping that there is a buyer in the future, which is a much riskier proposition.

Is it very difficult to sell a domain name?

No. Each registrar has their own process for doing so, but they are all automated and free.

Are commissions so high that the investment is not worth it?

No. There is no commission for transferring ownership of a domain name.

What are the other benefits and risks of trading domain names?

You are holding an asset that costs money every year to keep in the hopes of being able to sell it in the future.

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As an anecdotal example, my personal domain name has an estimated value of ~$350. There has never been any interested parties reaching out to me to buy it. A similar domain name, that I originally tried to register but was taken by a domain name trader, has an estimated value of ~$2,000. It has been held by that domain name trader since 2009, and has not been sold in those 9 years; I do not judge the chance of it being sold in the next 9 to be high at all.

Answer 2

• Is GoDaddy lying about the real value of the domain name?

Maybe not lying, but because we don't know on what basis they made those estimates, it's kind of wishful thinking. But I assume they just check how much domains with "quick" and "example" in their names are valued.

• If not, then what prevents me from buying it for 1.31 USD, then re-selling it GoDaddy for 565 USD?

GoDaddy buys domains? From what I understand, you sell it to someone who wants to buy because they have interest in having such domain name.

• Is it very difficult to sell a domain name?

No, it's just a matter of signing the deal and transferring registration name.

But estibot.com stated that myquickexample.com is worth less than 100$ and it's quite reasonable why. Remember: for now, no one wants that domain, there is no traffic to the domain, and it doesn't contain unique keywords. The term "my quick example" is not searched very often on google and FINALLY all extension are free.

After domain gold rush people are much more chill when trying to buy a name. They can either sue you to pass over the domain. Or just buy with different, regional extension, of just add something to their domain name.

You buy stackexchange.com and compane decide to buy RealSE.com

Answer 3

You forgot two important values.

1. You pay the $1.31 for the first year then you need to renew (for a higher price)
2. Return % has no meaning if you don´t have a time component to it.

Domains are not a liquid market. At the moment your Domain "myquickexample.com" would be worth 0, because there are no buyers. So let´s say on the kind of domain names you can still get, somebody comes along to buy it for one in every 1,000 names a year. So you had to pay $1,310.00 for the names and would sell one for $565.00 ... not looking so good anymore, is it?

The second thing to keep in mind is: Some TDL, if you can´t prove you are actually using them, others with a valid interest can just file for deletion.

So all in all, pretty complicated and risky investment!

Answer 4

GoDaddy is a REGISTRAR. Their business is selling domain registrations. If they say the domain is worth $500, then you're more likely to register it then if it was $0. So, them giving you some made up price > their cost generates more business.

Same goes for renewals. I get emails daily saying that I need to renew domainXXX because it's worth $1200 by GoDaddy, but I know it's not worth jack. I'm sure many people fall for it and it makes Godaddy lots of money.

For appraisals, you want to get them from a company that doesn't sell you the same product it's appraising, so a third party. I use estibot domain appraisal. Your domain is worth $0 there. Guess why? Because they don't care if you register it or renew it, it's the market value.

Answer 5

Valuations aside, buyers of good domain names tend not to be repeat customers. After all, they bought a good name, so they’d probably start doing something with it, rather than looking out for the next great name to buy. (At most, it would be a set of example.com, example.net, example.biz, etc.)

Since you don’t have a repeat client base, you’ll need to actually work for each sale. That can quickly eat up your ‘profit’ of $500 or so per sale. Maybe it would work for you if it’s more of a hobby on the side, but if you try to scale it into a full-time income replacement, you’ll quickly find out what motivates spammers. :)

Answer 6

There's a wealth of information to spill out on this subject but I'll try to condense it to both crush your dreams as a domain mogul and to complain about the whole domain market as a whole...

First off, the market has changed. I knew a guy who made his millions back in the hayday of the internet because he registered every domain name he could think of and did just what you describe. He sold them off one by one or in bulk because back then you could.

Nowadays, companies will build their businesses around a domain they can secure. Perfect example is damn near the worst domain name I have ever heard of yet and I am a web programmer - zoosk.com - just plain WTF?! Not a word. I can't imagine an acronym, I have no idea what would be the appeal of this fairly forgettable pile of trash for a business name EXCEPT that it's 5 letters long. The point being they found what was available that fit their parameters and just went with it. I don't know or care if they still exist, but if they don't I have an idea why. Chances are they wanted something else but didn't want to give some greedy chode the satisfaction of bilking them for a hundred grand so they opted to use a non-word and just make it work.

Nowadays TLD options exist as well, though the world may not be ready to break free of .com, .org, .net, .co.uk, etc. But the options are out there. So what is more appealing to you? someexample.com or some.example? well, suppose you thought to look for someexample.com and you try to turn it around for a quick profit and all that results in is your only buyer registering some.example instead? Well, your model then changes from registering domains that are available, to strategically registering the entire bulk of domains that could possibly be derived from the original concept. That could cost you a fortune. BUT WAIT THERES MORE - you get to pay that fortune annually until you can unload your mistake on the next dot com failure. You willing to bank on that deal? I'm not, and I know a guy who did this for a living. A very successful living.

The era of registration games is past. There may still be opportunities, but not quite so simply as you outline. Yeah, you might get lucky. Every now and then someone sends me an email asking to buy one of my domains but they never offer enough to even warrant a response to the email. Unless you have a good amount of savings to live off of, I wouldn't recommend casually entering this market. Do it for fun if anything and see how it pans out.

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If you want to register a domain name, do not search it until the very second you are going to register it. You can safely search in console or terminal but never ever in a million years use a web form like godaddy's domain lookup to see if its available. Those greedy sacks of feces will register the domain if you don't buy it immediately and offer it back to you for hundreds or more. If they decree it a "premium" domain they do exactly this and it is completely and utterly legal. It won't work if you mess with them by smacking your hand on the keyboard and looking up "vlhadsvcblsa.com" - they're not stupid. but if you looked up something with real words... jennysdiner.com for example. you run the risk of them grabbing it while you ponder your future. No kidding, 20 years ago I typed in the name of the 6th level of a video game called space harrier and I accidentally mistyped it. 24 hours later it was registered and parked, offered as a premium. It wasn't even a real word. Just mish-mashed gibberish. Never again did I use a search utility.

Another option - I used to work for a company that registered trendy domains, made quick and simple ecommerce sites out of them, then sold the sites while they were hot. There's a certain degree of science behind this. You have to know and predict trends, build fast, SEO the hell out of it, and find buyers so they can get in at the peak, make their money, and get back in line for your next trend. But this helps on the legal front of things as well. If you actually run a business or otherwise populate the domain with viable content you gain legal stance if someone decides to try to sue you for it. To some degree. If you had pepsi.com you're probably going to lose no matter what. If you had bofa.com they would have little grounds to snag a pet name if you are actually using for something. maybe thats a bad example cause you'd never get either of those, but say there's a new spiderman movie coming out. If you got spideyspinners.com and threw up a quick fidget spinner site revolving around spiderman you might not get dinged for it and may be able to move the domain and business before the trend died.

In short, it might help you to actually develop the domains you intend to flip. Valuations have many factors beyond just number of letters or buzz words.

Answer 7

I think you are basically describing cybersquatting.

What are the risks of trading domain names?

Besides the usual risks inherent in any speculative business, domain squatting is unpopular and it might lead to registrars or regulators interfering with your business. If somebody sues you for a domain, the court might be sympathetic to them. Not to mention millions of angry users of the company, who will see you as a greedy parasite. Also, your most valuable domains will be of interest to large companies or wealthy individuals, and both have access to substantial legal resources. So this seems to me similar to patent trolls: The crux of your livelihood is how much legal expertise you have.

Problem with selling expensive domains is that it's too easy to just get alternate domains, especially now with things like unicode domains. All that money you spend on myquickexample.com may end up wasted when My Quick Example Inc., just says screw it and gets myquickexample.org or myquickexample.co.uk. The domain you have then becomes pretty worthless, since it's not like another company would use the same name. Besides, these days users don't really type in domains anymore, everybody just googles things. And google isn't going to rank your squat page very high.

There is also a very large up front capital requirement. You will have to buy many domains to saturate even a small subset of the address space. If you're lucky, neighboring spaces are saturated by your fellow squatters. You will then have to hold on to those domains for years, until somebody decides they want one, then decides they want it enough to go through the tedium of buying it (instead of just using a different domain), then decides that the price you're asking is acceptable... Meanwhile you're paying subscription fees on all of these. So you will need sufficient funds to absorb these expenses until you start generating revenue.

Moreover, the barrier to entry is essentially none. So you are breaking into a very competitive marketplace, without an easy way of gaining competitive advantage.

Is GoDaddy lying about the real value of the domain name?

Yes. If they thought the domain is worth 500 bucks, why would they sell it to you for $1? So they can profit 501 years later? They're stupid, but not that stupid.

I'm guessing their angle here is to make you think the domain is so valuable you're getting a deal, and get you to pay a few pennies more, which generates a big revenue stream for them in aggregate.

If not, then what prevents me from buying it for 1.31 USD, then re-selling it GoDaddy for 565 USD?

They won't buy it.

Is it very difficult to sell a domain name?

Not sure about selling, but I know that buying (from another owner) can be tedious or very tedious depending on how easy to work with the registrar is. GoDaddy is not considered a registrar that's easy to work with.

Are commissions so high that the investment is not worth it?

I don't think so. Not at your 48000% margins. Your problem will be finding someone who will pay for your domain at all, let alone pay as much as you hope.

Answer 8

Something only has value when someone is willing to buy it. At the moment myquickexample.com is actually worth exactly $0. Why? because no one has bought it.

Once you buy it then it is worth at least that amount to you. It doesn't mean that it's worth anything to anyone else. Quite frankly I think those appraisal values are at the very least misleading. Typically when something is appraised you look at what similar things have sold for in the past.

Domain names are unique. You can't exactly look at a similar sounding name and say that because myfastexample.com sold for $500 then myquickexample.com is also worth $500. Names just don't work that way.

Now someone who is looking to purchase a domain name might be willing to pay more for one that is short, is easily remembered, and/or is already somewhat established with traffic. myquickexample.com doesn't exactly fill any of those roles. They might further be willing to buy a domain name that is a common misspelling of their company name. However this gets tricky with trademark infringement etc. So your mileage may vary.

To directly answer your questions:

Is GoDaddy lying about the real value of the domain name?

They are making the best attempt they know of to place a secondary value on the name. However it is a very flawed attempt and shouldn't be relied upon.

If not, then what prevents me from buying it for 1.31 USD, then re-selling it GoDaddy for 565 USD?

Absolutely nothing. You could resell it for $5m. The trick here is in finding someone that wants to buy it.

Is it very difficult to sell a domain name?

Technically, no. It's incredibly easy to conduct the transaction. However it can be difficult finding a buyer.

Are commissions so high that the investment is not worth it?

There are no commissions.