What you need to know about domain names?

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A domain name – quite simply – is a human-friendly address. The Internet is built on Internet Protocols (IP) addresses, which are strings of numbers that host a website.

Example: 74.125.157.99 is the IP address for Google.

The human brain finds it easier to memorize words than a string of random numbers. So, domain names were used to solve the problem. Instead of typing in 74.125.157.99, you would simply type www.google.com.

A domain is made up of anywhere from 1 to 64 characters, numbers and hyphens followed by the domain extension (TLD).

Top Level Domains (TLDs) are the domain extensions: .com, .net, .org, .info to name but a few. All TLDs are not created equally. The most popular extension by a long way is .com – with around 114,000,000 .com domain names registered to date.

The first domain name to be registered was a .COM domain name – Symbolics.com in 1985. Since then, those 114,000,000 .com domains have been registered. Along the way, the .COM domain name has produced some pretty amazing sales:

Sex.com – $13,000,000
Fund.com – $9,999,950
Porn.com – $9,500,000
FB.com – $8,500,000
Diamond.com – $7,500,000

In fact, the 54 largest reported domain sales ever (according to www.domaining.com/topsales) were .COM domains. It’s partly for this reason that the .com extension is the TLD that I’d recommend you stick with for now. 95% of my portfolio are .com domains because of one simple fact: I’ve found that I can sell them far more easily – consumers are more aware of .COM domains
than any other extension, and so companies will pay vast sums of money to get a good .COM domain name.

In the past, the other “major TLD” has been .Net. Prices have typically always been lower for .Net names, but they did sell well, especially to companies who couldn’t afford a top .COM domain. As of 2015, I believe that .NET domain name prices are declining thanks to the emergence of the new batch of TLDs (explained below). These new TLDs mean that there are far more and far cheaper alternatives to .Net, hence the loss of value. When I first started buying domain names, I bought a lot of 3-Letter .NET domain names, which all sold well. Now however, those domains have largely lost most of their value.

Of course, there are still .NET domains and other TLDs which buck the trend, producing the occasional big sale, but from a new investors point of view, .COM is a safe bet for now.

If you turn on your TV and look at the next commercial break, you’ll see that most companies use a .com domain to advertise their product. Especially in the USA. There is still an active market for .COM domain names, and I read many articles every week showing the .COM acquisitions of medium-large companies around the world. In some other countries, however, ccTLDs are sometimes preferred over .COM domains. In the UK for example, .CO.UK is used widely by small-medium businesses. .CO.UK is an example of a ccTLD.

Country-Code Top Level Domains (ccTLDs) are domain extensions used by individual countries. Whilst you may not have been aware of ccTLDs, you’ll have come across them in some way.

Social bookmarking website Delicious.com started out by using the ccTLD .us (del.icio.us),Last FM uses the .fm ccTLD.

The URL shortening service Bitly uses the .ly ccTLD

Website owners in countries other than the USA sometimes prefer to use ccTLDs over .COM domain names. Many Search Engine Optimization (SEO) experts have said that companies targeting certain countries will get a higher ranking by using that countries’ ccTLD. For example, Amazon UK would use amazon.co.uk rather than amazon.com.

Consumers in certain countries often perceive ccTLDs as being more trustworthy than a .COM website. In China for example, citizens have a tendency to visit a .CN website over .COM websites. This could be due to language preferences or the locality of the website’s staff.

From an investors point of view, there are many people who do make a living from buying and selling ccTLDs. Usually that involves buying and selling the ccTLD of their country.

For example, a Canadian domain investor may own a certain percentage of .CA domain names. Some investors do well from owning ccTLD domain names and can build a steady income.

For someone who is new to domain investing, I’d would not recommend buying ccTLD domain names, as there is a higher risk in owning this type of domain than investing in a .COM domain name. Aside from this, you’re essentially restricted on who you can sell to.

A .COM can be sold to anyone, anywhere. However, if we take the .CA domain as an example, there won’t be too many people outside of Canada who would want to buy a .CA domain, so your potential market is far smaller.

Why TLDs Matter

The TLD that you choose to invest in has a big impact on the resale value of your domain name. As a rule, .COM domains are valued highest, followed by other TLDs such as .NET, .XYZ, .ORG and some ccTLDs such as .ME and .CO.

A perfect example of why TLDs matter is Porn.com. The domain Porn.com sold in May 2007 for $9.5million. In January 2008, Porn.net sold for $400,000 – around a 94% difference in value between Porn.com and Porn.net.

This is similar real estate. A house in The Hampton’s (our .com) is much more desirable than a house in Brownsville (our .net). Therefore, the house in the Hampton’s is much more expensive.

This won’t be the last real estate analogy that you see. There are many similarities between the domain name industry and the real estate industry. Both have rules and regulations, and both have their own “recipe for success”.

New gTLDs

In October 2013, the first of over 300 “New gTLDs” was created. There are plenty of individuals and businesses who complain that there are no good .COM domain names left. They’re right. It’s because of this reason that aftermarket prices for .COM domains are increasing out of the reach of most of these frustrated buyers with small budgets.

The New gTLD releases were billed as the savior of the Internet – the new .COM boom. Everyone will be able to afford these new gTLD prices, and small and large businesses alike will flock towards these new gTLDs and leave .COM behind.

I’m writing this in  2015, and so far this hasn’t happened. There are around 1400 new gTLDs which have been released, or are scheduled to be released. From reading many articles and statistics about new gTLDs, it seems that in general companies haven’t taken to them as expected.

I do believe that there will be some growth in extensions such as .XYZ, .LONDON, .CLUB, .NYC and .WEB but many of the others are struggling to attract new registrations.

I have avoided investing in these domain names, and have continued to invest in .COM domain names instead. I believe that consumers have been exposed to .COM domains for so long that many will not be aware that other gTLDs even exists. It’ll take many years of exposure and marketing for new gTLDs to get to the stage that .COM is at.

Take Overstock.com as an example. A few years ago, they purchased the domain name www.o.co and rebranded to O.co. After an unsuccessful couple of months, it turned out that www.o.co lost 61% of its traffic to www.o.com – a domain name that they didn’t own.

They quickly went back to using www.overstock.com after this failure.

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