educational

Domain Investing

Monte Cahn
"Back in my day, I had to walk five miles to school in the snow barefoot..."

Who hasn't heard the resident elder among our friends and family pontificate on the good old days? Well, in this time of rapid web growth, you may want to brush up on your retro domain industry lingo and start working on a few tales from the gold rush glory days. Whether you're age 28 or 82, if you owned any sort of domain portfolio earlier than, say, last year, you've practically reached statesman's status in a new era of domain investing.

As cutting edge as domain investing was back when Al Gore was hard at work inventing the Internet, the industry has remained relatively status quo until the past few years. The dot-com bust, of course, slowed development across many Internet-related industries, but only recently can it be said that the domain investing market has officially grown up. When ancillary services such as intellectual property law, escrow services and appraisal services show up, you know you've got the infrastructure of a full-fledged industry — often referred to as domain asset management. Oh, and the million-dollar price tags don't hurt, either.

Such activity is drawing interest from a variety of nontraditional domain owners. Individual investors who bought one name 10 years ago may be sitting on a small gold mine, and they're starting to realize it. And on a bigger scale, investment companies and private equity firms already have begun to make a habit of buying domain portfolios outright, attracted by the upside in appreciation and income-generating monetization channels.

Brand As Investment
Corporations are paying attention, too, and are active in both defensive moves (i.e., registering their brand in .mobi, for example) and offensive maneuvers. In the brave new world of domain asset management, growing your brand presence becomes an investment strategy.

As online real estate becomes more valuable, speculators, investors, business owners and marketers alike are now in the same boat, eyeing the same assets. The increased transaction interest also has increased the need to accommodate buyers and sellers with a way to generate sales. In addition to the entry of aftermarket brokerage companies, such as Sedo, Afternic and Moniker, several online exchange services also have arrived, giving domain owners many new options for listing and marketing their virtual real estate.

The result of this increased interest in buying and selling domains, and the ready availability of the tools and professionals available to make it happen, is a steady march of asset appreciation and ever-higher prices for marquee names. With that comes the need to make smart choices and a whole new level of business interests. Taking a risk at $100 is a little different from taking a risk at $10,000 or $10 million.

In turn, the domain industry has responded with a breadth of services that certainly appear to signal that this new marketplace is alive and well. Take a look at some of the complimentary business lines that have become critical for savvy domainers — and just plain smart business — over the last four years.

Financing: Being able to appraise virtual property is the first step to being able to use it as collateral for financing. In some cases, lenders will grant proceeds up to 60 percent of the appraised value of the domain assets. Be sure to find a reputable appraisal service that is recognized by the IRS.

Monetization: Like any asset, domains should yield income on an ongoing basis, as well as appreciate. Highly monetized domains also are more valuable on the open market.

Appraisals: With the rapid growth in the current domain market, determining the true market value of assets is more important than ever. In addition, appraisals are now being used for estate planning, determining financing collateral and more.

Intellectual property law: From trademark regulations to privacy issues and safe harbor status, dealing with legal considerations regarding domains is a matter of course for today's domain investors.

Escrow services: As the deals get larger, so do the stakes and the opportunity for fraud. More and more domain aftermarket sales are using escrow services to ensure a smooth and legitimate transfer of assets.

Stealth acquisitions: For strategically sensitive moves, it's not always ideal for competitors to know that you or your company are on the market for a certain domain or portfolio of domains. Stealth acquisition services help maintain your competitive edge.

Privacy services: These services allow you to protect yourself from identity theft by keeping your WhoIs records private.

Live Auctions
A relatively new phenomenon, the live domain auction, is creating a stir both inside the domain industry and out, as some of the highest-value names are auctioned off live and in person.

The fact that the online world can go offline for large transactions is yet another indication that these are high stakes and the industry has arrived.

To date, only two well-known domain auctions have occurred. More auctions are in the works, and the first auction produced in partnership with the World Association of Domain Name Developers took place Oct. 27.

Many industry observers consider this event to be one of the best validations for the domain industry and one of the purest forms of a free and open market. With a live auction, buyers and sellers come together in one place and literally let the market decide what a given domain is worth.

As the industry continues to evolve and mature, many investors will be facing more and more complicated negotiations and business dealings.

With the experience most domainers in the adult industry have, you've probably seen it all. But the stakes are getting higher.

Whatever your domain investment goals are, always do your research and be sure you're doing business with a trusted company or partner. Luckily for all of us, the industry has come into its own, and the tools and resources are in place to provide the consultations and services you need to make good decisions in the new world of domain asset management.

Monte Cahn is the founder and CEO of Moniker, the first domain asset management company to enter the market. Moniker holds the industry's highest customer-retention rate and generates the highest average price for aftermarket name sales.

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