Digital Real Estate: An Introduction To Domaining
Digital Real Estate: An Introduction to Domaining
Simply put, domaining is the business of buying, selling, developing and monetizing Internet domain names not for primary use as a website, but with the goal of profiting from the revenue generated by increased web traffic.
A great metaphor for domaining is to compare it to real estate investing. And when investing in real estate, there are only three things that you should ever consider and they are as follows:
1. Location
2. Location
3. Location
I’m guessing you get the point.
Just in case you didn’t, location is the most important thing you should consider when investing in real estate, regardless of whether it is physical or digital. You have to consider its location if you ever intend on receiving a positive return on your investment. This is because regardless of what the investment is, the profit is made at the purchase or entry point and not at the sell or exit, because the purchase time and price is the only thing you can control.
When buying domains, your primary concern is location, because if you aren’t in a good location you won’t get any web traffic and if you don’t get any web traffic then your domain is pretty useless as an investment.
So now lets go through process of domaining from start to finish.
1. Choosing a Domain Name
When choosing a domain name, it should be a name that is natural and would be something that a person would genuinely type into a search box or a web browser’s address bar.
I would personally advise against buying domain names containing trademarks (unless you like getting contacted by lawyers) and also typos. This is because while both of these will generate lots of traffic, domains containing trademarks are harder to sell and most browsers/search engines correct or auto-redirect typos.
Another tip is to think of a niche market that interests you and focus on domains in that arena. This is because domain portfolios are more valuable if they are consist in content. For example, a domain portfolio containing 30 domains related to various technical degrees is more valuable than a domain portfolio containing 30 domains with non-related topics. This principle is similar to owning several pieces of real estate in a specific area versus several properties spread around the nation.
2. Choosing the Domain Extension
I would recommend only buying the .com version of your domain initially simply because even though there are other options (.net, .us, .biz, .org, etc.) .com domains will forever be the most valuable. Also, if you are going to buy all extensions for your domain, sell them all as a package.
For example if you own weddingshoes.com, weddingshoes.net and weddingshoes.biz. You would never want to sell one of these individually, because that would weaken your domain portfolio’s value. Note: WeddingShoes.com is a great example of a parked page. It gets about 1,300 hits per day.
3. Valuing Your Domain Name Prior To Purchase
The simplest method that I use for estimating a domain’s value prior to the actual purchase is to use Google’s Keyword Tool. Using the keyword tool, you can type in your potential domain name and view whether that keyword is trending in search volume and how much advertisers are paying per click for ad placements. Of course, if your keyword is popular with advertisers then the likelihood that the domain name will also be popular with web surfers is also high.
4. Purchasing Your Domain
This is the most important step because how much you pay for your domain and the domain hosting company’s customer service are key to successful domaining. I pay between $2 and $10 a year for my domains depending on the extension and wouldn’t advise paying any more than $10 initially. Keeping in mind that you want to buy a domain that has never existed before and not a resell domain which cost $60-$70 on average.
As far as who to buy your domain from, there are several players in this arena, but I would go with one of the “majors” simply because they are more reliable, have lower costs, provide better hosting services, and have excellent customer service. Reliability is the biggest thing when domaining.
The majors are 1and1.com, GoDaddy.com, Network Solutions.com, Register.com, SnapNames.com and Moniker.com (I recommend 1and1.com, because I use them for all my purchases and hosting and I’m open to discuss my experience with them over the years. GoDaddy.com has lots of rare domain extensions. Moniker.com and SnapNames.com always have great domain auctions.)
5. Monetizing the Domain
There are three main ways to monetize a domain 1) use a domain parking service, 2) park the domain yourself, 3) make a website out of the domain. I will only discuss the first one in this introduction.
Domain parking is the process of forwarding you domain to a company who provides keyword based ads for your domain and in return share part of you ad revenue. This method is pretty passive and can be setup 20 minutes after purchasing your domain. The domain parking services that I can recommend are provided by GoDaddy.com, Sedo.com and Parked.com. As of right now Parked.com is my favorite because the revenue per click is higher than Sedo.com and Parked.com’s templates are very customizable.
6. Domain Exit Strategy
There are three domain exit strategies. The first is to return the domain to the domain host within 5 days of trying the domain out and get your money back (this is called “domain tasting” and you shouldn’t do it to often), the second is to sell the domain in the secondary market using a domain auction site and the third is to not renew your contract for the domain at the end of the contract year.
I recommend selling the domain in the secondary market simply because you will at least get your investment plus a little extra due to the fact that the average price of domain resells is $30 and that amount is still a better return on investment than letting the domain just be canceled at the end of the year.
Below I will go through a few real world scenarios
Below Average Real World Scenario:
The below average domain will get about 1,000 hits per month and about 1% of those who visit the domain will click an ad or about 10 people. At $0.12 per click that is $1.20 per month x 12 months equals $14.40 a year. Which is a profit of $4.40 per year or a 44% return on your $10 investment. Note: The amount per click and click rate is below average when compared to most parking services.
Average Real World Scenario:
The higher quality domain will get about 3,000 hits per month and about 10% of those who visit the domain will clock an ad or about 300 people. At $0.35 per click is $105 per month x 12 months equals $,1260 a year. Which is a profit of $1,250 per year and at this point the return on investment isn’t really relevant. Note: The amount per click and click rate are the average experienced at most parking services after optimizing your keyword or when self-parking your domains.
Above Average Real World Scenario:
The higher quality domain will get about 15,000 hits per month and about 15% of those who visit the domain will clock an ad or about 2250 people. At $0.35 per click is $787.5 per month x 12 months equals $9,450 a year. Which is a profit of $9,440 per year and at this point the return on investment isn’t really relevant. Note: The amount per click and click rate is above average experienced at most parking services and can normally be experienced if you 1) optimize your keywords for higher paying ads, 2) optimize your parked page for search engines, include domain related content like articles and/or 3) self-parking your domains and eliminate sharing revenue with a parking service.
While the above scenarios are merely examples, domains can range from making $0.35 per month to making thousands per month it just depends on how well you choose you digital real estate. Also, keep in mind that most domainers own multiple domains so even small amounts add up.
Conclusion
There have been several times when I have bought a domain which I thought would be a winner, but turned out to be a dud. In the beginning, I focused mostly on typos and trademarks. Lesson learned. At this point I tend to only purchase groups of inter-related domains in niche areas, buy typos only if I think they will be profitable in the future and don’t buy any trademarked names.
Also, domaining should not be done with money you may need in the future, because it is pure speculation and is not to be likened to stock, bond, commodity or other investments especially if you are just starting. However, if this subject interests you, it can be extremely profitable considering the minimal initial investment of a few dollars and maybe 2-5 hours total. Domaining is definitely a means of making digital dollars that isn’t time intensive and is as close to passive income as you can get.
Image Source: Flickr user Piestobis
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