Follow the Sale/Action: The Importance of Investing in Commercially Viable Domain Names

Michael Saylor made a more than interesting point approximately one hour into his DomainSherpa interview, when drawing a parallel between domain names from the perspective of commercial viability and the world of real estate by asking a straightforward question: why should a brick and mortar business establish a physical presence in 50 states if most of the action when it comes to sales takes place in New York?

As important as it is for the business in question to diversify, it is more vital not to spread itself too thin by allocating scarce resources in a manner which isn't conductive to... well, the elephant in the room: sales. Why leave a lot of sales on the table by not paying adequate attention to the sales generation machine that is New York?

The same principle is valid on the domain front because at the end of the day:

It's All About the Sale_

Far too few domain investors understand that after drawing the line, there has to be a sale in the equation in one way or another for any type of deal to make sense. Let us take a minute to think about why the end users all domain investors obviously hope to sell to would acquire a domain in the first place:

  1. To set up an online business on it or in other words, to... you've guessed it, sell!
  2. To create a marketing campaign rather than make the domain the main online presence of the business in question but again, why would a company decide to create a marketing campaign in the first place? To sell!
  3. To correct an earlier branding mistake, for example when a company that settled for a lesser known TLD finally decides to upgrade to dot com. Why? Once again, because they now understand that they were losing a lot of traffic and ultimately... need I say it, sales.

No matter which angle you choose to view the situation from and no matter which perspective you choose to see it through (from the perspective of a domain investor pitching a name to and end user, from the perspective of a marketing specialist pitching a campaign idea to that end use, etc.), the equation becomes nonsensical unless there is a clear sales generation perspective for the end user in question.

Are All One Word Dot Coms Gems?

Of course not! Contrary to what a lot of newer investors mistakenly believe, there is more to a domain than the arbitrary category you choose to include it in. If you for example follow the drops, it shouldn't be all that difficult to come across deleted one-word dictionary word dot coms that you can have at the regular registration fee.

Unfortunately for your end user sales perspectives, it will be an obscure word with zero commercial appeal and as such, the likelihood of ultimately being contacted by an end user isn't that much greater than with a random 5L dot com domain registered during the 2015-2016 short domain mania and eventually dropped.

The Path of Commercially Unviable Domains in the Ecosystem

The world of domain investing isn't dominated by robots, at least not yet! Until that changes, human nature will continue doing its thing and it isn't the least bit difficult to understand the appeal of domains such as obscure one-word dictionary term dot coms. More often than not, the investors who register such domains don't see it as registering a commercially viable domain but rather as hand registering a lottery ticket-type domain.

Deep down inside, they at least hope that by owning a domain about which they can say that it belongs in an impressive category ("one word dot coms" for the dictionary term in question or "short domains" for the previously mentioned 5L dot com domains) will somehow lead to profits. And while the odds tend to be stacked against such acquisitions, generating profits is hardly impossible thanks to... drum roll, please:

The Greater Fool Theory

Yes, the greater fool theory represents an excellent metaphor when it comes to illustrating the path commercially unviable domains frequently end up on. More specifically, a lot of investors do not think to themselves that they are snagging a commercially viable name that businesses will line up to buy when for example hand registering an obscure dictionary word dot com.

Instead, whether they admit or acknowledge it or not, something along the lines of the following thought process takes place in their brains: yes, I am a fool for spending money on this "shiny" name that doesn't have commercial potential but I am confident that a greater fool will come long down the road and but it from me.

Does this happen?

Of course... sometimes.

Think of it as the blind leading the blind or if you will, the business illiterate selling to the business illiterate. Just like there are beginners who manifested the willingness to essentially hand register a lottery ticket without giving too much thought to whether or not obvious end users exist or at the very least whether or not this domain can somehow lead to a sale, there are beginners who might be willing to buy these assets from them on the reseller market at a price that leads to the initial registrant being happy with the sale.

What Next?

Needless to say, the new buyer would love nothing more than for yet another greater fool to come along and buy his hot potato but there is a limit as to how far this game can be taken and eventually, disappointment kicks in upon the realization that while the occasional greater fool does exist for such domains, the investment model is hardly viable.

As such, domains bought on the reseller market oftentimes end up being sold at ultra-firesale prices during portfolio liquidation events (perhaps even at prices per unit lower than the registration fee) to... you've guessed it, yet another proverbial fool but not necessarily a greater one. That person may very well do poorly himself, with our obscure dictionary word dot com finally getting dropped, only to be picked up by yet another dreamer such as the first person we have started our string of examples with.

Does This Seem Rather Incestuous?

It most likely does because... well, it is. To this day, despite the fact that new investors have far more in the way of learning materials at their disposal than those before them, incestuous "reseller market only" business models which do not revolve around commercial viability and much-needed product/service sales eventually occurring in the life cycle of the domain unfortunately persist.

Domain names that seem to be shortcuts to success (the idea of owning a one-word domain but only paying the regular registration fee, even if that on-word domain is an obscure dictionary term with zero commercial appeal) are still beginner magnets and as strange as it may seem, entire ecosystems are built around them.

As important as it is to be optimistic in life, it's a matter of common sense to also be pragmatic and acknowledge that as far as the domain investing industry is concerned, it is difficult to believe that such let's call them incestuous ecosystems will be going away. For every beginner who went down this road and finally left the industry bitterly disappointed, it isn't difficult to find another enthusiastic beginner who contributes to the perpetuation of these vicious cycles.

Realistically speaking, the only thing opinion formers in the domain investing space can do is try their best when it comes to educating beginners with respect to topics such as the importance of investing in commercially viable domains, knowing that it's impossible to reach everyone and that as unfortunate as it may be, many investors have to learn through their own mistakes.