Smart investors acquire domain names that are generic and have intrinsic value either for their semantic meaning or their potential brand value. It’s a technically savvy twist on the classic buy-and-hold strategy for any investment. Take real estate for example - with a smart real estate purchase, there’s always the option to develop, lease, or to hold out for the right buyer.
Premium domain names offer tremendous opportunity, both as assets and investments. Businesses should look at domain acquisitions as being similar to virtual real estate; not just as an expense, but as an investment with future resale value in the event that the company needs to pivot, or as added value in your exit strategy or future fund raising. Sometimes a domain name can make or break a successful startup round.
Investors may feel more comfortable making an early stage investment in a startup that has a strong domain name as collateral, or at least as a valuable asset on their books. When we were presented with the opportunity to acquire White.com last year, these are the things we, Media Options, kept in mind. Despite having to pay a 6-figure price tag to purchase the domain name ourselves, we knew that a rare domain name like White.com was worth it. We didn’t need White.com, but we saw it as a good investment for a buy-and-hold strategy. Eventually the right offer would come along or we’d find another use for it or a way to monetize its traffic.
Despite multiple 6-figure offers right from the get-go after purchasing it, we had plans to hold the investment for a larger return. This holding strategy was our intention at the time of purchase.
Understanding a Domain Buyer’s Perspective
As a domain name broker, startups and other business owners in need of a domain name or new brand constantly approach us for our domain acquisition service. Sometimes, they arrive with a list of acquisition possibilities already in hand. Other times they come to us for navigation and assistance, looking for suggestions or to eliminate domains from their potential acquisition list.
Then we reach out to the various domain owners on that list to negotiate the acquisition. Based on the quality vs. price comparison of the domain name possibilities, our clients make a decision about which domain to move ahead with. In more cases than not, a buyer has multiple options, and your domain is just one of them. Just because a broker might tell you that a client has a $100k budget for a certain type of domain, doesn’t mean your domain is worth $100k just because it might meet that buyer’s criteria. Remember they have a list of options, and your domain has to stack up against those other options that buyer may also be considering.
Our involvement in the domain acquisition process gives us a unique insight into the mindset of both the buyer and seller of premium domain names across numerous situations and negotiations. Various parties interested in White.com approached us: startups, marketing firms, as well as other investors. To them, White.com may have been just one domain on a list of possible acquisitions. We even assisted some of those potential buyers in finding a different domain that was a better fit in terms of price or application.
There were a number of potential buyers who, from certain perspectives, could have been said to be a “perfect fit” to buy White.com. However, most of them didn’t meet the criteria that we were seeking, particularly the budget. From our perspective, White.com was an investment we made for the long term, to hold for a buyer with a sufficient budget, who fully understood that the White.com brand could offer something that no other domain could offer.
It’s important to note that not every domain offers this opportunity and not every seller is realistically in this position. Take that under advisement if you are presented with an inbound sales opportunity. Often times, your best offer for a domain name is likely the one you have right now.
Common Seller Misconceptions
With or without a domain broker’s expertise, a startup domain buyer will typically have a list of options when reaching out to a domain owner. Domain owners often see their investment as unique and valuable, and rightfully so. Also, they often sense they have the upper hand in negotiating with an inbound lead. And this is often true. However, one thing you should always keep in mind is your goal. Why did you buy this domain? If the end goal is to sell your domain name, an inbound lead requires delicate care, research, and handling. When approached by a buyer, a seller’s gut instinct can sometimes be to jack up the price as high as possible.
However, your perceived advantage may not be as great as you think it is. Often a buyer has a budget and a list of alternatives. The buyer may know more about you than you do about them. We were aware of this with White.com, so we listened to each buyer attentively. When we identified buyer budget constraints, we maximized the opportunity by offering alternative domains for acquisition. Not only did this allow us, a domain broker, to capitalize on each lead in a way others may not be able to, but it also gave us a polite way of saying “no” without intimidating the buyer or scaring them away, just in case their budget suddenly changed (as it often does). An additional element for sellers to keep in mind: buyers in your domain’s space may affect your window to sell.
After all, if a startup is about to brand in your domain’s generic space, then that may make the circle of potential future buyers smaller, even though you owned the domain first. For example, if you own FastSale.com and a company launches at FastSales.com, you may think you've hit the jackpot. However, it’s important to keep in mind that realistically, as far as a sale is concerned, they have the leverage, not you. Because if they are successful at branding FastSales.com, then it’s not likely that anyone else would attempt significant rebranding or building a brand at FastSale.com due to the potential for brand confusion with the plural.
So if FastSales.com doesn’t buy your domain, you may just end up stuck with it. Of course you can still negotiate aggressively, but be careful not to push too hard or burn that bridge. Investors or domain owners who have held a domain name for an extended period of time can sometimes develop an emotional attachment to the idea they had when buying the domain, as well as a preconceived dollar figure they think the domain should sell for.
Be aware of this and check your preconceptions as you enter into a conversation with a buyer. Is your idea realistic? Why? Based on what? Are there comparable sales? Does my traffic justify my expectation? Are there other data metrics such as search volume to justify my price point? If you don’t have a good answer to those questions, perhaps you need to lower your price expectation in order to increase your chances of a sale. Finally, premium domains are investments where ROI is a goal, one way or another.
Let’s not lose sight of that. There are times when a bird in the hand is indeed worth two in the bush. That is ultimately why we sold White.com. This was a domain we owned, and felt was an ultra premium long-term domain investment. As ultra premium as it is, when the right buyer approached us and we were able to elicit an offer that stood above the rest, we entered into a serious conversation. We felt that while the domain could have garnered an even higher price, at the end of the day, it was an efficient and profitable sale, concluding with a satisfied end-user! There was an opportunity cost to not making that sale.
If we had not closed the deal we would not have been able to make other acquisitions which leveraged up the actual profit on that particular sale. One sale financed the acquisition of several other names which also sold at significant profit, thereby increasing the profitability of the original sale (White.com) even further.
In the end, this is how a domain investor grows business successfully: leverage. Preferably, leveraging your own sales to increase the size and value of your portfolio, as opposed to leveraging debt in order to grow the size of your portfolio. Although both options are viable, debt is much more dangerous if you are not careful and do not maintain a steady income stream, such as through parking in our real estate comparison.
Often, the initial conversation with a potential buyer is the most crucial step in the negotiation process. Find out what their goals are, what their budget is, and any other information you can garner. Don’t try and sell to them or bully them; try and find out if you have something that can help them meet their goals and what value they place on that.
Maybe there are other points which also contribute value from their perspective and those points could help you get more out of the sale, such as timing, transfer, escrow, privacy, etc. The common perceptions and misconceptions that we discussed above, as well as the knee-jerk reactions of most domain owners when receiving an inbound inquiry, are a significant part of why an experienced domain broker adds value to any transaction, even if a buyer approaches you directly.
Eliminating emotion in order to better understand the value of what you’ve got and the needs of the buyer at hand is a critical step in successfully concluding the sale of a premium domain name. With White.com, we were inclined to hold it. We felt it could bring in a larger dollar figure than what we ultimately sold it for (although we were quite happy with the sale nonetheless).
We turned down multiple offers in the lower six figure range. However, we had a standout offer in-hand, and the buyer had a compelling interest and plan for the domain. We had an opportunity to sell on an inbound lead instead of utilizing our time to court a new buyer. We also had an opportunity to put the capital back to work after turning a healthy profit on the investment. The final decision was based on a careful analysis of the domain value, the buyer’s goals (in this case a fast turnaround), our goals, as well as the opportunity cost or benefit of making the sale.