DOMAIN LAB
FIELD NOTE 01
WHAT EXACTLY IS A DOMAIN?
A domain name is a human-readable address on the internet. But if you are thinking about domain investing, that definition is not enough.
A domain can be a web address, a piece of intellectual property, a brand asset, a category-defining phrase, or an asset held for future use. The important distinction is that these are not necessarily the same thing.
A beginner entering the domain market therefore needs to understand what is actually being acquired.
A DOMAIN IS NOT A WEBSITE
The first distinction is simple.
When you acquire a domain name, you are not automatically acquiring a website, company, software product, trademark, customer base or social-media account.
You are acquiring control of a registration in a particular domain-name system.
For example, owning CellularComputers.com does not mean owning a company called Cellular Computers or having rights to every use of those words. It means controlling the domain registration, subject to the rules of the relevant registry, registrar and applicable law.
That distinction becomes important when assessing a domain as an investment.
A strong name can have value even when nothing has been built on it.
Conversely, a domain can have a functioning website attached to it and still be a poor domain investment.
The underlying name and everything built around it need to be assessed separately.
REGISTRIES, REGISTRARS AND REGISTRANTS
Domain investing becomes much easier to understand once the basic infrastructure is clear.
A registry operates the database for a particular top-level domain. For example, Verisign operates the .com registry.
A registrar is the company through which a customer registers and manages a domain. GoDaddy, Namecheap and other registrars provide these services.
The registrant is the person or organisation holding the registration.
In ordinary language, investors often say they “own” a domain. Technically, the situation is closer to holding contractual registration rights and control over the name through a registrar.
That distinction matters because domain ownership is not quite like owning a physical object.
Your control depends on maintaining the registration, keeping the account secure, paying renewal fees and complying with the rules governing the domain.
REGISTRATION IS NOT THE SAME AS ACQUISITION
There are two broad ways investors encounter domains.
The first is registering an available domain.
If a name is available for registration, you can register it through a registrar by paying the applicable registration fee.
The second is acquiring a domain that is already registered.
This is the aftermarket.
A domain may be offered directly by its current registrant, listed through a marketplace, sold through an auction, or become available through an expiration and deletion process.
The prices can be radically different.
A domain that costs a normal registration fee when available may have an aftermarket value of thousands, tens of thousands, or considerably more if it has characteristics that make it attractive to potential buyers.
This is one reason the domain market is unusual: the cost of obtaining a name and the value of the name can be completely unrelated.
THE AFTERMARKET
Most commercially interesting domain investing happens in the aftermarket rather than through ordinary registrations.
The aftermarket exists because desirable names are scarce.
There is only one BiologicalProcessor.com.
If somebody already controls it, another buyer cannot simply register an identical .com.
They have to negotiate with the holder, acquire it through an intermediary, or wait to see whether it eventually becomes available.
That scarcity creates a market.
The aftermarket includes several mechanisms:
— direct sales between buyers and sellers
— domain marketplaces
— brokered transactions
— auctions
— expired-domain auctions
— investor-to-investor transactions
— negotiated private acquisitions
The mechanisms differ, but the underlying principle is the same: the domain is already controlled by someone else.
RENEWALS MATTER
A domain investment is not a one-time purchase.
Registered domains generally require ongoing renewal.
That makes portfolio management important.
An investor holding 10 domains has a very different carrying cost from an investor holding 1,000 or 10,000.
Renewal decisions therefore become part of investing.
A domain that looked interesting when acquired may become less compelling several years later. A category may fail to develop. A term may lose relevance. A better use for the capital may emerge.
The question is not simply:
“Was this a good purchase?”
It is also:
“Would I buy this domain again today at its current carrying cost?”
That is a much more useful question.
EXPIRY AND DELETION
Domains can also leave the hands of registrants through expiration.
The exact process varies, but an expired domain does not necessarily become immediately available to everyone.
There can be renewal periods, redemption periods, auctions and other stages before a domain is eventually deleted and potentially becomes available for registration again.
This has created a substantial market around expired domains.
However, an expired domain is not automatically a bargain.
Its history needs to be investigated. A domain may have previously hosted a legitimate business, a spam network, an abandoned project or something else entirely.
The fact that a domain is expiring tells you almost nothing about whether it is valuable.
WHAT MAKES A DOMAIN AN ASSET?
A domain becomes interesting as an asset when someone has a reason to want that particular name.
That reason might be commercial.
It might describe a product, technology, service or category.
It might be exceptionally memorable.
It might correspond to an established term.
It might become useful to a company entering a new market.
Or it might capture language that is currently early in its development.
Consider names in the Digital Philosopher collection such as NeuralCredentials.com, DigitalTwinRights.com or BiologicalProcessor.com.
Their potential does not come from the fact that they are domains.
It comes from what the words describe and who might eventually need those words.
The domain is the container. The underlying language is what gives the container meaning.
NOT EVERY DOMAIN IS AN INVESTMENT
This is perhaps the most important lesson for a beginner.
The fact that a domain is available does not make it an opportunity.
Millions of domains can be registered. Only a small proportion have meaningful aftermarket demand.
A domain can sound clever without being commercially useful.
It can contain popular keywords without forming a useful phrase.
It can describe an interesting concept without having a plausible buyer.
It can also be technically available while carrying trademark or other legal problems.
Domain investing is therefore not primarily a game of finding words that sound good.
It is the process of identifying names for which there is a credible reason that another party may eventually want control of the name.
THE BASIC MENTAL MODEL
A useful way to think about a domain is through four questions:
— What does the name mean?
— Who might use it?
— Why would they want this particular name?
— How difficult would it be to replace?
Those questions are more useful than simply asking whether a domain “sounds good.”
A domain can be valuable because it is descriptive, memorable, scarce, commercially relevant, culturally significant or unusually well positioned within a developing category.
The strongest domains often combine several of these qualities.
THE DOMAIN AS A PIECE OF LANGUAGE
There is another reason domains are unusual assets.
A company can change its logo.
It can redesign its website.
It can rewrite its product.
It can change its advertising.
But changing the name of the company, product or category can be considerably more consequential.
A good domain can therefore function as a compact piece of language with commercial utility.
That is why the domain market sits somewhere between technology, property, branding and language.
You are not buying a website.
You are acquiring control of a scarce expression in a particular digital namespace.
The investment question is what that expression may be worth to somebody else.
DOMAIN LAB
THE RESEARCH BEHIND THE NAMES.