From the $8M+ acquisition of Gold.com to the $15.5M buying price reveal of chat.com, several high-profile sales have drawn attention to the world of domain investing recently.
When Dharmesh Shah, co-founder and CTO of HubSpot, sold chat.com, he stated in a tweet that while he doesn’t usually sell domains when he does “it’s almost never at a loss”.
While profit isn’t Shah’s primary intention, the quick sale of chat.com — he bought and sold it within the space of 18 months — represents a particularly speedy realization of a multimillion-dollar investment. His comments on the sale came as no surprise to those in the industry. Domain names are valuable digital assets that tend to appreciate as time goes on.
Most entrepreneurs and many organizations own a small portfolio of domain names. Business intelligence and cloud-based services provider MicroStrategy, for example, owns over 2000 domains, and treats them as functional business assets for its many projects as well as investments, while David Teten, a venture capitalist and founder of Versatile VC, has talked about owning “about a hundred domains personally”.
Recent publicity around domain sales and acquisition marks a new era in domain investing, but domain names have quietly been growing into a new asset class for years. They offer a strong investment with a practical real-world use case and, often, a great return on investment when the time comes.
Understanding Domain Value
Domain names can be thought of as the virtual counterpart to property. They offer an online home for brands, and they’re also a strong investment if you know what to look for. This is probably a good moment to mention that, just like squatting property, domain squatting is illegal. This means buying a domain that matches a trademarked business name with the purpose of targeting the trademark holder. It might sound like a good way to flip a domain quickly and profitably, but it could actually get you in serious hot water!
Staying on the right side of the law, a memorable domain with a popular extension is like a Madison Avenue storefront. It’s eye-catching, memorable, and brand-enhancing. The potential sale price of a domain ultimately rests on its use for the right brand seeking to reach an audience online, which in itself is based on a few key characteristics of the domain. Here’s what to look for in a strong investment domain.
1. Top-Level Domain
Out of over 1600 extensions, also known as top-level domains or TLDs, only a few make reliable investments. Data from NameBio shows that in the last 30 days, 94.4% of the total value of domain sales came from the top 8 TLDs. .com remains predominant, accounting for around 70% of the value of all domain sales, followed by .net, then the currently surging .ai extension. Our own data from Atom.com confirms this – 86% of 2024’s sales were .com.
This exclusivity has come about because very few TLDs are recognized by customers and considered credible online. .com, .org, and .net have a three-decade legacy of use, while .io, .ai, and .co are increasingly familiar and trusted. The list of trusted extensions do vary by industry, and newer extensions like .ai, .io and even .xyz enter the mainstream from time to time, so knowing your audience and staying on top of trends in top industries are both important for successful domain investing.
2. Brandability
A TLD may determine the upper and lower limits of a sale, but what comes before the dot is hugely important. That’s because, unlike other digital assets such as cryptocurrency or NFTs, the value of domain names is baked into their genuine function to an end user — a startup or brand looking for a place to call home. Thus the brandability of the ‘name’ portion of a domain (the second-level domain or SLD in domain-speak) plays a huge role in its value.
Brandability comes down to the semantic association or meaning of the second-level domain. Single-English words are hugely valuable, and most of the biggest domain acquisitions are based on this pattern, as are compound domains with strong synergy or creative but coherent misspellings like Lyft or Tumblr.
3. Length
Shorter domains are generally easier to type and more memorable for consumers, making them hot property for brands. Across the web, the average domain length for the top 10,000 domains is 8 characters, while the top 100 it is 6. The recent acquisition of chat.com by OpenAI demonstrates well the premium value of a shorter domain: this ultra-premium four-letter domain currently redirects from chatgpt.com, shaving just three characters but adding enormous value for the company.
4. Trends
Lastly, industry trends both in venture capital and naming in general play a strong role in the value of domains. .ly domains (the county code TLD for Libya) had a moment of popularity as online tools such as Calendly used the -ly suffix to signal their purpose to their users. Naming trends also lead to creative misspellings, such as replacing ‘i’s with ‘y’s such as in Lyft, gaining increased recognition. Meanwhile, high levels of VC investment in particular industries, most prominently AI at the moment, but also health tech and fintech, can make domains with relevance to these industries highly valuable.
My advice to anyone investing in domain names is to never forget the end user, as they ultimately imbue a domain with its value. A strong landing page should emphasize how the domain’s brandable qualities will bolster a business, highlighting industry connections and the emotional evocations of the second-level domain.
The Domain Sales Market Continues to Grow
If there’s one domain extension that exemplifies the rise of the domain name, it’s .ai. The surge in AI startups, and a parallel surge in funding, has seen sales in this extension skyrocket tenfold in two years, from $878k in 2022 to over $9.2M in 2024 so far.
Whether you think AI is a bubble or not though, it’s clearly not propping up the domain market: $9.2M in sales represents just 0.1% of the total web domain sales market, estimated by some reports to be valued currently at $9.4Bn. With one-third of all business taking place online, it’s no surprise that this market continues to grow, at a 4.8% year-on-year average from 2017 to 2022.
Steady growth coupled with growing opportunities around emerging domain extensions makes domain names unignorable as an asset class. Shah implies that he doesn’t buy domains as an investment per se — his acquisition of chat.com was based on his belief in its utility — but he knows they won’t be resold for a loss if he doesn’t use them himself. It should be noted that there are costs associated with being a domain investor – you probably won’t be acquiring $15.5 million dollar domains like Shah, but you will still need to buy domains and pay for their renewal annually. Given the typical sell-through rate of just 2-3% per year for a domain portfolio, these expenses can add up over time. When you plan your portfolio, keep these costs in mind.
Evolving Investment Opportunities
The duality of domains means that while you could pick one up for a $20 registration fee right now, valuable, brandable domains are a scarce commodity. Every .com domain up to four letters long is registered and owned (all 456,976 of them), as is every 5+ letter single-English word, most common misspellings, and many synergistic two-word names to boot.
As the value of online commerce and branding grows, this scarcity drives up the price of domain names, ensuring that for the most part, they’re an appreciating asset. As this happens, the market evolves and alternative extensions become increasingly popular choices. We’re seeing this with .gg for eSports and gaming sites, and .xyz’s association with the crypto space.
The chances of you strolling up to a domain registrar and snapping up a domain worth thousands of dollars is about the same as stumbling upon a Jackson Pollock in a thrift store. Still, the ever-evolving market creates opportunities for strategic investors and domain investing is a skill that can be learned. By following the latest trends and tracking expired domains, building a domain portfolio is an accessible investment path for many people. You likely won’t see a million-dollar turnover in 18 months like Shah, but even when you consider acquisition and renewal costs, domaining has a lower barrier to entry compared to traditional models of investment such as real estate, offering opportunities for anyone with the base set of skills willing to put in some hard work!
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