Sunday, February 14, 2010

How and when to buy generic domain names

When and how should you buy an existing generic domain name for your business?

In Branding on the Internet I discussed what you should call your web site, the short answer is it should match your business name, the longer answer is in that article. Part of the branding article was about using additional “Generic” or product related domain names for extra qualified leads to your web-site, hopefully leading to more business.
My advice, then, as now was:
“You know your business and how well a sale does for you. If your average sale netts you $1,000 profit, then an extra domain name only needs to bring in one more sale every few years to pay for itself. If your average sale netts you $10 profit, then that extra domain name needs to bring in 4 or 5 extra sales a year to pay for itself. Stop and think what your potential customers will be looking for and try to find the right domain name(s) for them to find then register as many money making names as your budget allows.”
That article assumed you would be registering previously unregistered domain names, but what if the generic name you want is owned by someone else? Many people give up at this point, but it may well be that you can still acquire it.
If the name is in use for a website, or a mail address, you are unlikely to get the name (There are exceptions, I'll talk about them one day), but if it's just parked you may be able to acquire it. You're probably going to need to spend some time and cash on the purchase, but as long as that price is reasonable in terms of the business the name will bring in, that may be a sensible step to take.

In the earlier advice I assumed that a domain name would cost you $40-50 per annum to run, obviously there are both cheaper and more expensive options, but that's reasonable. Registration of $25.00 PA, domain redirection free or a simple 1 page site for another $10 and maybe an hour of your time to administer the name each year. To decide if you're prepared to buy a domain name for your business, treat it as just another capital purchase and to decide if it's worth it apply the same criteria as any other optional capital investment. You need to know how much extra business you expect it to bring in and you need to know what your cost of capital is and add that to the annual running cost. To make the figures easy I'll assume 10% cost of capital and assume that you are going to pay 3,000 for the name you want, that raises the annual cost of the name from $50 to $350.00 per annum and the relative figures are:
If your average sale netts you $1,000 profit, then the domain name only needs to bring in 1 more sales every two and a half years to pay for itself. If your average sale netts you $10 profit, then that extra domain name needs to bring in 35 to 40 extra sales a year just to pay for itself.
You can run these figures in reverse to find out what's the maximum you can afford to pay for the name. One caveat is that buying a name is is significantly greater investment in capital than just registering one as an experiment and abandoning it if it doesn't perform, when you buy the name you need to be more confident that it will actually bring in sufficient extra profit to pay for itself.

Having decided that you should attempt to acquire the name and having a rough idea of what it's worth, you need to find if it's available. There's only a few options here:

1. The name was registered for a project that is still going to happen

This is very much the same situation as a developed site.

2. The name was registered for a project that is not going to happen anymore

They might well be prepared to part with it, expect the early stage of the negotiations to be “interesting” especially if your contact was the major proponent of the abandoned project and still has an emotional attachment.

3. The name was registered as a blocking move to stop competitors having it, and you're a competitor

OK, you're not getting it, move on.

4. The name was registered as a blocking move to stop competitors having it, and you're in a different industry, or otherwise not likely to become a competitor.

Finally you have an in. Blocking registrations are risky as they can be subject to dispute procedures and the current owner's competitor might end up with the name. If you develop a genuine site on it in a different industry, it is unlikely to ever get to the current owner's competitor and giving it to you safeguards their position.

5. The name was registered as an investment.
This is the easy option. It's available, the only thing you need to worry about is finding a price both parties can accept.

6. The name was registered for personal reasons.
  • I have my surname registered as a domain name and use it for email, others have their given name.
  • A keen sports fan may have the name of their favourite sport or sports star
  • A town or city name
  • Their favourite food
These registrations are primarily emotional, acquiring and retaining the name was not rational and even if they've held onto the name for 10 years and never made a web site of it they aren't likely to give it away.

7. The name was registered by someone who has vanished and is not contactable.
This is actually one of the above cases, but you are unlikely to be able to acquire it until the registration expires & that's a whole different problem.

Your first job is to find out which of these cases applies. Your first step in that job is to get the contact information for the domain name. If the parking page doesn't give it to you, domain names ending can usually be checked at your registrar or at the Domain name commission while other domain names can usually be checked at any of the various “whois” services on the web.

You probably think the second step is to contact the registrant (current owner). It isn't, your second step is to find out as much about the registrant as you can. For example, if you find out that I'm the registrant you could find this blog and acquire an understanding of how I feel about domain names, find my price-list at Hot Domains and if the domain name you want isn't listed (why?) you can at least see what I want for similar domains. The more professional of my competitors can usually be found in much the same way.
Next, you need to try and understand why they might have it. If it's owned by someone you recognise as a domain name investor there's a better than 90% chance they have it as an investment, but the other 10% may be that they have it for a project. If it's owned by a small business in a different field to the name you need to ask why? For example, I have the domain name matching my surname, it's easy to understand why I should do that, and no, it's not for sale. I also have a blog called “¿Que?” on the domain name, your approach if you want that is going to need to be different to the one for one of my undeveloped domains, but it's not a core name to my business, just one I liked for a blog I was setting up.

Now contact them. I suggest you politely ask if the name is available. You can ask them what their plans are for the domain name. How much more information you give depends on what you worked out in above. If they are definitely non-competing with you, explain why this is so, and maybe even tell them a little of what you plan to do with the domain. If you're 100% sure they're an investor it's OK to ask about a price at this stage but otherwise leave it until later, By the way, don't tell an investor what you intend doing with the name if you want it for your core business, if they are any good they'll work that out, but if it's for a lower value business than your core one it can be worth mentioning. Don't name a price or make a firm offer, many people have unrealistic views about the value of generic domain names, either far too low or far too high. Most of the time I don't even respond to extreme lowball offers as it's very difficult to move them to what I'd be prepared to sell for and extreme highball offers just tend to get a “Yes, that's fine” response.

If you find that its not available it's time to think of another domain name and repeat the process.

Now you know the name is available it's time to negotiate a price, and that's a whole different article; but remember the salient point, its value to your business is the number of additional sales and profit it will make the business and the price you pay for it needs to be less than that. One suggestion though, if a price is mentioned and its very low in comparison to your perceived value of the domain name:
  • If it's from a domain investor, ask yourself “Why?” and do some more due diligence
  • If it's from someone else, don't risk getting them annoyed with you by trying to haggle and having them refuse to sell, just say that's a little more than you expected and ask if you can have a few days or a couple of weeks to raise the cash … who knows, they may be so pleased to see the back of it they drop the price for a quick sale. Of course if it's a real bargain, just buy it.

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