Domain names – the address of a website – are an increasingly prominent component of any business’s intellectual property asset base.
Just how strategically important and commercially valuable are these domain names? What is their actual worth versus other intangible assets?
Trade Mark-Linked Domain Names
Where the domain name is a direct extension of the business’s principal trade mark (e.g. tesco.com), it follows logically that the domain’s value is itself a direct function of the trade mark and overall brand value. They can only be viewed as part of an inseparable intangible totality.
For this reason, trade-mark linked brands, while doubtless very valuable, do not provide meaningful insight into the value of domain names as separate entities in and of themselves.
Generic Domain Names As Bellwethers of Inherent Value
It is fairly common knowledge that it is impossible to monopolise a generic (or purely descriptive) word or phrase at a trade mark level; it is peculiar then, at least from a legal standpoint, that generic terms can be monopolised within the sphere of domain names.
These generic domain names cannot have trade mark counterparts, and therefore provide a useful proxy for the inherent value of a domain name in and of itself (rather than as a function of overarching brand value).
The Tech Bubble
Before the tech bubble collapsed in the early 2000′s, generic domain names were big business. A case that exemplifies just how high the stakes were in the 1990′s, as individuals and businesses alike scrambled to register all manner of generic domains, was the protracted litigation saga that surrounded sex.com. The facts in brief: the domain was registered in 1994, fraudulently transferred in 1995, and by the late 90′s:
- generated more than 140 million page views a month;
- generated over $1 million per month from online advertising; and
- had over 9 million subscribers at a fee of $25 per month
Court documents revealed revenues exceeding $100 million between 1995 and 2000, and the fraudulent misappropriator was ordered to pay damages of $65 million.
Domain Name Sales Post Tech Bubble
Those predicting that the irrational exuberance and hype that characterised domain name sales in the 90′s would have abated by the mid to late 2000′s might be disappointed.
A cursory search of the internet revealed the following sales of generic domains:
- vodka.com: an uncommercialised domain name bought for $3 million in 2006 by a Russian tycoon with holdings in Russia’s vodka industry; almost five eyars later, the site remains a landing page (of sorts), requiring registration and login;
- pizza.com: on the strength of the vodka.com deal, the owner of pizza.com, a largely dormant registration that had limited advertising (as almost all “parked” web pages do these days), auctioned the site off in 2008, netting $2.6 million – it is now an e-commerce portal of sorts, aggregating pizza delivery services by geographical location; and
- business.com: this, unlike the others, was already money-generating online directory at the time of its sale, with annual revenues in the range of $15 million; impressive perhaps, but not really a revenue level that, in a rational universe, would have been expected command, in 2007, the sale price of $350 million.
The Value of Domain Names: An Appraisal
A one dimensional appraisal of the examples given above might imply that domain names, as entities in their own right, are extremely valuable.
Despite the few, newsworthy examples of high profile post-bubble sales, domain names, that is the names themselves, are not inherently valuable. While the owners of pizza.com and vodka.com (incidentally, both early attendees at the domain registration party in the early to mid 90′s) met with astonishing luck, domain names as entities unrelated to broader trade mark and branding strategies, are not very valuable at all.
This is in large part because the way people use the internet has evolved, dramatically, since the 1990′s. It is almsot difficult to remember a time when the World Wide Web existed but Google did not, but that time was less than 15 years ago. While search engines today have a stranglehold on how internet traffic is generated and directed, before they reached critical mass in the early 2000′s, the internet was more about trial and error. In those halcyon days, an internet user wishing, for instance, to order a pizza, might well have tried his or her luck by typing in www.pizza.com. Such a pursuit was as likely to provide a fruitful result as typing in the name of a well-known pizza brand hoping it had its own website (it might well not at that time), or making use of primitive, pre-Google search technology that was as likely to provide the user with an article about pizza from across the world, as a local result relevant to the user’s quest for a pizza.
In addition to the search driven nature of the internet (and perhaps because of it), there is also exponentially more content on the internet now than there was then. There were, quite simply, fewer things to look at on the internet back then, and in these circumstances, a generic domain name could certainly stand out. Competing with almost infinite alternate possibilities, a generic domain name, assuming its underlying website is not well optimised in other ways, no longer adds the sparkle it once did.
It is not difficult to discern why, in these hit-and-miss early days, characterised by a relative dearth of content and choice, a generic domain name could be so powerful, and by extension, command such value.
Today, it is the science of search engine optimisation (SEO), coupled with the near monopoly of search engine-based internet use, that informs the inherent value of a particular website. The domain name itself, so long as it meets certain basic requirements (e.g. having a top-level domain such as .com or .co.uk, not being too convoluted etc).
Of far greater importance than the domain name itself, is the fact of having a dynamic web presence in the first place.
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