[This excerpt is the result of a collaboration of Freename and The Domain Standard and is featured in the inaugural issue of print and digital magazine].
For years, internet domains have been viewed primarily as digital addresses for websites, a necessary part of any online business or personal project. If you were launching, say, a cutting-edge AI startup, securing a domain with “ai” in its name (for instance, “bestai.com”) would be the first step in building your online presence. But in the past decade, domains have increasingly been recognized as much more than that.
Internet domains Become Financial Assets
They’ve become valuable financial assets, comparable to real estate or even commodities like gold, oil and stocks. This shift has ushered in an entirely new market segment: domain finance. Today, domains are treated by savvy investors and businesses as assets that can be bought, sold, leased, used as collateral and even fractionalized and sold like stocks, allowing investors to buy shares of valuable digital real estate. Just like any other financial commodity, the value of a domain can fluctuate, creating opportunities for profit or loss. But how did we get here, and why should you care? Let’s take a deeper look at how domain finance has become an integral part of the internet economy,
and why it might be the next big thing for investors.
What Is Domain Finance?
At its core, domain finance is the practice of treating internet domains as tangible financial assets, just like stocks, bonds, or other commodities. The concept has grown out of the domain investment world, where individuals and companies have long recognized that certain domain names have significant financial value.
The highest-selling domain on NameBio.com to date, voice.com, was sold in 2019 for a whopping $30 million, which, as of today, would buy you approximately 80,000 shares of Tesla.
In the past, domain names were bought for practical use, but as businesses began to see the value of premium names: ones that were short, catchy, and keyword-rich; the domain market transformed. Today, premium domains can be worth millions, with high-profile salesmaking headlines regularly.
Think of short and memorable domains like voice.com ($30 million), chat.com ($15.5 million) or nfts.com ($15 million). These are digital real estate properties that hold significant value, which is comparable to that of a of high-end luxury yachts, an iconic piece of fine art (such as works by artists like Picasso or Van Gogh), or a prime piece of real estate in a prestigious location, like New York or London. Companies in need of an online presence are increasingly willing to pay top dollars to secure the perfect name that will help them stand out and attract customers. Similarly, investors have recognized domains as valuable digital assets that can appreciate over time.
Vocabulary: Domain Flipping is the practice of buying domain names at a low price and then selling them at a higher price for a profit. This can be done by acquiring undervalued domains, often those with short, memorable names, common keywords, or strong brand potential, and holding onto them until demand increases. Successful domain flippers can generate substantial returns, particularly by investing in domains with high resale value or targeting trending niches such as tech, finance, or emerging industries like NFTs and blockchain. It’s a form of digital real estate investment, with some domains selling for millions of dollars, making it a lucrative market for savvy
investors.
Much like flipping real estate, domain investors buy low and sell high, hoping to profit from rising demand. But it’s not just about buying and selling domains. Increasingly, domains are used as income-generating assets. They can be leased to businesses or individuals, and some even generate direct ad revenue. As businesses look to establish themselves online, the value of domains is only expected to grow, turning what was once a niche industry into an important segment of the global economy.
“Domains are the luxury real estate of the internet. The value of domains is only expected to grow, turning a niche industry into an important segment of the global economy.”
Domains as Commodities
The Market Structure
To understand the financial dynamics of domains, it’s helpful to think of them as commodities. Commodities are tangible assets that are traded on markets and whose value is largely determined by demand and supply. Domains share many characteristics with commodities such as oil or gold. The primary factor driving their value is scarcity or a limited supply.Just as rare natural resources command higher prices, premium domain names, especially short, memorable, or keyword-rich ones – are in high demand. As a rule of thumb, the shorter the domain name, the higher its value on the market. Two-letter domain names are especially valuable due to their extreme rarity: only 676 combinations exist using the Latin alphabet. As a result, domains like jb.com or ts.com (among the many that you can presently find listed on dn.com) can fetch prices upwards of $5 million. Back in 2011, Facebook itself famously paid $8.5 million to acquire fb.com, highlighting the strategic value placed on brevity and brand alignment.
dn.com is owned by the Chinese entrepreneur Jack Dai, whose profile you can consult in the ‘Who’s Who’ section of the present issue
Another aspect to consider while comparing domain names with other commodities is their liquidity. The ease with which domains can be traded varies, but there are well-established marketplaces like Sedo or GoDaddy where domain transactions are conducted regularly.
According to NameBio.com, of the 160,800 domain sales reported in the global aftermarket last year, only 2,845 approximately 1.77% – were private transactions conducted outside of established marketplaces. However, this figure likely underrepresents the true volume of private sales, many of which go unreported and remain undisclosed.
However, it must be noted that the domain market is certainly not as fluid as other commodities like stocks, not just yet. As of today, the trade of domains typically requires negotiation, evaluation, and the consideration of many intangible factors such as branding po tential and long-term utility. In fact, as of now, the liquidity of domain names is relatively low compared to other asset classes. The estimated sell-through rate (STR) for .com domains hovers around 3-4% annually, meaning that out of every 100 domains listed for sale, only about 3-4 actually sell in a given year.
Vocabulary: Domain fractionalization refers to the process of dividing ownership of a domain name into smaller, tradable units or shares, allowing multiple individuals to collectively invest in or benefit from the domain. This model makes premium domains more accessible to a broader range of investors, much like fractional ownership in real estate or stocks. It also opens the door to new forms of revenue sharing and liquidity in the domain market.
Domain values are often influenced by multiple factors. Brandability is one of the key drivers. After all, a domain that is easy to remember and closely related to a trending business or industry will naturally attract higher bids. Another factor is SEO power. Domains that have built up a strong presence in search engine rankings, or those that contain popular keywords, are seen as more valuable due to their potential to generate organic traffic.
What do voice. com, chat.com, sex.com and rocket.com have in common?
They are all high-traffic domains featuring popular and memorable in-demand keywords. The author of a 2016 study on the value of internet domains, Dr. Thies Lindenthal (University of Cambridge), put it this way:
“The snappier and more recognisable a domain, the more it is going to be worth.”
It’s as simple as that! In this respect, domains are not that different from other traditional assets like real estate. As Lindenthal himself noted in the same study: “Cyberspace is no different from the traditional cities, at least in economic terms. In a basic city model, you have a business district to which all residents commute, and property value is determined by proximity to that hub. It’s similar in cyberspace. The commute to, and consequent value of, virtual locations depend on linguistic attributes: familiarity, memorability and importantly length.”[... ]
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