Strategy of a domain sale

Over the past couple of weeks, I’ve had an interesting conversation with Spencer Yao of smallbusiness-domain.com, a provider of domain name, web hosting, and e-commerce reviews, rankings, comparisons, & coupons.  Spencer was telling me about a recent domain sale his company was involved in.  He walked me through the life cycle from the initial purchase to the sale.  Spencer’s scenario provides some good food for thought when buying domain names with the intent to sell and I asked him to summarize his experience to share with you.

Back in mid 2009, we were approached by a seller looking to quickly dispose of some premium domain names in the beauty and apparel vertical. The acquisition was opportunistic and serendipitous and we did not have much time to decide because the seller wanted to move fast.  Although we had no direct experience in this beauty/apparel category (our group had substantial technical and monetization experience), we purchased one of the better domains because we thought it was truly “premium”, had decent type-in traffic, mapped to a common search term with clear commercial intent, and at an adequate discount to mitigate the risk.  Unfortunately, we cannot disclose the name, but that does not change the content of this article.

Below is a summary of our strategies to maximize value and eventual exit for the domain.

  Description Upside Risks Results
Strategy 1 Build an ecommerce site similar to Diapers.com or Hammocks.com Highest potential reward and risk. Requires most technical & financial resources. We had no direct industry experience in this vertical. Industry was too low margin and fragmented to support such a business.
Strategy 2 Turnkey site based on shopping engine listings. Hope premium domain name helps in SEO results. Much less work and maintenance than Scenario 1. Use API to auto generate sub categories and pages. Development costs to properly access & publish API. Little to no original content. Hard to monetize. Parked domain generated more revenue even though site had hundreds of pages.
Strategy 3 Park, hold, and sell the domain. Little to no work involved Not adding any value to the domain. Hope we paid a low enough price to hold and wait for a buyer Last resort. Chose this scenario after exploring #1 and building #2.

We determined Strategy 1 was not feasible after 4-6 weeks of post purchase research – this sub-category within Beauty/Apparel was too low margin to support an ecommerce business like Diapers.com or Hammocks.com   It took us 4-6 months to build out and vet Strategy 2 – we determined that parking the domain generated more revenue with lower costs than the turnkey site.

Unfortunately, we were left with Strategy 3, which meant parking the domain and hoping for a buyer.  To try and garner as many buyers as possible we looked at the following services:

  • Domain Listing Services like Sedo and BuyDomains. We found these services provided little to no value even though they charged a substantial commission for listing a domain in their database.
  • Domain Brokers.  We retained several brokers who actively marketed the domain and emailed buyers on our behalf.  Through several cycles, we received a handful of offers for about 50% to 80% of our target price which did not include the 10%-15% commission the broker earned if the sale was completed.  The offers were from domain speculators who wanted to sit on the domain and flip it.  This meant it would be hard for us to achieve “full value” through a broker.
  • “For Sale” sign on the parked page.  This is how we eventually sold the domain at our target price to a buyer who wanted to develop it into a website.  The upside was that we received full price without having to pay a commission, but the downside was we held the domain for over 3 years before selling it.

In summary, we purchased the domain (for mid to low 5 figures) and sold it for 30%-35% more than we paid, not including the work we put into Strategies 1 & 2.  Comparing this to an investment benchmark such as the S&P 500 (which gained 39% over the same 3 year period), meant we were better off taking those funds and investing them in the market.  However, since we were forced into Strategy 3, we were happy to make a slight “profit”. We could have waited for a buyer willing to pay more, but that could have taken years to achieve.

Lessons Learned

If you are going to invest substantial dollars into a domain name, we learned the following valuable lessons: 1) Have a concrete development plan to turn the domain into a viable website. Direct industry experience is essential. 2) For maximum price, be prepared to sell the domain yourself and wait years for the right buyer. If you need liquidity in less than 6 months, use a domain broker and be willing to take 35 cents to 70 cents on the dollar.3) The market for premium domains seems to have peaked around 2007-2008 and has yet to recover to those levels. You have to consider this when looking at pre 2008 domain sales for comparison.

What’s in a dot Name?

The other day, I received an email asking me to confirm some of my contact information. The email stated “Some of your contacts use WriteThat.Name, a new service that updates address books based on the linguistic analysis of email signatures.”  What first caught my eye was the dot NAME tld.  But really, what a unique concept.  I reached out to the creator to learn more.

Philippe Laval founded Kwaga two years ago with a simple idea in mind: help email users truly benefit from business data that is nested in the messages they receive. To do so, he leverage the experience he had in semantic technologies and actually strengthen it with a team of NLP (natural language processing) experts who have been enthusiastic about the idea. They are now 10 people strong, fully dedicated to making email the productivity tool it once used to be!

Mike:  Tell me about your service, WriteThat.Name.  What is it and how can it help people?

Philippe: Well, WriteThat.Name is a perfect illustration of my goal: it keeps your address book up-to-date automagically! Basically we recognize the signatures in the email you receive, and either we create the contact when it isn’t in your address book or we update the existing one – with a new mobile number, for instance.

We launched WriteThat.Name mid-May and have already created/updated over 100K contacts for our users! Talk about saving time…

Mike: What is your experience with the .Name tld?  Why did you choose this over a .com?

Philippe: There was a great debate over what we should name this service, but finally landed upon WriteThat.Name because it instantly describes what it does – writes the name and contact information to your address book. Nevertheless, we do have WriteThatName.com registered as well.

Mike: Have you or your company owned any other domain names?  How important do you feel the domain name WriteThat.Name is to your service?

Philippe: As a web-based company, our domain is as essential as the window display is to a shop along the street. This is the first thing that our customers experience, so we took great care in deciding on the perfect one.

Being a French-based company, we have registered WriteThatName.fr as well as the .com and .name domains. We also have both Kwaga.com and Kwaga.fr.

Mike:  WriteThat.Name takes a good feature of Gmail, adding contacts automatically, and makes it even better.  Where did the idea for this come from?

Philippe: I got tired of searching in my mail account for the number to call from the car every time I was late. I thought there must be a way to automate this, and, voila, WriteThat.Name was born…

Mike:  Tell me about your revenue model.  It looks like this is a pay service.  Did you consider selling some form of advertising as opposed to charging users?

Philippe: WriteThatName costs only $3/month or $20/year for each subscribed email address. The first month’s subscription is free. And $20 seems really low compared to the time spent searching for the right contact info! Compare this to the price of a virtual assistant: for $20 you can have a virtual assistant for one hour OR WriteThat.Name for a full year.

We opted to forgo the route of selling advertisement as our detection system looks through your messages to find contact details and link them to a signature. We want you to be confident in our respect for your privacy. However, if you still think it’s too expensive, we also have a referal program where we’ll give you another full month free for every referral that signs-up to WriteThat.Name.

Mike:  Kwaga is the parent of WriteThat.Name.  What is Kwaga and what’s the company’s goal?

Philippe: Kwaga was founded in 2008 by me (founder and former CEO of Sinequa, an enterprise semantic search engine vendor) along with a team of seasoned software entrepreneurs, backed up by top computational linguistics and development talent. Kwaga has created KwagaContext for Google Apps Email that enriches the Email experience by providing more context about senders: social profiles, previous conversations and smart action-reminders. Kwaga is a privately held company. SeedCamp and Kima Ventures are both shareholders and have provided seed-funding.

Mike:  Are there any other problems you’re focusing on that we may see a new service for in the future?

Philippe: At Kwaga, we are looking for new ways to enable people to continue working inside their preferred e-mail application and benefit from SmarterEmails™ without altering their habits. We are currently working on some extensions of WriteThat.name and will soon get back to you on that! In the meantime, please take a moment to check out our videos and screenshots to learn more about what we can do for you!

Take the risk out of domaining and boost your sales!

I have to admit, when I started domaining, I disregarded the advice of the pros and the veterans.  They all suggested saving my money and instead of buying a pile of worthless hand regs and low dollar domains, to instead save an buy a good  premium domain.  In hindsight, that would have been the way to go.  I wasted a great deal of time and money.  Initially, I thought it was too risky to put that much money into a domain.  However, it wasn’t a total loss.  While using the low end domains, I learned about contacting end users, what other domainers were interested in, and how to gauge the value of a domain name.

Another thing I learned was that people were hesitant to pay a premium for domains.  Not just me.  Sure, we all want to get a great deal and, at a minimum, not to get screwed in the process.

Think about how much more willing you would be to buy if you knew there was no risk.  Think about how much easier it would be to sell if you could assure your buyer that there was zero risk in the transaction for them.  How do you achieve that?   Well, you as the seller take on the risk.

Here’s what I mean.  I recently found myself in a situation where I was contacting end users on a particular domain.  There was a single company that responded and was interested.  With all the effort I put in and only had a single bite, I wanted to maximize the opportunity and make the sale.  After several conversations it became clear that the main contact was afraid to pull the trigger.  I got the sense that he was feeling he was taking a risk with the name… that it might not do for his business what he hoped it would and the investment would be lost.

Once I realized that, I decided to take a bold step.  I decided to offer him a risk free transaction.  I put in writing that if he was not satisfied with the name 90 days from the date of the transaction, I would purchase the name back at the same price.  BAM!  Risk removed.

Yes, there are some drawbacks to this approach.  Primarily, you might end up with the domain again and be starting from scratch.  But here’s my logic:

  • First, I don’t generally buy domains (anymore) that I don’t personally have an interest in myself.  So if it ends up back in my portfolio, I am comfortable with that.
  • Second, when I contact end users, I am setting the value on the domain that I am willing to sell at.  That said, this process helps ensure a fair prices, since I may end up re-purchasing the name.
  • Third, and most importantly, I am confident that they will find value in the name.

I’m not planning on using this approach in all situations.  For example:

  • I would not do this with a domain I did not find value in… which I shouldn’t be selling in the first place.
  • I would not knowingly offer this to a fellow domain investor who would likely look to resell at a profit and return to me if he was unsuccessful.

This approach has worked for me and I will continue to implement it where it makes sense.  There’s no reason it can’t work for you as well.

Gary Vaynerchuk on Domains, plus – get a free copy of his new book

Gary Vaynerchuk is well known as a social media early adopter, successful author of Crush It!, and of course, wine guy at DailyGrape.com but did you realize he knows domains too?  I had the opportunity to talk to Gary about his new book, The Thank You Economy and we touched on domaining as well.  If you haven’t heard him speak in the past, you’re in for a treat.  In addition, I have 5 copies of Gary’s book to give away.  Watch the video and leave a comment below to be entered to win one of them.

You can still find generic domains

generic domain

Maria Falconer picked up the domain name Rambles.com to base her business on.  I love single word generic domains so I asked her a few questions about he choice and her business.

Mike:  Tell me how you came across the domain name Rambles.com.  Was it available to register or did you purchase it from someone else that owned it?

Maria: The url was being held by a ‘squatter’, someone who really had no intention of ever using it, but wanted to drive up the price on the domain and resell it (editor’s note: that is not a squatter).  I tried to reach an agreement with the current owner one-on-one, but the numbers they were asking for were just outrageous. Just when I began to fear that I would have to choose a new domain name, I got word that rambles.com was being auctioned. I was extremely lucky in that the current owner chose a really fair brokerage/auction site to sell the domain. I managed to acquire the domain for a fraction of what the owner was asking. When the owner tried to back out of the deal, the auction firm made them stick to the agreement. I love Sedo!

Mike:  Tell me why you chose that name and what it means to you.

Maria:My shop is really the ‘Seinfeld’ of online stores. There is really no ‘plot’.We have everything, but nothing specific. So, I wanted to choose a domain name with a little ambiguity. I do believe that life, like art, is journey (or ramble). I also wanted to convey that the story takes a myriad of really different, unrelated ideas and expresses them in jumble (like rambling). So, rambles.com just seemed perfect.

Mike:  Can you tell me how many monthly visitors the site receives?

Maria: Just under 5000 and growing fast.

Mike:  The site is an ecommerce site and contains a wide variety of products.  Why did you choose not to focus on a specific niche?  Has that worked to your advantage?

Maria: I wanted to cast a wider net. I know that my interests change from year to year and I bore very easily. So, I wanted to make certain that the site was constantly fresh and new. I want to continuously reinvent the site. I want our audience and customers to come to expect the unexpected. I want them to visit the website and say ‘Wow! That’s new! I’ve never seen anything like that before!’

Mike:  What are some of the challenges you have faced as an online business owner?

Maria: Gosh, so many.  I think the greatest challenge is building buzz.  The internet is like one giant high school hallway.  It’s a popularity contest. So, you really have to work at it.  I really had to learn that the hard way. I had to learn that most people today spend very little time, relatively, ‘surfing’ the world wide web. Most people get on the internet with the intention of visiting a specific site. So, you need to catch them before they log on.
What people will never tell you is that creating buzz offline is absolutely vital to your survival online. So, you really have to build a great relationship with your local publications and reporters. Print advertising is just critical, but you have to careful. You can spend $2000 on print ad and not attract a single visitor.

Online advertising is hugely expensive. Building relevant traffic is even more expensive.

Building an air of accessibility for your company is key. Yet, finding the time to blog, tweet and update your Facebook status, all while trying to build your business, can be such a struggle.

I certainly haven’t conquered all of these obstacles yet. I’m learning as I ago.

Mike:  Your page has quite a few Facebook likes.  What other strategies do you use to promote the site and the business?

Maria: I tweet like mad. Unlike Facebook, I really haven’t found that Twitter has directly led to sales. However, its a good ‘awareness’ tool. I also blog. I advertise with Google. I also advertise on design and craft blogs. Currently, I’m trying align myself more closely with some of the local craft festivals. Making a name in the ‘real world’ will hopefully translate to sales online.

Mike:  What advice would you have for someone looking to start an ecommerce site?  What is required to do so?

Maria: I don’t think there will ever be another Amazon. We (people in general) just aren’t as enamored or in awe of the internet as we used to be. So, don’t have those types of expectations.
Unless you have a great deal of money to invest, plan on it taking about five years before you can say with any certainty whether or not you’re venture is a success.

Find out who your competition will be, realistically, and spend some time interviewing at least observing them. This can really help you adjust your goals and avoid pitfalls.

Get a mentor to guide you through the landmines of paperwork.

Overall, make sure that you  love what you do. It’s been said many times before, but it’s true. If your hearts not in it, you won’t persevere through the tough times…and all businesses have tough times.