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Is domain name speculation still viable?

Is domain name speculation still viable?

Two men in the woods with one looking through a pair of binoculars

If you’re looking for a way to make money with domain names, or if you’re a savvy investor trying to flesh out a more diverse portfolio, domain speculation may seem attractive to you.

But is domain name speculation still a viable strategy? And if so, what’s the best way to utilize it?

What is domain name speculation?

Domain name speculation is the act of buying and registering internet domain names with the intention of selling them in the future for a higher price, therefore resulting in a profit.

There are many different approaches to domain name speculation. Some people try to “flip” domains as quickly as possible, scouting for great values and reselling them to interested buyers in a more attractive context. Others purchase domains with the intention of holding them long-term, hoping they appreciate in value in the coming years.

Some people purchase domain names and hold them indefinitely without doing much with the domain itself. Others try to build a website around the domain with the hopes of selling the entire website in the future — or just proving how valuable the domain can be.

Domain name speculation can occur in the primary market or in the secondary market. In the primary market, speculators purchase domain names that have not been registered before, or those that have expired and are therefore currently unregistered.

New top-level domains (TLDs) often trigger a rush of domain speculation as investors try to round up generic words, short phrases, and popular terms; because these domains have been offered for the first time, they have enormous potential.

In the secondary market, domain name speculators attempt to buy domains from people who currently own them.

They may look for good values by searching for domain names set to expire, or those that aren’t being used to their fullest potential.

Some speculators also attempt a technique called drop catching, which is the process of registering a domain name immediately after it expires; however, this is highly competitive.

Examples of domain name speculation

Woman checking prices on laptop and smart phoneIt’s easiest to understand the basics of domain name speculation with the help of examples. Michael Mann, a speculator who once bought 14,962 domains in a 24-hour period, got started in the world of domain speculation after an incidental payoff. Mann held a property called Internet Interstate that he bought for a mere $70, but received an offer of $25,000 for the domain; the next day, he received an offer of $50,000.

Today, he buys high volumes of low-competition domains for a few dollars each in the hopes of selling many of them for hundreds of dollars.

Of course, it’s also possible to strike it rich with a single major transaction. Some domains have been known to sell for millions of dollars. Publicly reported sales include CarInsurance.com, which sold for $49.7 million and Insurance.com, which sold for $35.6 million; also note that public records don’t include private sales, which have been reported as reaching the hundreds of millions of dollars.

Obviously, the million-dollar sales are both rare and hard to achieve. The most valuable domains in the world are short, generic, and easily recognizable — so most of the heaviest hitters have already been acquired and flipped.

The history of domain name speculation

Domain name speculation is almost as old as the internet. Throughout the 1990s, despite the fact that most ccTLDs hadn’t even developed, investors began to see the potential value of generic domain names for attracting type-in traffic.

TLDs were completely open, allowing anyone to register a domain name, but because domain name market dynamics were so uncertain and unfamiliar, there wasn’t much competition.

The Uniform Domain-Name Dispute-Resolution Policy (UDRP) changed the landscape in 1999, established by the Internet Corporation for Assigned Names and Numbers (ICANN) to prevent abusive registrations and fraud.

Cybersquatting, the act of exploiting someone else’s trademark for personal gain or intentional damage, had become somewhat prevalent. A domain name speculator could hypothetically nab a domain name related to a major business like “CocaCola.com” and hold it hostage indefinitely, demanding egregious payments or other harsh conditions in exchange for its release.

Today, under the Federal Anti-Cybersquatting Consumer Protection Act (ACPA), cybersquatting is illegal.

 

Under this act, also passed in 1999, trademark owners can levy complaints against registrants who have a “bad faith intent to profit from the mark” and those who register or traffic in a domain name that is “Identical or confusingly similar to a distinctive mark” or “Identical or confusingly similar to or dilutive of a famous mark.”

The delineation of cybersquatting and ethical domain name speculation has caused domain name speculation to evolve. Investors must now exercise caution to avoid interfering with any existing trademarks.

Domain name speculation is also evolving due to the number of domains available. Old TLDs, like the classic .com, tend to have less available inventory in the primary market. Generic words and phrases are long gone, and unique phrases still tend to be bought up quickly whenever investors get a whiff that something may be valuable.

Thankfully, we’re also seeing the rise of new TLDs, opening the door to countless possibilities; extensions like .tech, .space, and even .yoga are now available. Generic words and phrases tend to get bought up immediately after the rollout of a new TLD, but there’s still an economic opportunity for sufficiently motivated bidders.

Speculation has also been influenced by the rise of pay per click (PPC) advertising. Strong, “parked” domains have an edge in generating revenue with PPC traffic.

This led to speculators practicing a technique called “domain tasting,” in which they would register millions of domains for a limited period of time (taking advantage of a built-in “grace period”), then get rid of any domains that weren’t making significant money.

Since then, ICANN has restricted the number of domains for which the grace period can apply.

Strengths and weaknesses of modern domain name speculation

Man holding a stack of twenty-dollar bills

Now back to the main question: is domain name speculation a viable way to make money?

Let’s take a look at some of the strengths of domain speculation in the modern world.

Strategic flexibility

Domain name speculation has significant strategic flexibility. It can generate revenue in a variety of ways and fit into almost any kind of business or investment portfolio.

For example, if you’re a business owner, you could use domain name acquisition as a tool to set up new websites or landing pages, then flip those domains as they grow in value.

You could use domain name speculation to park a domain and capitalize on PPC ads. You could flip domains for a short-term profit, or buy and hold them for long-term plays. In short, you can use it to achieve whatever financial or business objectives you have.

Short-term payoffs

There’s also potential for short-term payoffs, as long as you know where to sniff out the best deals. Purchasing recently expired or soon expiring domains could help you acquire new domains for almost nothing — then turn around and sell them for a significant profit. This is a time-intensive endeavor, but more than one person has been able to turn it into a full-time job.

Ample inventory and opportunities

There are plenty of domains to choose from; inventory might as well be unlimited. This is thanks in part to the rise of new TLDs, multiplying the potential domain names available to the masses. It’s also thanks to the prevalence and popularity of domain name auctions in the secondary market.

It’s easy for domain owners to list and sell their domains — and just as easy for domain name speculators to evaluate these options and pay for them. Even with the stiff competition, as long as you keep looking, you’ll eventually find acquisitions that fit your risk profile and financial goals.

Potential for huge payouts

Don’t forget about the potential for huge payouts. Generic, single-word domains are hotly contested, so don’t bank on the possibility of making millions of dollars from a single transaction. But if you make the right acquisition, hold it for the right amount of time, and have a bit of luck finding an interested seller, you could make thousands of dollars (or more) with a single exchange.

Domain name speculation also has some weaknesses.

Financial risk

No matter what, you’re going to face financial risk when speculating on domain names. Just because a domain name seems like a good play doesn’t mean it’s going to generate sufficient interest; you might be stuck unable to find a buyer, even as you lower the price.

On top of that, some domain names are simply overpriced, and it’s not always easy to tell the difference between good and bad deals. Early in your domain name speculation journey, you’re almost certainly going to lose money on some transactions.

Demand for knowledge and research

The word “speculation” makes this strategy sound like it’s a guessing game. But the reality is much more nuanced. If you want to be a successful domain name investor, you need to spend ample time researching the landscape, understanding the market, and doing due diligence for each transaction.

Even if you spend an hour a day improving your knowledge, it could take you years before you truly understand the market (and what constitutes a “good deal”).

Of course, there’s a hidden advantage here; because it’s so difficult and time-consuming to become a great domain name speculator, few people are willing to make the sacrifice. In other words, educated, experienced speculators are in short supply.

Limited primary market opportunities

The secondary domain market is booming, but the primary market isn’t quite as robust anymore. It’s been more than 30 years since the .com domain first rolled out, and speculators have had a long time to milk every bit of value they could out of this TLD. It’s practically impossible to find an inexpensive .com domain that’s only a few letters long or one that’s a common, generic word. If you want to find attractive offers, you’ll need to venture into different TLDs or find unique combinations of words and phrases that could be valuable.

Competition and pricing

If the primary market is essentially tapped, why not simply turn to the secondary market for all your domain name needs? It’s a good thought, but there’s an issue here too: competition.

By now, even total amateurs have heard stories of people making tons of money through domain name speculation; they see it as a kind of get rich quick scheme, so they want to get involved. With the incredible volumes of people competitively bidding on domain names, prices have risen significantly. This makes it harder to score a good deal — and renders some domains pretty much impossible to acquire.

Laws and regulations

On top of that, the world of domain name buying and selling is more complex than it used to be, thanks to new laws and regulations. For the most part, these laws are reasonable and easy to understand; as long as you’re acting in good faith and you’re not exploiting other people, you shouldn’t face any legal trouble.

That said, this environment isn’t as free or straightforward as it used to be, and you’ll still need to exercise caution when buying and selling domain names.

Is domain name speculation viable?

So is domain name speculation still a viable strategy?

The short answer is yes.

Domain name buying and selling is more complex and more nuanced than it’s been in the past.

 

If you want to make a profit and stay out of legal trouble, you’ll need to do significant research to understand the law and the market. But if you put in the work, and you’re patient enough to find good deals on secondary markets, you can enjoy a significant profit from your efforts.

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