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Domain name speculation/trading - a viable ecommerce venture? 

I've never been one for get rich quick schemes, in fact these days they are a huge red flag for me. I'd rather make my money slow - and keep it :).

My caution was somewhat increased after losing thousands dollars in late 2000 through domain name speculation and trading. Does this mean it's not a viable online business? Not necessarily, there's still people turning a good profit. 

In my case, I overestimated domain value based on appraisals, the bottom fell out of the market very quickly after the dot com bubble bust and I found myself stuck with 200 names :). If I had just priced each of the names at $100 - $200 each, while not being able to retire, I still would have made a very tidy profit. Ah well, live and learn I guess!

I recently noticed that there appears to be renewed activity in domain name trading, which spurred me on to write this article - to help ensure others don't make the same mistakes that I did. 

What is domain name speculation?

Domain name speculation is simply the purchasing of domain names with the sole intention of reselling them at a higher profit. Many fortunes have been made through domain name trading - for example, it's rumored that men.com was sold for around 1.3 million dollars. That price was just for the domain name, no active site involved. Considering that domain registrations can cost under 10 bucks a year these days, that's a pretty darn good return on investment.

Lee Hodgson, a *real* domain name expert and owner of Domain Guru,  pointed out to me that these days, this is only one part of the equation for many traders. The other side is registering names that attract traffic or grabbing expired domains that still have traffic, then publishing up ads to turn that traffic into profit. 

Domain name speculation/trading should not be confused with cybersquatting; an illegal practice.

What is cybersquatting?

Cybersquatting is the practice of registering a domain name that is the trademark of another company or person for the purpose of reselling the name to the trademark owner. It can also cover misspellings of trademarks.

Laws were introduced in 1999 to crack down on cybersquatting through an international arbitration process. In some countries, fines can also be imposed on cybersquatters. So in a nutshell, it's not a good strategy. I've noticed a few companies have registered variations on Taming the Beast.net - I take it somewhat as a compliment though; but I do often wonder how much they make off the advertising they have published :).

$9.29 Domain name registration at namecheap.com

The do's and dont's of domain name speculation

As I mentioned earlier, my experiences with domain name speculation are by no means the experience that you may have - but one thing you should keep in mind at all times is not to be greedy.

As with any Internet related rush, most really, really good names are already registered. If you have the cash resources, you may be able to purchase those names for resale at a later date, but don't think that you'll accidentally stumble across a generic or one word name for a few dollars these days. You'll need to be cashed up if this is your goal. However, there is a market that's easy and cheap to get into; but you'll need to focus on turnover rather than the "big one".

What about deleted domains?

Last I looked, there were over 30 million domain names that had once been registered but the registrant, for whatever reason, has not renewed registration and they are available. There's some great names that can be found on deleted domains lists, but bear in mind, you won't be the only one watching :) - there's thousands of others with access to the same lists, so you'll need to be quick! One of the benefits of grabbing an expired domain is that it may already have existing traffic; boosting it's resale value and making that name easier to monetize by implementing advertising.

Coming up with ideas for domain names

Look around you, watch the news etc. What are hot topics? These are the areas that you may want to dive on; especially when new technology or jargon is introduced to our language. This is where you'll be able to register domain names that will probably have the best profit margin. 

For industries that are already well established, think on variations. For example, while "flombles.com" may be registered, "pinkflombles.com" may not be. Try to keep names short, with no hyphens if possible. Underscores are out, as are multiple hyphen domain names.

For further tips on selecting domain names, try my guide to choosing good domain names.

What domain name extensions to register

There's no doubt that .com is where it's at - it's the extension with the highest awareness. With over 250 TLD (Top Level Domain) extensions now available, there's really not much value in registering under another extension with the following exception.

Using the previous example of flombles.com, it *may* be worth your while registering it under another extension if it's a common or popular term - for example "flombles.cc". When you start getting into less common/popular terms, this strategy may not provide much in return - you could be stuck with a white elephant.

Pricing your domains

Ever had a valuation carried out on diamond jewelry? Ever tried to sell the diamond at the price it was valued? Most likely, you didn't get anywhere close to what you expected. The same usually goes for domain names. It's a supply and demand issue and if you don't have a one word or generic term name, it's likely you can forget 6 figure price tags.

Having watched the domain name speculation industry over  few years, the traders I noticed who seem to do the best are the ones who register nice, relevant names, even if they are a little long or have a hyphen, and then resell them for around a hundred dollars to two hundred dollars each. They also bundle the name with items such as a free web hosting to make the purchase more attractive. 

While they are waiting to sell the domain name, the implementation of other advertising adds to their revenue flow. In fact, according to Lee from Domain Guru, it's this advertising that is the basis of modern domain name speculation for many entrepreneurs. As mentioned, if a domain name is attracting traffic and generating income, that in turn also boosts its resale value.

In the cases where the primary goal is just to sell the domain, the trader is selling more or less their skill in picking memorable, relevant names; saving the buyer head space and time in trying to come up with a name. It's a good business model. Aim to keep the entire time investment, or equivalent in financial investment, to under 2 hours - that includes finding a domain name, registering it, promoting and negotiations. That way, you'll be fairly recompensed for the time you put into each name.

Promoting your domains

You may be thinking "eBay!". Each time I've viewed domain name listings on eBay, there's been little activity. For peace of mind for both buyer and seller, I recommend not only having your names point to individual inquiry pages, but also to join a buyer/seller network such as AfterNIC .

AfterNIC has a huge reach - your names will not only display on their site, but also on their partners' sites. They provide escrow services, buyers and sellers guides, appraisals and domain parking services.

Another place to promote your names is on Sedo - Like AfterNIC, it's one of the more vibrant marketplaces offering buyers and sellers many tools.

Don't just rely on these sources, a web site of your own is important in order to promote your portfolio.

Register in bulk, save cash

With any startup, saving dollars wherever possible is a primary concern. Instead of registering domains one by one, some registrars offer bulk pricing. I currently use NameCheap for registering domain names - even their pricing for single domains is cheap, they have one of the best interfaces around and their customer service is excellent.

Like any other investment or venture, don't pour into it what you aren't prepared to lose. Be prepared for the fact that some of your domain names may not sell in the first year, so there will be an added expense of re-registering.

Good luck with your domain name trading venture - I hope you had more success than I did! It's something I've always thought about getting back into, but eh, time.. time.. time.

Related learning resources

Choosing domain names

Michael Bloch
Taming the Beast
http://www.tamingthebeast.net 
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In the interests of transparency and disclosure, please note that the owner of Taming the Beast.net often receives goods and services mentioned in reviews for free, or may receive payments or affiliate commissions for advertising or referring others to merchants of products and services reviewed.

Copyright information.... This article is not available for reproduction without explicit written permission from Michael Bloch and Taming the Beast.net

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