He had done a rather good job of negotiating a 40% reduction in the initial offering price and I believe he felt he had a good deal on his hands, but after I spent half an hour looking at these domains a lot of the gloss had worn off.
Here is some of the logic that I used to help him assess the true value of domain acquisitions. When I refer to domains I am also referring to the websites that happen to sit on those domains.
Why Businesses buy Domains
Businesses buy website domains for a variety of reasons including:
- To secure their business name or trademarks
- To secure generic brandable keyword rich domains that have a close relevance to their business upon which they could build their website or business. An example might be www.CarInsurance.com for an insurance company
- To buy traffic by owning a domain and website that has existing relevant search engine rankings and traffic that their existing business can monetise
- To buy competitor's business names as a defensive maneuver which can get you into trouble if the competitor has trademarked their name or is not afraid to throw some legal money into getting the domain name back.
- To secure a search engine friendly domain name where the name is an exact match for a highly valuable search phrase. There is a strange hack in the Google algorithm which results in domains that are an exact match to a search phrase having a lot easier time ranking than non keyword matched domains. Think www.CreditCards.com
- To squat on those domains as assets that they may be able to sell in future.
Regardless of what they buy these domains and websites, what makes a successful acquisition is dependent on that businesses specific circumstances.
For example you might think it crazy that a www.BoardGames.com recently sold for $US 450,000, but for the worlds largest board games manufacturer it might be a bargain. Imagine if the #2 board games manufacturer used the domain to rank high in the organic search results and built a large community of board game players around this domain.
Context makes all the difference.
To help you assess domain and website acquisitions for your business I have put together the following Domain Acquisition Checklist.
Domain Acquisition Checklist
1) Does the Domain Name have an exact match or close correlation to your company name, your brand, your products or any other trademarked assets?
If the domain name is available then purchase it immediately for no other reason than to protect your online presence. If the domain is being squatted on by a domain squatter then you should consider taking appropriate steps to have the domain transferred into your hands or if you can negotiate a cheap price then sometimes is easier just to buy it back.
2) Is the domain and or website generating any relevant targeted traffic that you can easily monetise in your current business?
For example a Credit Card Blog that has a community of visitors discussing the best credit card deals would be the ideal lead generation opportunity for a Credit Card company.
Existing monetisable traffic can be used to quickly recoup the cost of buying a domain.
3) Does the domain have any intrinsic value as a domain?
Is the domain an old established domain that has a large number of targeted relevant back links pointing to it? Does it have a high Google PageRank that would make it easier to rank in a competitive niche, thus bringing your business targeted traffic?
If you are buying a domain for these reasons then you should have an understanding of how to measure things like the number and quality of back links as well as the PageRank of the domain.
4) How much further investment would be required to make the domain or website make money?
Consider that some domains are purchased out of pride or vanity or based on a simple belief that it is a cool sounding domain. Have you considered the cost of developing a new content rich website and the months of search engine optimisation and link building that would be required to get it to rank in competitive niches?
5) What is the potential cost of not owning the domain?
Sometimes you are able to quantify with excruciating detail the cost of not owning a domain. Let's say your business lives and dies on lead generation and your largest lead supplier has placed his website on the market. It's between you and your largest competitor who you can bet isn't going to sell you the leads anymore. How much is that website worth to you now?
Alternatively consider the time and legal cost of fighting a domain owner who purchased a domain that you let go and who has built a "Hemp and Cannabis Fans" community site on your branded domain.
6) Do you have a strategy to improve the value of the domain and turn it into a moneymaker.
You may not see the value of a $10,000 dollar domain but the start up who paid for www.CreditCardBlog.com and build a huge lead generation business and sold it to a bank for $30 million dollars would think that $10,000 investment a drop in the ocean.
Hopefully this checklist will help analyse domains and websites when they are offered for sale to you and help you get a sense of their value to you.
This article was posted by Edmund Pelgen. Edmund is Director of Search Optimisation at Traffika. You can follow Ed on Twitter @edmundpelgen.
