Forget pay-per-click multiples. Domains are most valuable to end users.
A couple weeks ago I more than quadrupled my money on a domain name sale. I purchased the domain less than a year ago at a reseller market. I used a broker to market the domain to companies that sold the related product, and he brought in a nice five-figure sale. (I’m not disclosing the domain nor the actual sales price for confidentiality reasons.)
This domain didn’t get much traffic. Someone who values domains based on multiples of pay-per-click revenue wouldn’t have even plunked down the cash I paid for the domain, let alone four times that much. But I saw something in the domain when I stumbled across the listing many months ago:
1. The domain name is the title of an entire software category dominated by large companies such as Sun (NASDAQ: SUNW) and Oracle (NASDAQ: ORCL).
2. Although type-in traffic may be low, the term receives 5,000-10,000 searches per month.
3. Advertisers are paying $5-$10 per click for this term.
I bought the domain and watched as a few visitors hit the domain each day. It never amounted to much revenue. But an end user values a domain differently from a domain reseller. Here’s how I figure the end user viewed the value:
1. Assume the domain gets only two visits a day. If we’re paying $7 per click that’s worth about $14 to us per day. Granted, a type-in may not be as valuable as someone who clicks on our ad amongst many others, but the value is reasonably correlated. That makes the domain worth $5,110 per year in click value alone.
2. We’re battling large companies with brand recognition in this space. When someone types in this term at Google they are more likely to click on Sun’s ad than ours. That means we also have to pay more per click to get higher in the rankings. But if our domain name is the exact term that the user searches for, we can expect a higher click through rate and a better ranking. We’re currently getting a 5% click through rate for about 15 clicks per day at $7 each. By owning this category-defining domain, we can get a 10% click through rate for only $4 per click. Instead of $105 a day for 15 leads we can get 30 leads for only $120.
The company that bought this domain was smart and knew what it was doing. Other companies may figure out the slick move this company made when suddenly their Google ads are lower on the page.
“Who is this new competitor?” they’ll ask.
But it’s not a new competitor. It’s just a smarter competitor.