The recession is affecting investment decisions all over the world and none more so than in the real estate market, where property prices have noticeably fluctuated in the past 12 months. As a result many businesses are starting to re-evaluate their expenditure with some moving online to minimise overhead costs. Perhaps the most high profile example of this is Woolworths, which has now been given a new lease of life online, six months after its high street presence collapsed.
In such uncertain times people are understandably cautious when it comes to long-term investments, especially in property. Given the sensitive climate, should we be investing our assets in the bricks and motor of the property market, or should we instead be looking towards the binary code of the online world to guarantee a solid return on investment (ROI)?
‘Property’ trends
Analysis of the online and offline property market would seem to favour the latter. Looking at sales patterns on the domain name market and sales figures on the Halifax Property Index for the first quarter of 2009, it is possible to see just how different investments in the on and offline worlds of property really are. For instance, while we saw an average decline of 2.7 per cent in house prices in the first quarter of the year, sales for domain names actually increased by 6.5 per cent, a strong indicator of the current health of the online property market.
House prices for the same period were actually 17.5 per cent lower than the previous year, with the average price recorded as £160,678. In contrast, the average domain price for a dot com top-level domain (TLD) actually increased by 37 per cent year-on-year.
Further breakdown reveals just how lucrative the domain industry can be. For example, while the real-estate market is limited to house type and location, ranging from semi-detached houses in the country to terraced houses and flats in the city, the domain market is much more diverse. This market encompasses words or domains associated with anything from pets to cars, countries to sports and foods to places of interest. There is, quite literally, a domain for everything.
Inevitably, some domains are more profitable than others. The three most popular categories for recent domain name sales include those relevant to business such as deposits.com which was sold for £10,637; domains for acronyms and letters like ato.com, selling for a staggering £20,054 and media-related names such as moviescenes.com for £2,616.
Our recent quarterly domain market study also shows how popular some of the more generic URLs are becoming on domain auction sites. In the first quarter of this year, the most expensive dot com web address was Fly.com which sold for $1.76 million, closely followed by top.com, body.com, forum.com and dollars.com. Collectively this is evidence of the vast opportunities that exist in the domain market and with domain prices the lowest they’ve been in years, now is a great time to invest.
Investing in a domain name portfolio
Evidently, the domain name market is going from strength to strength. So what are the benefits of investing in a domain name and how can potential investors looking to capitalise on the opportunities afforded by the online world create profitable domain portfolios?
In the same way that prospective property investors may speculate on the real-estate market by building up a profitable portfolio of student houses for example, domain investors are looking for profitable, cash-generating generic domain names. Using student housing as an example, a domain portfolio could include anything from student.com, studenthouses.co.uk or studentaccomodation.org. However, the domain market is no different to the property market and buyers need to also pay careful attention to how they will generate revenues from the particular domains.
Monetising domain names
Domains actually form a vital part of pay per click (PPC) and search engine optimisation (SEO) strategies. By building small portfolios of relevant key word domains, business owners can generate rapid ROI from their online real estate investments by driving the more than 60 per cent of visitors who arrive by typing the domain directly into their browser. For example, the owner of wifi.com purchased the domain for $350,000 but considering what the buyer was previously paying to Google Adwords for the same number of visitors, he achieved a return on his investment (ROI) after just two years as a result of the volume of direct navigation traffic to the site. Quality generic domain names can also offer a high search engine ranking and give owners instant brand recognition with their target audience. Here, cruisies.co.uk is a good example of a quality domain that now enjoys a high search engine ranking in the competitive online travel market.
Domain Parking is another way owners can earn money from a domains natural traffic. Parking is a term used by domain investors to refer to hosting their site with targeted advertisements. Domain investors earn a percentage of the cost per click for hosting the advert. There are companies that now offer such services, helping domain owners to set up mini sites allowing them to monetize their web properties at no cost.
To buy a bungalow or bungalow.com?
A domain name represents a marketable form of real estate and increasingly companies are shifting their investments online. However, it is also worth remembering that domain investment is not limited to organisations. There has been a growth of individuals who have started to invest online in their spare time and as broadband penetration continues to grow, more people are moving online and looking for low-risk business ventures.
Research shows that there has never been a better time to buy a domain name. As the market grows from strength to strength we encourage organisations to consider online investments. Domain names are an excellent way to help improve ROI and complement search engine marketing strategies. In an increasingly competitive online environment, domain names should be seen as key to overall success of digital marketing activities.
Author: Nora Nanayakkara, Director of Business Development, Sedo