I´m constantly quizzed by non internet luddites about domain names and their value. The most common misconception is “why is this domain being sold for 250K when I can register a domain for 10 bucks?”. My patience is thin at best but, assuming naiveté, I endeavor to explain that a domain name is merely a vehicle with which to obtain internet traffic and, traffic (usually) generates revenue. To put this into simple terms for you dazed readers, imagine wanting to open a clothing boutique on a high street. You are left with two simple choices, rent commercial premises on the outskirts of the city at a low rate, then spend the money you saved on rent for constant and permanent advertising to remind people you exist. Or, rent premises on, for example, 5th Avenue New York (you can choose any major city’s top high streets), pay more for the premises and rarely have to advertise due to the fact that passing ambulant trade is always present.

A good domain names is the 5th Avenue location and a bad domain is on the outskirts of the city. The same bricks and mortar logic applies to domains, with the cheap nondescript ones you’ll be eternally advertising, whereas the expensive ones will usually have “free” web traffic you can use to generate increased revenue.

To take this a step further, consider this. You decide to rent a space on 5th avenue but this space was previously a coffee house, yet your intention is to open a clothing boutique at the same location. Since the coffee house location provides no historic “good-will” for your planned business, the customers of a coffee house went there for coffee or a sandwich, not to buy clothes. Therefore, using the same logic, if you buy a popular domain with tons of traffic, but this domain was used to sell coffee and you want to use it to sell clothing, you have an immediate identity crisis. This misnomer will mean that the traffic volume you are essentially buying within the domains purported value, may not translate into the desired revenue you foresee.

If you have read right up to this point you will deduce that a domain name utilized during an extended period of time in the desired commercial sphere and, with significant traffic, will often result in reduced future marketing costs and lower publicity spending. In a nutshell, you should anticipate that your upfront domain value and cost is simply an investment you will recoup going forward by way of reduced promotional costs. Essentially, paying now for something you will receive in the future. Because internet advertising is so expensive, inflation linked and continuous, you may recoup your initial high value domain purchase through lowered marketing costs in say 3 years, but from there on out, your marketing savings are like my in the bank, each day saving more and more money which, invariably, creates a better bottom line for your business.

That’s my take on high value domains…