What You Need to Know About Domain Valuation
The act of buying and selling domains is not new. The profession (or a side hustle, to be precise) goes back to the time when ownership of a domain was first offered to the public on February 24, 1986. Since then, people have bought and sold domains for a profit.
With the advent of web3 domains, this practice will only proliferate further. But to get started, you need to understand how domain valuation works in the first place.
What is Domain Valuation?
Domain investors look at the domain’s value before buying or selling it. Even though the practice has been around for decades, there’s no single formula used to determine its value. In fact, value will likely vary from person to person.
But there are some metrics every investor looks at. These are:
The most important factor affecting a domain’s value is the brand power. For example, the domain name ‘apple.com’ is considered more valuable than ‘jackfruit.com’ simply because Apple is a well-known brand. Likewise, similar domains like ‘applehelp.com,’ ‘applegeek.com’, ‘applereviewer.com’ will have a higher value. The same goes for names associated with a brand like Samsung, Nokia, and Nike.
The other set of domains that have brand power is phrase domains. For example, ‘explainmelike6.com’ has more brand power than ‘heisidiot.com.’ That’s because someone can use that domain for building a website explaining stuff.
Search and ads traffic
Another factor that’s looked at when deciding the value of a domain is search traffic data. If a domain name and its related terms are being searched for, its value will likely go up. And if there are ads run on that domain name, you’ve hit a jackpot because it has commercial intent.
Investors use tools like SEMRush, Moz, and Google Keywords Planner to get the data. Before deciding on a domain name, it’s wise to check Google Keyword Planner data, which is free of cost.
A domain is always attached with an extension. And this extension can influence the value of the domain.
.com extension is the most valuable. So, ‘apple.com’ will always carry more value than ‘apple.xyz’. Currently, more than 1,600 domain extensions are available, with new ones added every year. But there are a handful of extensions like .co, .net, .io, .cc that have value. Other extensions have to rely on the value of the website they’re associated with.
Future growth outlook
The majority of the startups are valued on their future growth projects. This way, a startup can have a billion-dollar valuation even when it hasn’t earned a profit.
The same goes for domains. If an investor thinks the domain name will get popular in the future, he/she will be willing to pay more for it. Someone bought a domain name ‘cars.com’, which was later valued at $872 million.
This is just basic economics. The more people there are to buy the domain name, the higher its price is going to be. The seller will most likely go into a bidding process, with the domain name going to the highest bidder.
Buying and Selling Web3 Domains
Web3 domains are similar to web2 domains, except that they’re decentralized. The domains are hosted on the blockchain and are regulated by their respective owners.
Thus, as a web3 domain investor, you can have one TLD (extension) and offer unlimited SLDs (which is literally the domain name in web2). When you buy a .com TLD, you own it in web3 architecture. In other words, web3 domain investing flips the script.
Web3 domain investing represents an exciting frontier in the digital realm. As the world embraces decentralization, owning a piece of the virtual landscape can be financially rewarding.