Now that domain names have proven resale value, the ‘science’ of valuing a domain name is becoming big business. There are already thirty or more appraisal firms in existence, and many more appearing on the scene, but are their methods really scientific, and is there any common ground in the way that they value names? To try and answer these questions, I challenged the appraisal firms currently operating to put a dollar value on one name, LiquidTrading.com.
I chose LiquidTrading.com because it is not an easy name to appraise, and requires some research in order to fully understand its potential. Please see the article in Wiredâ„¢ March 2000 print edition if you would like to learn more about the concepts behind ‘Liquid Trading’.
The resulting appraisals were a fascinating ‘snapshot’ of the domain name appraisal industry late in the year 2000…
Click here for the chart of valuations for LiquidTrading.com
Click on the dollar value in the chart to view the actual appraisal. Note that in some cases the appraisal points to an external website or a Microsoft Word Document.
As you can see, the valuations range from $200 to $160,000. Such a range of valuations raise some fundamental issues about the domain appraisal industry. If one name can support such a range of valuations, is the current industry anything more than a lottery?
Reasons for the Variation
Well, before writing the industry off as a whole, let’s look at possible reasons for the huge variation:
1) As mentioned at the top of this article, the name LiquidTrading.com is a particularly subtle one, and can be seen several different ways. If the appraiser had knowledge of the Wiredâ„¢ article that featured the name, they would have naturally seen the name in a more favorable light, as they would have seen the potential of the name for a next-generation trading site.
2) Some appraisers use a database of sale prices of ‘similar’ names in order to help them arrive at a dollar value. However, many of these databases are very small, and will mostly contain names from the domain name auction site, Afternic.com, which routinely publishes sale prices. To be statistically valid, a database really needs to contain several thousand names, as an absolute minimum.
In addition, the majority of names at Afternic.com are sold well below value, because buyers tend to be resellers rather than end users. Using sale prices at Afternic for comparison is inevitably going to lead to a valuation for resale rather than sale.
Finally, the value of the whole concept of ‘similarity’ must be questionable. Looking at the sale values of names with Liquid or Trading in gives no real indication as to the worth of Liquid Trading. If natural language was that simple to analyse, natural language parsers would have been perfected decades ago. It is the unique and exact combination of the words Liquid and Trading that makes the name interesting. The words in isolation mean little.
3) Some of the appraisals listed above are clearly ‘hand-crafted’ by one or more appraisers. Others appear to have been produced at least partially by applying a generic ”appraisal formula’ in order to derive a final valuation. Although a straightforward formulaic approach might be suitable for simple names, it cannot hope to catch the nuances of natural language, and the often subtle concepts behind the language, and will always be a poor substitute for a carefully researched appraisal by one or more skilled individuals.
Summary
It is clear from the range of valuations, and methodologies involved, that the domain name valuation industry is still immature. If domain name appraisals are going be widely accepted, firstly within the domain name industry, and then in the wider financial world, it’s clear that some standards need to be introduced, and the quicker the better.
In the second and final part of this article, I will take a look at the methodologies used by firms that took part in the article, and suggest some ways in which standards could be introduced.
Don’t stop here! Read Domain Appraising Part II.
Frequently Asked Questions about Domain Name Fair Value
How is the fair value of a domain name determined?
The fair value of a domain name is determined by several factors. These include the domain’s age, length, keyword relevance, brandability, and the market demand for similar domains. The value can also be influenced by the domain’s extension, with .com domains generally being more valuable. Additionally, historical sales data of similar domains can provide a benchmark for determining a domain’s fair value.
Why is it important to know the fair value of a domain name?
Knowing the fair value of a domain name is crucial for both buyers and sellers. For sellers, it helps to set a realistic selling price that reflects the domain’s true worth. For buyers, it ensures that they are not overpaying for a domain. It also helps in negotiations and can be used as a reference in legal disputes over domain ownership.
Can I appraise my domain name for free?
Yes, there are several online tools and platforms that offer free domain name appraisal services. These tools use algorithms that consider various factors such as domain age, keyword popularity, and recent sales of similar domains to estimate a domain’s value. However, for a more accurate and detailed appraisal, you may want to consider paid services or consulting with a domain broker.
How can I increase the value of my domain name?
There are several ways to increase the value of your domain name. These include improving your website’s SEO, building a strong brand around the domain, and maintaining a clean reputation. Additionally, having a memorable, short, and easy-to-spell domain name can also increase its value.
What is a domain broker and how can they help?
A domain broker is a professional who specializes in buying and selling domain names. They can help you determine the fair value of your domain, find potential buyers, negotiate deals, and handle the transfer process. They have extensive knowledge of the domain market and can provide valuable advice and guidance.
What is the difference between a domain appraisal and a domain valuation?
A domain appraisal is a professional assessment of a domain’s worth, usually performed by a certified appraiser or a domain brokerage. A domain valuation, on the other hand, is an estimate of a domain’s value, often generated by automated tools or based on the owner’s personal opinion.
Can the value of a domain name depreciate?
Yes, the value of a domain name can depreciate over time due to various factors. These include changes in market trends, decreased demand for the domain’s keywords, or a tarnished reputation due to negative associations.
What is the role of keywords in domain valuation?
Keywords play a significant role in domain valuation. Domains that contain popular, high-search-volume keywords are often more valuable because they can potentially drive more traffic to a website. Additionally, keyword-rich domains can have SEO benefits, making them more appealing to businesses and website owners.
How reliable are automated domain appraisal tools?
Automated domain appraisal tools can provide a quick and easy estimate of a domain’s value. However, they may not always be entirely accurate as they rely on algorithms and may not consider all the unique factors that can influence a domain’s value. For a more accurate appraisal, it’s recommended to consult with a domain broker or a professional appraiser.
Can I sell my domain name if it’s not in use?
Yes, you can sell a domain name even if it’s not currently in use. In fact, many domain names are bought solely for the purpose of reselling them at a profit. However, keep in mind that the value of a domain name can be influenced by its usage history, so a domain that has been actively used and has a good reputation may be more valuable.
Lee HodgsonLee operates DomainGuru, where domain names, industry knowledge, and personal advice come together to help your business secure the best possible home on the Web.
