Domaining is a fascinating business and investment vehicle because once the initial investment is made, it is a business that requires minimal attention. This makes it one of the best models of a residual income business on the web. However, this is not to say that domaining is easy. Working as a domainer simply means that you have to invest all your attention, effort and money up front, while researching what domains to buy.
Definition of Domaining
Domaining is basically the business of buying domain names as an investment. When thinking about this business, a good approach is to think of domain names as real estate. Think of them as pieces of virtual internet-land that have some intrinsic value, where the majority of that value stems from their location and from their degree of development. Their “location” is akin to their visibility on the web. Short recognizable names have the best location, and so they are also the most expensive. The buildings on a piece of land are akin to a website developed at a domain name. The website is likely to attract visitors either through it’s content or functionality, and therefore increase the value of the domain name.
Like any mature property business, most of the valuable names have already been snatched up and are only available at a premium. Speculative names are still available, as are names with unproven extensions (.info, .biz, .us, etc.) A big difference in the domain world though is that new names with potential are available all the time, as new phrases and trends become popular, as old domain names expire, and as new technologies emerge.
Monetizing a Domain Name
There are a million way to monetize a domain name if you are willing to develop a website on it, but since this article is about the purest form of domaining, I will only address ways to monetize domain names without developing them.
Reselling Domains – As with any piece of property, your domain may be worth more to someone else than you paid for it. This may be the case if you develop a knack for coming up with brandable names ahead of time (ie. google, digg, myspace, zappos), or if you manage to snap up names related to a developing trend or idea (ie. bird flu, wimax, AJAX). This is a speculative way of making money from domains, but your initial investment of $6-9 per domain won’t break the bank and might create a hefty return. Once you buy a few domain names, list them for sale on websites such as Sedo and DomainState to see if any of them get picked up. Remember, patience is a virtue.
Parking Domains – On the web, targeted traffic is worth money. Targeted traffic are simply visitors interested in a specific topic. If your domain names get traffic (more on this later) you can monetize that traffic by parking your domains with a domain parking service such as Sedo, DomainSponsor or Fabulous. You simply register with the service for free, point your domains to their DNS servers, and voila, you’re done. The service puts up a simple one page website on your domain that has advertiser links and information based on the keywords and category associated with your domain name. When visitors follow those links, you share the revenue generated with the domain parking service.
Finding Domain Names
There are many different strategies for coming up with and researching domain names to buy. There is plenty of (well researched) speculation out there, but there are also many domainers buying names with the intention of creating passive income. For this, the domainers buy domains that receive traffic that can be monetized.
The simplest way that a domain receives traffic without having a website on it is through type-ins. We’ve all been responsible for type-ins before when we went straight to the address bar and typed yahoo.com or money.com or bored.com. Sites such as cellphones.com and business.com get hundreds or thousands of targeted visitors a day through type-ins. Often, people will type their search terms directly into the address bar with .com, hoping to find information of interest. This behavior is characteristic of an internet newbie, but keep in mind that there are more newbies on the internet every day, and as broadband becomes more widely available, this is a trend that is going to continue.
Research time is the biggest investment a domainer makes before buying a name. A great free tool that I use for domain research is Domain All-in-One from DomainState. It allows you to quickly check the availability of domains, as well as look up keywords on Overture and domain popularity via Alexa. Below are a few strategies for picking and finding domain names.
Speculation – If you have a good head for names and can come up with catchy ones that might one day be a company’s next product or brand name, give it a try. Also try to spot upcoming trends and catch phrases, and register names related to them. Names in other languages, and names in other Top Level Domains (TLDs) such as .info, .us, .biz, etc. are also quite open to speculation. Remember though that speculation is just that, and there is no guarantee of a future payoff.
Type-in Traffic – Most obvious keywords and phrases have already been registered, but new ones are coming into the public consciousness all the time. New music trends such as reggaeton, new global scares such as bird flu, and new technologies such as wimax present the early bird with an opportunity to register keywords and phrases that are likely to get more and more type-in traffic. Keep your eyes and ears open and do a little research every day to see what is available.
Typos – Misspellings of popular domains get traffic through type-ins. This includes domains such as gogle.com or yahooo.com, but also less obvious ones such as celphones.com and homelaons.com. These domains can be lucrative because you can park these domains using the right keyword and create instant revenue. For coming up with likely typos and determining their likelihood, I’ve found SearchSpell to be a very useful tool.
Expired Domain Names – Domain names expire every day without their owners bothering to re-register them. Expired domains may have hosted websites, portals, blogs, or businesses beforehand, and as a result they may have incoming links from other sites and they may come up in the search engines. This means that they are likely to get some traffic, which you can monetize through Sedo or other means. Since this is a such a profitable strategy, you most likely will have to go through a drop-catcher such as Pool, SnapNames, or NameWinner and pay a premium for the expired domain at an auction. Also, keep in mind that the traffic numbers at these sites are likely to drop over time as they fall in the search engine results and users realize the old page is no longer there.
Buying Proven Domains – If you have some capital laying around and are willing to pay a premium for an income stream, then you can buy domains that already have establish traffic and income. These domains can cost anywhere from the 1999 bubble price of $7.5 million for business.com, to more reasonable 5- and 6-figure prices of proven domains today, to a few hundred dollars for a domain with a minor income stream. Good places to start looking are SnapNames, Sedo, and the For Sale forum at DomainState. In this case, your investment might take a few months to a few years before you generate a positive return, but the security of an income has always been an expensive commodity.
If you are new to domaining, take time to learn the business and hold on to your wallet for now. There is a lot of great information out there at resources such as DomainState and DNJournal. Their articles and discussions are a great way to avoid many costly mistakes yourself and to learn where to invest your time and eventually your dollars.
Once you have a grasp of the business and enough confidence to get going, go ahead and start experimenting! Don’t spend large sums of money up front or buy hundreds of domain names at once. But do get started buying a few; one of the beauties of starting in this business is that you can register a domain for the price of a burger. Check out 1and1 and NameCheap. Put them up on Sedo, advertise them for sale, see what you get. And if you want to take the development route, go ahead and put a website up on them.
Be consistent and have fun. Learn about the business daily and try out new strategies until you find one that you’re comfortable with. Play your cards right and you too could soon be making money while you sleep.