Tuesday, September 18, 2018

The Big Jump

One of the many nice features at NamePros is that members can post domain names in an appraisal section and other members offer insights on what pricing should be on that domain name.  Domain valuation is of course not an exact science by any means, and frequently different estimates vary significantly. When providing an estimate for new global top level domains (ngTLD), often if there is not a record of significant prior sales in the extension members will express the opinion that the name is essentially worthless ('reg fee' is the term domainers like to use for this). I think this view is perhaps too simplistic, which is the topic of this post.

A Sale Today

While the idea for this post has been in my head for some months, it was one of the sales on today's NameBio daily report that pushed me to finally write it.  The domain name smile.direct sold for $7018 on Sedo.  Let me admit something - even as someone who knows ngTLDs pretty well, I had not really ever noticed that there was a .direct extension before.  After seeing this major sale, it took third place overall on a strong day of NameBio listed sales, I decided to look into the history of .direct extension sales on NameBio. Here is the complete list, it's not very long, just 5 sales including this one.  The last sale before this one was almost two years ago, and it was for just $111. Today's sale of smile.direct has a value above the combined sales values of all previous sales in the extension. The highest previous sales were tackle.direct and 1.direct, each of which sold for $2500 a few years ago.  I am sure that ngTLD sceptics will say that this is simply an outlier in which the purchaser paid far too much.  While accepting that is possible, I think the case can be made that this name was worth the purchase price, based on a multi-faceted approach.  I deal with that question in the next section.

A Multi-Faceted Approach to Valuation

I think that it is important not to take any single measure of the worth of a domain name.

  • One component, but only one, is to look at previous sales in the extension, as presented above.  
  • A second question is to look at previous sales in the term.  If we use NameBio to look at sales of the exact term smile, we find 8 sales (including this one) with an average sales price $3342 and a  standard deviation of about $2000.  This suggests that this sale is on the high end (the highest sale on list) but within bound of expectations.  The term has never sold in .com, .net or .org, so the average price is reflective of sales in other extensions only.  Probably the best comparator in the list is the sale of smile.club which sold early in 2016 for $5017 (it also sold in .me for a similar amount).
  • A third aspect to evaluate is how popular the term is in searches and for advertisers.  For me today when I search on smile there are 4.4 billion search results.  Yes, no misprint, billion - I check this for thousands of names, and I am not sure I recall such a large number.  The term is clearly broadly important on the internet. Now that is overall results, so important to look at monetized searches.  You can get detailed information from Estibot for a domain name, but once there is a sale NameBio provide some basics.  In this case the exact word 'smile' (i.e. just those searching 'smile', not searching for 'better smile') has about 2 million exact searches per month with an advertiser cost per click (CPC) of $0.36 for the exact searches according to NameBio summary.  The more detailed report from Estibot suggests about 550,000 monthly exact searches and a CPC of $2.20 (these values change with time, probably accounting for the difference).  Those are certainly decent numbers, if you are considering the domain name for a monetized reference site.
  • Possibly the most important thing to evaluate is how many potential users are there for the domain name.  In this case the most obvious use is in dental applications (dentists, toothpaste, denture providers, whitening products, etc.). This is big business and smile is generic enough that the number of potential users is huge.  But this is by no means the only possible use of the domain.  It also would work perfectly for mental health, positive psychology, and early childhood education, among many other areas (e.g. Amazon and other companies have used a smile in branding).  I have no idea who the actual purchaser is in this domain name.
  • An additional aspect that needs to enter into the valuation is the inherent quality in the domain name.  This is a matter of the intersection of aesthetics and marketing, and cannot be evaluated in an exact way.  However, a name should be memorable - if someone hears it will they remember it.  It should, in general, also engender positive emotional feelings to work best in marketing.  There is no doubt that smile is very strong in both aspects. 
  • For ngTLDs, a key consideration is how well the term and extension match.  In this case smile is consistent with direct, although it does restrict some of the possible applications mentioned earlier.  A dental company that provided products or services directly to end users would be an excellent fit. 
  • How much competition is there for among similar domain names?  If we look at the big three legacy extensions (com/net/org) for the domain name, the .com and the .org go to parking pages but without explicit statements about possible sale of the domain, while the .net goes to a forbidden page. When I check for extensions that it is available in at standard registrations, there are only a handful, mainly specialized (one of the better ones is smile.golf, in case a reader wants to register it). 
  • While it should be well down your priority list, I do believe that it is always worthwhile to look at the automated estimates of domain worth. In this case GoValue indicates an estimated worth of $2456, a pretty good estimate in my opinion.  Through GoValue I also find some additional comparator sales of the exact word that were not in NameBio, including a $2225 sale in the .pro extension, a very nice domain name in my opinion that could well have gone for even more. When I used Estibot it suggested a worth of $7200, also a solid estimate of worth. Estibot also gives a wealth of information on advertiser CPC history and monetized search data.
  • Does it have special value to certain potential end users?  When evaluating a ngTLD domain I usually try a Google search (using the + before each term) restricted to only sites that include both the terms, in this case, smile and direct.  The results here are dominated by a company called Smile Direct Club.  I have no idea whether they are the purchaser, but clearly the domain name would work excellently for them, either as a rebranding or more likely for redirection purposes. 

It's Not Just Smile

If this was the only case, or one of just a few, where the first recent sale in an extension is much higher than previous sales, then maybe we could chalk it up to either a chance occurrence or perhaps a buyer paying too much. But a much higher sales price is fairly routine in the ngTLD world.  Let me list a few.

While the above are the most dramatic cases, there are many domain names where the first sale in an extension is at a major amount. And it's not just in new extensions.  For example, I pointed out on Twitter that when Buckley Media Group sold sleeping.com summer 2018 for $502,225 that price exceeded the combined sales of all 251 previous NameBio listed sales that include the term 'sleep' anywhere (the next highest sale price was $14,888).


What are the lessons to be learned from examples such as these?

  1. While prior sales in an extension should be taken into account in an evaluation, that should never be your only consideration in estimating the worth of a domain name.
  2. It is important  to take a multi-faceted approach to any domain name valuation, looking at the strength of the term, previous sales in the term, previous sales in the extension, search and advertiser statistics, the aesthetics of the name,  competition with similar names, and the pool of potential end users, among other factors.
  3. For new extensions, the critical question is often whether the term matches effectively with the extension for for real world applications.
  4. Prior sales do not set a limit on the possible selling price of a domain name. There are many cases of sales much higher than previous sales, or even the very first sale in an extension being a large one.
  5. A domain name will have value if an end-user sees a good use for it.  It will have a lot of a value if there is a strong desire for the domain name by at least one potential purchaser.
  6. Domain name valuation is not an exact science. We should not pretend that it is. 
Now let me stress that this post does not mean that any domain name might sell for a large amount.  The key issue is always the quality of the domain name.  Let's not over-simplify the complex task of evaluating the worth of a domain name by saying that just because there is not a history of large value sales in an extension so none are possible.


Original post Sept 18, 2018.

Disclosure:  I currently hold a number of  ngTLD domain names, but none mentioned directly in this report. I am  not associated with NameBio, but would like to acknowledge their incredible database and their generosity to make it available to the domain community. I have no association with GoDaddy or the GoValue automated estimate of worth tool or Estibot, except as a user of these automated worth tools.

Fine Print

This post is offered for informational and educational purposes only, and should not be considered domain name investment advice. While an attempt has been made to be accurate, there is no implied or explicit warranty, and you are responsible for verifying any information of importance to you. You also accept full responsibility for any domain investing decisions you may make.

I try to be fair, balanced and objective in my analysis.  If you feel this post does not meet that standard, please express your concerns to me. 

In a very few cases there may be affiliate links on this blog. This means I receive a small amount if users visit or make purchases via the link. You do not pay any additional charge due to using an affiliate link, and in some cases your cost will be below the normal price. I receive no identifying information about who clicks, or does not click, any link. I never accept compensation to provide favourable review of any particular service or product.

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1 comment:

  1. Great post Robert!

    Thank you very much for the hard work. Keep them coming, its being really helpful.

    Happy Domaining!


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