I mentioned in my last post that one of investment strategies is to build up a portfolio of domain names. This gets a lot of puzzled or even worried looks from family and friends.

“Wow, you are going to blow away your hard earned money on these worthless names?”

“Why would anyone buy your names? Can’t you get them for, like, 10 bucks or something?”

“I think we need to talk”

So, for their benefit and my own sanity, I am writing this post to explain how I see domains and what is the source of their value. The great thing about domain names is that they can mean a lot of things. Their values, are hence, multi dimensional.

For the record, I only buy .com domain names. These names have the strongest brand and recollection values. Try this experiment. Mention any company name to a person and encourage them to visit the site. The first assumption they will make that it is .com. They will not try to type in .net, .org, .info, .mobil, .whatever into the browser’s address bar.  As such, .coms holds the most desirability in terms of investment value.

For anything to have value, scarity is a must. This is why good domain .com names will go up in value. A lot of people might think they can buy a domain name anytime but the truth is there are only a limited number of meaningful names one can buy that is a .com. If you don’t believe me, go to a service like godaddy and try to find a domain name ending in .com that has some meanings. Once you went through this fruitless exercise, you will know how hard a good domain name is.

As the online business proflierates, the demand for good .com names will increase. Every business will want a name that stands for something. If I am in the business of selling gym clothing online, I want a name like GymWear.com or GymClothing.com or GymOutfit.com. Having such a short and memorable names will make marketing a much easier job.  People will listen to your marketing message and they will remember how to find you. Without a good name to anchor your marketing, it will cost you twice as much, if not more, to bring the same amount of traffic to your website.

Having understand where the demand of domain comes from, I want to touch about how the value of a domain is mutli dimensional.

Domain names is a piece of virtual real estate. There is only one .com for any name combination. In economics, we call it perfect demand. In such a economic setting, the price is infinity.

Domain names are destinations. They are places where you can point your marketing message to. People will remember to go to FastPay.com than AACashMachineCanada.com. A good domain makes a great destination.

Domain names represent a brand. They are something that have meanings and allievate your branding exercises.

Domain names are easy to store and needs no maintenance.

Domain names are the foundations of an online business. Without a name, nothing gets started. You can choose to start with a good name or choose to upgrade when you are successful. Either way is fine but be prepared to pay lots more in the latter case. Just look at how much FaceBook.com paid for Face.com.

Domains are telephone numbers and addresses. In the 21st century, customers are more used to visiting a webpage than using the phone or visit the physical location. Just like how companies want easy to remember phone numbers, don’t they want easy to remember domain names?

I could go on but you can see why domain names have so much values as an asset class. To those who are not aware, domains are just something they can register for USD10. Is it any wonder that most of these folks missed the greatest investment opportunity in history while those that undestood became multi millionaries?

I believe there still time to catch up now. My next post will outline what is my domain investing strategey.