Evaluating a Potential Domain Name Acquisition

The other day on a thread at NamePros I shared my personal list of things to consider when evaluating a potential domain name acquisition.  I have refined the list with additional commentary for this post.

1. Can I list multiple categories of users who would legitimately want this name? 
   This is the point that we covered in our post “Who would want this domain name?” I urge you to actually make a written list of use categories, or even specific potential end users.  If you keep the list in electronic form it will be easy to add additional ideas later.
2. For some users in those categories is there a legitimate advantage to having this particular domain name?
   We earlier considered the idea of a value proposition – a one or two sentence statement on why this particular domain name adds value for an end user. If you find it difficult to concisely state the value proposition for a domain name, then it is likely that effective marketing of the domain name will also be challenging.
3. Have similar names sold before, and if so for how much and when?  If similar names have not sold, can you see why not?
   Most domain name investors already use the NameBio database regularly and it is your main source for past sales information.  The GoDaddy GoValue appraisal tool will give you additional comparator sales not in the NameBio database. Sometimes when there are no previous sales it is because we on the cusp of a new branding trend, technology, or social trend. If there are no previous sales be sure that you can explain why. 
4. How popular is the term? 
   I always do a Google search on the term and on similar terms (e.g. if UK and US spellings differ I search both, and if appropriate I search plural and singular forms, and acronyms and abbreviations for the term if they exist). Just because a term leads to a huge number of Google results does not mean it is necessarily valuable as a domain name, however.  Nor does a term with limited web results necessarily not have value as a domain name. Nevertheless popularity online is frequently related to the values of an associated domain name. 
5. Are both the acquisition price and renewal fees low enough that the acquisition can be justified?
   It is impossible to be precise, but using sales data, your own portfolio experience, etc. try to estimate the probability of the domain name selling in any one year, as well as the likely selling price and the net profit. We covered the basics on what profitable means in this post.  For example, a typical domain name might be estimated to  have 1 chance in 100 of selling in any given year. If your net profit is expected to be $300, that only translates to an average return of $3 per year.  It does not make sense to pay a $10 annual renewal fee unless you also expect the name to generate parking or similar revenue that will cover the annual costs. If your parking revenue is anticipated to cover your holding costs, then any domain name can make economic sense.
6. If I had the time, would I personally use the name for development?
   I don’t remember where I first heard this tip, but it is a good check on whether you should proceed with a domain name acquisition. If you can’t answer yes, it either means the name is really not very high quality or that the domain name is in a niche that you don’t know well. 
7. Are the aesthetics of the name sound?
   While domain name aesthetic quality is not a precise science, certain characteristics are widely accepted. Is the name memorable – it you told someone the name and asked them to recall it a day later would they probably be able to including correct spelling? Also, the best domain names for businesses and organizations are positive. Ideally the name should make an impact and not be too ordinary. There is a balancing act between a domain name feeling fresh and unique, differentiated from other names, but not seeming too cute or risky. Asking some friends who are not into domain investing what they think of a potential acquisition can provide insights on aesthetic quality.
8. Are there trademark or other legal issues with the domain name?
   This should not need to be stated, but it is a critical consideration. While you will not be a legal expert, search the main trademark databases to see if any active trademarks might be infringed by the domain name. You should also become familiar with UDRP decisions to have a solid understanding of considerations that go into decisions. Remember that there can be use established claims on a name even if it does not have a formal trademark. We will discuss this issue in more detail in a future post. 
9. Is the niche already over speculated?
   I think something that even experienced domain investors sometimes overlook is the question of how much domain name speculation is already present in a niche. For example, some technology may be the next great thing, with clear domain name demand, but already many domain investors are trying to serve that need.  You will have competition from many different domain names for sale, and that limits your probability of sale, and may even force down prices (not always). The converse of this can also work out for you.  Perhaps a niche has only modest importance, but essentially only you are investing in names in the niche.  That is rare though, with about a million domain name investors worldwide!
10. Would I feel proud to see the name in my portfolio?
    I fully realize that some names that sold for large amounts would not pass this test. However, my personal brand is important to me, and I don’t want to list names that I would not be proud to share with say my friends or family. 
11. Does the niche fit my personal branding strategy?
    I will be writing more on this in the future, but for most domain investors with a significant portfolio I think that you should be able to, in a sentence or two, define the sorts of domain names you handle. Your domain portfolio should not just be a mismatch of different types of domains. I believe in diversification, so you probably do not want all of your domain names in a single niche, but nor should they be a mix of everything under the sun. In general invest in what you know.
12. What are the automated appraisals?
    The value, or lack thereof, of automated domain appraisals is hotly debated on NamePros and elsewhere. I personally find value in them, but only as one, of many, parameters to consider. I almost never invest in a domain name without checking its valuation in GoDaddy GoValue and in Estibot. I am not, however, looking to them as a price prediction tool, but rather to see if the valuation is in the range that I would have predicted from other information. I also find the additional comparator names in GoValue helpful, as almost always they include names not in the NameBio database. If, but only if, I am considering domain names for potential use in a monetized reference site, I look carefully at the Estibot information about searches, advertisers, and cost per click. If the automated appraisals are very low, I look at whether there is an obvious reason. For example sometimes Estibot incorrectly assigns a language or breaks the word in the wrong place. 
13. Does the name excite me?
    This is completely subjective, but I feel that if you are to successfully promote a domain name you need to be enthusiastic about it.  The longer I am in domain investing the more discerning I am and the more I only want to hold domain names that really excite me.  Early on I had a lot of three word domain names in new extensions, not fully realizing that they were not at all unique and similar domain names were widely available to hand register. Now I concentrate on names that are elegant and simple (like a single word in a popular or emerging niche), or something that is creative and clever, like a great  domain name phrase. If the name does not excite even you, how do you really plan to sell it?
14. Do I have particular expertise in the niche represented by the name?
    In general we make the soundest acquisitions, and are most effective in promoting, names that are in subjects that we understand. If you know the tourist industry it makes more sense to invest in domains in that niche than crypto currencies. Investing in what you know also has the advantage that if you do decide to develop the domain name to help offset holding costs you start with expertise in the topic.
15. Does the acquisition fit my personal risk tolerance?
    When you do conventional investing using mutual funds or exchange traded funds one of the first things your financial advisor will evaluate is your risk tolerance. They do this by asking a series of questions on how you would feel if your overall portfolio went down by a certain percentage.  I think risk tolerance is not discussed much in domain name investing but should be. Domain names, at least in most categories, are not very liquid assets. There is a real chance you will lose everything you have invested in a domain name.  How much are you personally prepared to potentially lose in domain name investments? Would this acquisition move you into risk beyond your comfort level?
16. Will hand registration availability of similar names negatively impact sales prospects?
    In new extensions it is critical to examine which similarly good extensions, if any, are available to hand register. If you are considering a .net domain name, always examine whether the .com and .org are for sale, and if so their buy it now prices, if given. Extensions like .io are mainly used by tech companies.  See if the same name is available in .com and .co, of course, but also look at whether the name in extensions like .tech are taken, and if the name is in the niche of artificial intelligence check the .ai  country code.
17. Is it likely that in a year’s time there will be more rather than less interest in the domain name?
    Trends are hard to predict sometimes, but by investing in domain names that are mainly in your areas of expertise you will have an advantage. Successful domain investors stay current with the news in the niches they invest in, and not simply current with the domain community. You may find tools like Google Trends helpful, although I personally find nothing can replace really following the primary news in the niches represented in your domain portfolio.
18. Have I slept on the possible acquisition and still feel as positive as I did yesterday?
    This may sound simple, but it really is a good idea – try it!  Domain investing is both addictive and filled with the fear of missing out. While there is a chance that you will lose out by delaying, in many cases sleeping on a potential acquisition will make you take a more realistic view. Most of us, me included, acquire too many domain names. You will be surprised how many times the name does not seem as good the next day. If your enthusiasm is more muted, even if you still think it is a good name, give it another day and see how you feel.
    

While some of these are objective measures, others are totally subjective, things like does the name excite you and would you be proud to have it as part of your portfolio. This is of course not a complete list of possibilities. Many would include age of the domain name, for example, as an important consideration. 

These factors are not all equally important, and indeed the relative importance will vary with the type of domain name.  Past sales data is not important in brand new niches, and aesthetics are critical in domain name phrases. Some types of names (like numbered and short acronym .com) are fairly liquid assets so the idea of risk tolerance is less critical for this type of domain name. Like any set of rules, these are guidelines, not absolutes. Seldom do all of the boxes get ticked when I consider a domain name.

Naturally at times you will, even after considering these and other factors, proceed with an acquisition even though it is weak in some aspects. For example I recently registered a domain name that had both GoValue and Estibot valuations of less than $100, and was not a niche in which I have particular expertise. However,it was a domain phrase I really liked and I thought the word worked perfectly with the extension.  The .com sold not too long ago for $29,000. So the factors left me with mixed feelings.  In those cases I urge you to apply the last point, sleep on it and see how you feel.

I had considered this domain name multiple times over a number of weeks. I repeatedly did Google searches, NamBio checks, and considered potential end use cases.  Each time I revisited the domain name I personally really liked it. So eventually I decided to take a (very small) risk registering it even though it is outside my normal niches and has very low automated appraisals. I will evaluate in a year from now if I want  to renew it,  but that decision is the topic for a future post!