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Could investing in website names make you an internet millionaire?

6 December 2017

6:14 PM

6 December 2017

6:14 PM

With the savings of the nation languishing around 1%, it’s no surprise that UK consumers are turning to increasingly creative ways to make their money work that little bit harder.

Even with the arrival of a plethora of savings-focused banks such as RCI Bank, the savings horizon remains bleak for those yearning for the good old days of a 5% savings rate with FSCS protection.

This backdrop has helped to fuel the rise of more consumer-friendly and increasingly mainstream financial investment opportunities. This includes everything from investing in property, via firms like LendInvest, and Kuflink, investing in corporate bonds via firms like WiseAlpha, or even investing in personal loans via peer lending firms like Zopa and RateSetter.

While making a few strategic and well thought out investments will appeal to many readers, a number of more creative, and riskier opportunities also exist.

Speaking of high-risk opportunities, it’s rather impossible to have missed the escalating hype around cryptocurrencies like Bitcoin and Ether. But since the 1990s there’s been a quieter, but equally dedicated community investing in website names. Although highly speculative, the low entry costs and limited technical knowledge required has made investing in website names quite appealing. Strike it lucky and you could be looking at a gargantuan return.

How does it work?

 

All website names (also referred to as ‘domain names’) effectively originate through a body known as the Internet Corporation for Assigned Names and Numbers (ICANN), and are managed through registrars like GoDaddy and 123 Reg. These registrars issue buyers like you and me with the exclusive right to use the domain name, after which period a buyer has the right to renew their domain name.

For example, as at 9am on the 4th November, it’s possible to pick-up the domain name ‘ilovedarlington.com’ for an £11.99 annual charge via one of the above registrars. I currently own around 100 domains, some of which have been developed into functional websites, such as www.consumercreditawards.co.uk.

Domain name investors don’t usually turn their names into useful websites, but effectively park them. For example, Lloyds Bank owns ‘insurance.co.uk’ but effectively uses it as a landing page to direct visitors to the insurance sections of the Lloyds Bank and Halifax websites. Once you own a domain name, you’re able to place it on a secondary market in the hope that another buyer will emerge ready to give you a return on your initial outlay.

A few tips

Despite the emergence of newer top-level domains like ‘.co’ and ‘.io’, great domain names are scarce, and ‘.com’ domains remain the most valuable due to their global desirability. For example, a Glaswegian investor sold the seemingly undesirable ‘mob.com’ to a Chinese mobile operator for $220,000 in 2014.

Other things to look out for include popular terms or phrases, particularly if they could help to sell a product or service. Short domain names, for example two and three character domains are also highly valued given their scarcity. And being quick off the mark when a new industry or product type is emerging could help you pick-up some domain names that could soon become very sought after.

Issues and challenges

Although the tips listed above provide a few general guidelines, it’s ultimately potluck as to whether anyone will offer to buy your domain name, let alone whether they’ll value it high enough to deliver a windfall. In classic investment terms, the domain names market is highly illiquid.

So while investing in domain names is not for the faint hearted, and you really shouldn’t invest more than you can afford to lose, the low entry costs combined with the possibility of a significant return may make a few long shot domain name purchases a fun and creative way to add a bit of colour to your investment plans. Oh, and in case you were wondering what the largest sum spent purchasing a single domain name was, that accolade belongs to ‘insurance.com’ which was snapped up for  $35.6 million in 2010.

Mike Fotis is the founder of Smart Money People and a former financial services management consultant.


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