What's in a (domain) name? Some serious cash.
At least 100 domain names sold for more than $100,000 last year.
Candy.com is not a particularly attractive site; experienced Web surfers would probably move on to a different page after first glance. The site is not backed by any major confectionery companies; in fact, it doesn't even sell desserts.Skip to next paragraph
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The only thing going for Candy.com is its wonderfully generic Web address – one so simple that it was appraised last week for about $2 million. Rick Schwartz, the entrepreneur who owns the site, says he's holding out for more.
While America's housing market slumps, sales of domain names, the real estate of the Internet, climbed 60 percent last year. More than 100 reported domain sales exceeded the $100,000 mark in 2007 – up from 70 the year before. And last May, an adult-themed domain sold for $9.5 million.
This fourth consecutive year of growth shows few signs of slowing, as venture capital and new investors invade the scene.
The surge of new money into the domain market signals a broader acceptance of what many Web entrepreneurs have thought for years: Web companies come and go – but as long as there's an Internet, there will be value in generic domain names.
The philosophy is built on the idea of "direct navigation." Most people rely on Internet search engines such as Google or Yahoo to connect them to what they're looking for online. But about 15 percent of Web surfers – often new users – type terms directly into the address bar and add ".com" to the end, says Ron Jackson, editor and publisher of DN Journal, which covers the domain market. So, if these users are shopping for candy, they'll probably head to Mr. Schwartz's Candy.com.
"There's inherent value in those generic names," says Mr. Jackson. "There's a certain number of people coming to your site every day, people that you didn't advertise to. They simply wandered right to you."
Candy.com attracts 1,500 visitors a day, says Schwartz, and 99 percent arrive via "direct navigation." The actual site is little more than a rudimentary layout of milk-chocolate brown and bubble-gum pink with some automated ads thrown in, but he earns tens of thousands of dollars a year from those pay-per-click advertisements.
Slowly, investors are starting to catch on. And the purchase of domains by private investment groups is changing the market.
The early dotcom rush
In the mid-1990s, "lone rangers" lassoed many of the great generic Web addresses and ruled the secondhand market for years, says Jackson. Small companies, often built around one guy, would amass thousands of domains. They were a seclusive bunch, happy to hoard domain names quietly and sell only when the price was right.
Most of the venture capital at the time went to Web companies. But when the dotcom bubble burst in 2001, websites that were once valued at millions of dollars became worthless. Yet Web addresses retained much of their value.
"Beachfront property is still beachfront property, regardless of what house or store sits on top of it," says Rob Sequin, who entered the market in 1999 and now owns about 1,500 Web addresses. "And the beauty of domains is that you don't need to paint them, or maintain them, or pay taxes on them."
By 2003, Web address sales once again broke $1 million. Mr. Sequin says that's the first year he could consider domain trading to be a full-time job.
This time, major investors started paying attention.
Online advertising company Marchex kicked off the trend in November 2004, when it paid $164 million for a portfolio of more than 100,000 generic domain names.The sale was a surprise to many, says Jackson. But most outside investors were still skeptical.
Domain buyers aren't purchasing a business or a loyal audience. They're often buying empty lots. This puzzled many venture capitalists, he says.