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Why buy a domain? Why buy a website?

Domains and websites are often valuable commercial properties and hundreds of thousands, if not millions, of them change hands every year.

Background to domains

Domains themselves are assigned for life. When you buy one you don't actually own the domain but you have the right to salt it away or make active use of it by putting a site on it (with a few exceptions, like the domain name being someone else's trademark). This right lasts forever, provided you pay the annual registration fees of a few dollars a year.

Many domains have a high intrinsic value. Domains like and sold for small fortunes because each is short, highly memorable, and therefore of value to a business operating in that particular sector. A domain does not need to have any content hosted on it to command an astronomical price.

How do you value domains? There is no one-size-fits-all measure. Various online tools and "valuation experts" rank domain names based on the TLD (dot com is considered more valuable than a dot biz, for example), the number of characters, the vertical (market sector), and various other factors. The domain being someone's trademark somewhere in the world may rank as a negative factor because of the potential of the trademark owner suing to "re-claim" the domain.

How do you value websites? ebizvaluations specialises in valuing websites based on what similar sites have sold for.

Domains sometimes sell for far more or far less than valuation companies' estimates. It's sometimes a matter of timing: would probably have been worth nothing before Glaxo and Smithkline decided to merge. Other times it's just in the mind of the buyer: may get no bids from any bidders but someone called John Rumplestilskin may be willing to pay millions for it.

However, this article isn't concerned with vanity purchases but in explaining the buying of domains and sites as business investments.

Why buy domains?

Domains can be bought as speculative investments.

- Registering a domain (where to register?) in the hope that it will become valuable: There's a lot of talk of local search being the next big wave on the internet. If the hype is true there's a lot of opportunity to buy domain names that reflect both the industry you're in and the name/s of the area/s local to you. Outside of local search there are still single word or word combination domains that others haven't thought of registering yet.

- Recognising undervalued domains: Domains that you believe are undervalued can be bought and put back up for sale at a higher price. There is, of course, a level of experience/feel for the market required here in addition to the speculation.

- Buying for their traffic: Some domains get traffic either because they used to have some content and some inward links, or because people randomly type the domain name into their address bar e.g., is a domain they may try typing directly if they're looking for a dentist - it's surprising how many people do that. If a domain gets enough of this residual or type-in traffic it derives value from the highly targeted eyeballs it attracts. Placing relevant ads via a domain parking program is a very profitable occupation for some businesses.

- Other reasons: Miscellaneous other reasons include buying domains to frustrate a competitor and/or prevent him getting his hands on it, to capture the traffic from people who mis-type your domain name into their browser and redirect them to your true site, to add to your SEO efforts and other reasons. More on making money from domains.

Background to sites

Not all websites are profitable or even attempt to generate a profit. There are these main categories of sites:

- Personal e.g., blogs about your cat/ photographs for Aunt Milly on the other side of the world etc
- Government: Governments are increasingly using the web to disseminate information but also to reduce their costs. Online filing of taxes, online voting etc., are on the increase
- Non profit: A site in this category may be owned by a registered charity, or could just be a labour of love by a hobbyist keen to share his knowledge
- Business owned sites: Sites owned by so called Bricks and Mortar businesses. These sites help the businesses by acting as showrooms, discussion forums, first line help/support desks, etc. Their main purpose may not be direct profit generation
- Sites that are self-contained businesses.

Why buy websites?

Websites with a clear earning stream that generate verifiable profits are, in effect, fully-fledged businesses. As with other businesses they can be bought and sold, and often are. They are sometimes advertised for sale in places like webmaster - and other - forums and are sometimes marketed by the same brokers who sell other businesses.

Some argue that websites represent probably the best investment opportunity around for those who don't mind learning the basics of being a webmaster.

Websites commonly trade at anywhere from 6 times their net annual income to 24 times though much larger multiples may be demanded by the occasional, very popular sale.

The number one reason to buy an established domain / site

Whatever business you're in you'll probably find that acquisition is one of the quickest routes to growth. Take an Adsense model like this very site. The owner can expand his site and increase his income by creating new content, getting people to link to it and thereby raising traffic.

However, that is a long drawn out process and one that is not the most efficient. The finite time at the owner's disposal severely restricts the speed at which he can expand his business. True, he could hire a whole fleet of writers and marketers etc., but the administration involved is quite onerous and the endeavour has no guarantee of succeeding in driving the traffic required to pay all those staff.

Buying like-minded sites with existing traffic is an obvious short cut, albeit one that requires some prior capital. What makes it even more attractive is that, unlike with Bricks and Mortar business, earning domains and established monetised sites sell for as little as a year's worth of net profits.