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What’s a Domain Name Worth?

Quite literally, the average price of a .COM domain name is $2,595, according to a study released last week that analyzed 10,608 domain sales during the first quarter of 2011.  That’s useful information for digital marketers to work into their budgets, but more importantly, they should look at the overall value that a domain provides because the return on investment can be fairly substantial.

Domain names are a pretty basic tool in the digital marketer’s arsenal and should be a main component of any campaign, brand management strategy, product marketing strategy, or even SEM or SEO strategy (I’ll explain more about SEM/SEO in another post).  However, their importance is often overlooked and can sometimes be cast aside due to the sticker shock of how much the right name costs.

Domains have been sold for $13 and for $13 million, but if you consider the average price, it’s a reasonable investment in the grand scheme of a marketing budget.  To put it in a brick-and-mortar perspective that most anyone can understand, $2,600 is roughly the cost of a vinyl sign or display booth, making it a very reasonable investment for most companies.

Another thing to remember is that a domain is an investment, in every sense of the word.  Dictionary.com defines Investment as “the investing of money or capital in order to gain profitable returns, as interest, income, or appreciation in value.”  The money you spend upfront on a domain will pay dividends in the traffic it helps generate, but it’s also an asset that will appreciate in value over time.  According to the same market study that benchmarks domain transactions, the average price of a .COM increased 9 percent from the first quarter of 2010 to the first quarter of 2011.  That’s a pretty solid investment when you consider that over the past decade, the Dow Jones Industrial Average and the Standard & Poor's 100 index produced an annual average total return of 4.7 percent and 2.1 percent, respectively, according to a recent article on WSJ.com.

The point is, a proper domain strategy should be part of almost any digital campaign and if it’s not, the cost of a domain should not be the reason why.  With a vibrant marketplace where domains are bought and sold daily – while continuing to increase in value – there’s very little financial risk involved.  If your business needs change, or if the domain(s) you bought aren’t performing as expected, you can sell them to make your money back.  In fact, you could even consider selling a domain that was used for a short-term campaign once that campaign has ended.

We often take domains for granted because they’ve become a part of every day life, but they’re a valuable tool for driving traffic, and in the end, that’s what it’s all about.  Short and memorable domains can make your site easier to find for new and returning customers; keyword domains can improve SEO and reduce the money you spend on SEM; domains that define a category can capture natural type-in traffic.  With the right strategy, domains prove their value many times over and I’ll go into more detail about how to maximize that value in future blog posts.  Stay tuned!

Jeremiah Johnston is general counsel at Sedo (www.sedo.com), the largest online marketplace for buying and selling domain names and websites. Jeremiah began his career with Sedo in 2004 as general counsel, helping the company keep a step ahead of...

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