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strategy Domain Name Investing: Speculative, Niche, Momentum, Value

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Any domain name can be categorized in various ways, such as the number of words, extension, etc.

This article introduces the idea of also categorizing a particular domain name acquisition according to the investment style that name represents.

Overview Domain Name Categories

First let’s review some of the traditional ways we categorize domain names.

1. The structure of the name might be numeric, alphanumeric, a dictionary word, an acronym, composed of multiple words, etc. We can add whether it contains a hyphen or special characters. Numeric and alphanumeric names are more popular in Asia, while hyphenated names are desired in Germany.

2. The extension, or top level domain (TLD) is another easy way to categorize a name. The same term in .com can be worth much more than that term in many other extensions. That said, the relative use of different extensions varies significantly geographically – see the Actionable Information from the 2023 Global Domain Report.

3. The type of term in the SLD or second level domain, is one of the most important ways to think about domain names. If the term to a specific product or service, we call it exact match. If it is a dictionary term, but not a product or service, we would call it generic. Often, but not always, making a term plural will move it from a product or service term to a potential brand name – for example, wheel would likely be a brand name that could reference metaphorically many possible uses, while the plural wheels is suggestive of a store that sells wheels of some type. Created terms found on brandable marketplaces like BrandBucket, BrandPa and SquadHelp fall into the category of a brand. Brandable names themselves can be categorized according to whether the structure is a blend of two terms, a compound combination of words, a creative spelling, a totally invented word, or something else.

You will find more on all of these by searching the pages of NamePros, or consulting a trusted information source such as the DomainAcademy.

Different Domain Investments

Last week in the NamePros Blog I looked at some trending terms, such as grok and NPTs. While we could categorize these, according to the above criteria, I don’t think that is sufficient. For example, grok is a term in the main dictionaries, so does that make it generic? Now that Musk and X announced a generative AI model with that name, with corresponding chat bot, does that move it suddenly to a product or service? Even if we call it a product or service, surely how new it is needs to be recognized in the categorization system?

GPTs are acronyms, but with the Open AI announcement have become also a product or service. But neither of these are fully established products or services in the sense that shoes, loans, etc. are, simply because they are very new. The long term demand, and indeed some trademark questions, are not fully resolved at the current time. Investment in them may well offer great opportunity, but also significant uncertainty.

As I thought about this topic, it seemed to me important to also categorize any prospective domain investment according to the style of investment that name represented. I propose a set of categories later, but first let’s look at conventional investing styles in the next section.

Conventional Investing Styles

Before we look at domain name investment styles, let’s review the terms from conventional investing (i.e. stocks, bonds, commodities, currencies, mutual funds, ETFs, etc.)

One possibility is value investing. You can read more from Investopedia at Value Investing Definition. The central idea of value investing is that one invests in stocks when the acquisition price seems low compared to intrinsic worth, and typically hold the investment for long periods. While Warren Buffett is the name most associated with the term value investing, it is his professor Benjamin Graham and his book The Intelligent Investor that defined the style. Read more on value investing at Wikipedia, along with the associated links.

A key aspect of value investing is to pay attention to metrics about the companies being considered, such as P/B (price-to-book) ratio that looks at how the cumulative stock holdings current trading value compares to the inherent value today if the assets were all sold. A P/B ratio of 1.0 would mean the current selling price was a match to the inherent worth.

There are other ratios, such as P/S (price-to-sales), and many others. The key idea is that for value investment you need some way of determining if current stock prices are likely undervalued, about right, or overvalued.

A very different investment strategy is momentum trading. Here the idea is not so much to look at measures of long-term valuation, but rather to find opportunities where the value of the stock is rising, and to hold it for a short time, selling near the top. Of course the challenge is determining when a stock price is near peak and avoid losses in declines. You can read more about momentum investing on Wikipedia, or in the momentum trading entry on Investopedia.

With this background in mind, let’s move on to domain name investing.

Four Types of Domain Investment

I am not sure if the following categorization of types of domain investing styles is original, but I think it is helpful to keep in mind.

We can think of any potential domain name acquisition as falling into one of the following four categories:

1. Speculative:
With speculative investments there is little or no sales record for this domain name investment, and not yet a firmly established certainty around end use, although one can envision many potential end users. Examples would be a newly-released extension, or investment in established extensions in a term that has suddenly appeared, due to new technology or some other factor.

2. Niche:
There is some record of both sales and end use, but the name likely has a narrow ultimate use. Certain new extensions, by no means all, I would categorize as niche if the use defined by the TLD is narrow. Even in legacy extensions, a name can be niche according to the type and keyword structure. While some niche names will have liquidity, in general less so than the value category below. Some niche names will sell with a great return on that specific name, but the overall sell-through rate may be low.

3. Momentum:
This category, that could be called trending or momentum, has some of the features of speculative, and possibly of niche, but has very strong current interest, probably coupled with a record of recent wholesale and potentially retail sales. The term will be growing strongly in number of registered TLDs, and some investors will be aggressively pricing their names. The sales of names with the exact term ETH, or NFT or meta fell into this category, as did .mobi names many years ago, and .club sales more recently that were propelled by Clubhouse popularity. In some, not all, cases, the trademark situation may not yet be totally clear, with numerous pending applications.

4. Value:
For a domain name to be considered in the value category, one needs sufficient use and sales of similar names to clearly establish valuation. Names in this category should have at least some liquidity and significant end use The idea in value domain name investing is to buy high quality names and hold them for many years, if necessary.​

Note that a domain investment can move from one category to another. The very early investments in the term NFT were probably niche, but once sales started to happen it moved to trending/momentum. With a significant sales record, a niche name may move to trending, and once a strong record of end use and liquidity of names are both established, it could move to value. It is a good question whether names in the .ai extension should be considered trending/momentum, or has moved to value status. What do you think?

Risk is lowest in value domain names. However, one can experience higher sales to acquisition price ratios in one of the other categories. Because trend/momentum names may have a limited window, one needs to think over offers carefully, and know when the right time is to exit.

Questions to Ask

If wondering which category is appropriate for a prospective domain investment, ask yourself these questions:
  1. Are there many developed domain names?
  2. Is there a record of retail sales? Use NameBio and other resources.
  3. What about wholesale. Does NameBio show a number of recent wholesale transactions?
  4. Are many TLDs registered, and is that number growing rapidly? Use dotDB to answer this.
  5. Is there a clear liquid value for this domain investment? If you offered the name in a NamePros auction, would it sell? What price would it sell for?
  6. Is the term/niche capturing public attention currently?
  7. Are there trademark questions not yet clearly decided?
  8. Is this a domain name I plan to hold for 5-10 years, or just try for this year?
Some Examples

The following is just my perspective, but here are thoughts on how we might characterize the three trends covered in the recent NamePros Blog article Trend Domain Investing.

It is probably fair to say that GPT/GPTs should fall in the trend or momentum category. There is already some sales record, both retail and wholesale, in the term, along with obvious applications after the OpenAI DevDay announcements. While generative AI will be disrupting many sectors for a long time, it is less clear that names with the specific term GPT will last as long. Some see potential issues related to trademarks.

The .bot extension is, in my opinion, probably best placed in speculative at this point. It is not that there is doubt with respect to how omnipresent bots will be in a widening number of parts of our daily life, but rather will the .bot extension become a major part of that. We probably will know in a matter of months if .bot investments will move to momentum/trend, which is likely in my opinion. The fact that a well-known name, Amazon, runs the registry is a plus for the extension. One .bot name has been reported sold after just a short holding time, but it is a lease-to-own purchase, so cannot be reported in NameBio.

In some ways grok is the most interesting, and most difficult to categorize. With the announcement so recent, and the X entry in AI also recent compared to OpenAI and other competitors, a niche or speculative category is possibly appropriate. However, the fact that the term has taken on significant use, at least within the computer science and science fiction communities, over some years, and is already used by over 100 established businesses, argues for at least a momentum categorization. However, there is not yet a significant sales record, but huge momentum in registration growth, suggestive of a momentum/trend categorization.

As with anything, in a way it does not matter so much the label we put on something, although thinking about the risk reward spectrum should be considered in any domain name investment.

Momentum Investing

Trend or momentum investing can sometimes be lucrative, with occasionally great returns on recently acquired names. However, the majority of registered trend names will never sell, so there are definite risks.

Keys to success are getting the best names early, and knowing how to price, and when to accept an offer and leave the niche.

Without an established sales record, pricing is harder in speculative, niche or trend/momentum names, and one tends to see a lot of variability.

The general advice with regard to domain name worth still applies to all categories: ask yourself if you would start a business on this domain name.

Go into speculative, niche, and trend investing fully realizing and accepting the risks, and knowing that, while you might do well, you can potentially get no return at all from these investments.

For more thoughts on making the most of short term trends, and avoiding pitfalls, see Catching Trains and Avoiding Train Wrecks. Of the 200+ NamePros Blog articles I have written, that article is one of my personal favourites.

The 90/10 Rule

Some investment advisors suggest to those who want to be actively involved in their investments, to consider a 90%/10% ‘rule’. According to that advice, keep about 90% of the investment in broadly based investments, such as market index based low-cost ETFs, while give yourself 10% to actively invest in shorter horizon opportunities. There is some indication that such a dual pot strategy helps investors deal with fear of missing out, while at the same time keeping most of their investment growing in a lower risk way. Please comment below if you apply that in your domain investing strategy.

Each domain name investor can only decide for themselves whether a similar approach might fit their situation. Risk tolerance, return expectations, personal financial situations, knowledge of trending niches, etc. vary strongly between investors.
 
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The views expressed on this page by users and staff are their own, not those of NamePros.
A very interesting article. It's a joy reading it.
Thank you wise man!

Just when one wonders what else is there to cover., you just come up with a whole new article.. haha!

As for the .ai extension,
The concept of Artificial intelligence has been there for a long time.. eagerly awaited for its evolution.. and it certainly isn't just a recent cool made-up word.. so it is safe to say it solidifies its value status...
The AI is here to stay.

There's one .ai name I hold, which puts a smile on me at the thought it's with me for now..

Behold!

. . . The future of humanity summarised . . .

👑 🧠 Neurological.ai

For me, this is the Emperor of Domains.

Good Day

Storm Hawk
 
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"The .bot extension is, in my opinion, probably best placed in speculative at this point. It is not that there is doubt with respect to how omnipresent bots will be in a widening number of parts of our daily life, but rather will the .bot extension become a major part of that. We probably will know in a matter of months if .bot investments will move to momentum/trend, which is likely in my opinion. The fact that a well-known name, Amazon, runs the registry is a plus for the extension. One .bot name has been reported sold after just a short holding time, but it is a lease-to-own purchase, so cannot be reported in NameBio."

My new Domain Investment - tick 3 of the 4 boxes, that is, Speculative, Niche & Momentum

  • Cardio.bot
  • Kidney.bot

Cheers
Corey
 
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Great insightful article Bob!

When not sure, we always suggest...

Don't Register a Domain, Register an Idea instead! One day either you'll get to the idea or someone will (and acquire your domain), it's a WIN-WIN!
 
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