By Gretchen M. Olive, Director of Education & Industry Affairs, Corporation Service Company Global (cscglobal.com)
Reprinted from Trademark World #207 | May 2008
Excerpt (PDF Attached)
The domain dilemma
The dot-com boom of the late ‘90’s put the world on notice that domain names had the potential to be a company’s most valuable asset. A short, easy to remember and spell domain name, like amazon.com or ebay.com, could be both the company name and the complete directions any consumer in the world would need to find it. However, the fact that each domain name is unique (i.e., there can only be one amazon.com or one ebay.com) makes valuation challenging.
The three most widely recognized methodologies for asset valuation are cost, market and income. The cost approach seeks to determine the cost of acquiring the asset. Factors such as the costs that were incurred to build the asset in the first place, what it would cost in today’s economy to build the same asset and how much it would cost to replace the asset if it were lost or destroyed today are all considered. While it would not be too difficult to gather data on the historical costs of purchasing the domain name, expenses incurred in developing and operating the domain’s website, as well as legal and marketing funds expended for protection and promotion of the asset, this analysis begins to break down when trying to put a price tag on what it would cost today to rebuild or replace the domain name. On the Internet timing is everything and the variables are endless.
What worked for a brand holder last week, may take more to be noticed or may not work at all this week. Furthermore, domains are not only unique in their existence, but also their context (i.e., some domains exactly match a company name, others are a specific product name and yet others are generic or are made up words that only have meaning and utility to one specific owner). Since there is no one to one comparison to estimate cost to rebuild or replace a domain, cost-based valuation quickly turns into little more than speculation.
A market valuation approach uses comparable domain name transactions as the basis of determining the value of the domain name at stake. Though no two deals are exactly alike, for this methodology to be reliable one must find a number of recent deals and compare conditions to identify distinct similarities that can be the basis of extrapolation. Conditions that are typically considered are: type of top-level domain (TLD), number of characters in the name, whether the name is a brand name or a generic name, number of owners the domain name would be relevant or useful to and language of the domain name. The big challenge with working through this type of analysis is gaining access to the data. Not all domain deals are published and some deals are not exclusively for the purchase of a domain name, but rather a purchase of a company for which the domain name may be viewed as the most valuable asset. A notable example of this situation is the domain name BUSINESS.COM. In 1999 ex- Disney executive Jake Winebaum of eCompanies Ventures shocked the world by paying $7.5 million for the domain2, however, fast forward to July 2007 and the entire BUSINESS.COM enterprise was sold to R.H. Donnelly for $345 million3 leaving it unclear how much of that purchase price was attributable to the domain name and how much was attributable to the remainder of business assets acquired in the deal.
PDF Attached
Reprinted from Trademark World #207 | May 2008
Excerpt (PDF Attached)
The domain dilemma
The dot-com boom of the late ‘90’s put the world on notice that domain names had the potential to be a company’s most valuable asset. A short, easy to remember and spell domain name, like amazon.com or ebay.com, could be both the company name and the complete directions any consumer in the world would need to find it. However, the fact that each domain name is unique (i.e., there can only be one amazon.com or one ebay.com) makes valuation challenging.
The three most widely recognized methodologies for asset valuation are cost, market and income. The cost approach seeks to determine the cost of acquiring the asset. Factors such as the costs that were incurred to build the asset in the first place, what it would cost in today’s economy to build the same asset and how much it would cost to replace the asset if it were lost or destroyed today are all considered. While it would not be too difficult to gather data on the historical costs of purchasing the domain name, expenses incurred in developing and operating the domain’s website, as well as legal and marketing funds expended for protection and promotion of the asset, this analysis begins to break down when trying to put a price tag on what it would cost today to rebuild or replace the domain name. On the Internet timing is everything and the variables are endless.
What worked for a brand holder last week, may take more to be noticed or may not work at all this week. Furthermore, domains are not only unique in their existence, but also their context (i.e., some domains exactly match a company name, others are a specific product name and yet others are generic or are made up words that only have meaning and utility to one specific owner). Since there is no one to one comparison to estimate cost to rebuild or replace a domain, cost-based valuation quickly turns into little more than speculation.
A market valuation approach uses comparable domain name transactions as the basis of determining the value of the domain name at stake. Though no two deals are exactly alike, for this methodology to be reliable one must find a number of recent deals and compare conditions to identify distinct similarities that can be the basis of extrapolation. Conditions that are typically considered are: type of top-level domain (TLD), number of characters in the name, whether the name is a brand name or a generic name, number of owners the domain name would be relevant or useful to and language of the domain name. The big challenge with working through this type of analysis is gaining access to the data. Not all domain deals are published and some deals are not exclusively for the purchase of a domain name, but rather a purchase of a company for which the domain name may be viewed as the most valuable asset. A notable example of this situation is the domain name BUSINESS.COM. In 1999 ex- Disney executive Jake Winebaum of eCompanies Ventures shocked the world by paying $7.5 million for the domain2, however, fast forward to July 2007 and the entire BUSINESS.COM enterprise was sold to R.H. Donnelly for $345 million3 leaving it unclear how much of that purchase price was attributable to the domain name and how much was attributable to the remainder of business assets acquired in the deal.
PDF Attached
