During the last year or so, I have been studying the domain market in an attempt to come up with a legitimate way to value super premium and premium domains. My goal has been to look at the problem from a seller and buyer perspective so that that the approach is pragmatic and can help find agreement.
One of the biggest obstacles is that unlike other realty (e.g. MLS listing services) appraisals, the domain industry is extremely opaque and because of this it is difficult to discover reasonable comparables. Insiders, have a huge advantage since they have far more information about what end-users might pay for a given domain and website and since brokers are usually working for buyers, this puts sellers at a disadvantage. Still, with a little guess work, it may be possible to come up with a reasonable pricing model. So here is my basic thought process:
I look at a domain as having three components: 1) the domain name 2) the technology developed on the domain 3) the business that is running on the domain. I value each of the components in this manner:
1) The domain name is compared to other similar domain names that have changed hands in the public marketplace and were completely undeveloped at the time. This provides the best comparable. Namebio and DNSalePrice are the best resources for this kind of information though it is extremely helpful to have insiders provide additional data if it is available. Some of the metrics for finding comparables would be:
a) Google keyword exact match metrics,
b) the industry for which the name is applicable (the more generic a name the wider the potential audience; the more industry specific the easier to gauge the potential value)
c) the ease that a name can be branded (the easier it is to brand the more marketing and advertising dollars that are saved by the buyer)
d) possible trademark issues (this would decrease the number of possible buyers)
e) the growth prospects of targeted industries (cloud computing, biotechnology, group social buying, mobile computing, social networking and other hot industries, have greater value than non-growth industries).
2) It is probably easiest to put a value on the technology that is deployed on the domain. Google technology which has many patents and other moats is clearly worth considerably more than Groupon technology which is very easy to replicate. Amazon logistics technology is worth much more than eBay's auction technology though each are dominant. Patents are good but are difficult to defend and therefore should not be considered. First movers of proprietary technology are worth much more.
3) The business can be evaluated just like any other business: e.g. the number of customers coming to the site, revenue, conversion rates, expenses and gross/net margins, potential growth in the marketplace, moats to competition.
Using this model, I think it is possible to come to a reasonable valuation. However, the big problem is valuing in an opaque market where much of the transactions are never made public. Gold is freely traded and the valuation is straightforward. Art and coins, less so, though there are open markets that help arrive at prices. In time, similar open exchanges may become available in the domain market but for now it does not exist.
One of the biggest obstacles is that unlike other realty (e.g. MLS listing services) appraisals, the domain industry is extremely opaque and because of this it is difficult to discover reasonable comparables. Insiders, have a huge advantage since they have far more information about what end-users might pay for a given domain and website and since brokers are usually working for buyers, this puts sellers at a disadvantage. Still, with a little guess work, it may be possible to come up with a reasonable pricing model. So here is my basic thought process:
I look at a domain as having three components: 1) the domain name 2) the technology developed on the domain 3) the business that is running on the domain. I value each of the components in this manner:
1) The domain name is compared to other similar domain names that have changed hands in the public marketplace and were completely undeveloped at the time. This provides the best comparable. Namebio and DNSalePrice are the best resources for this kind of information though it is extremely helpful to have insiders provide additional data if it is available. Some of the metrics for finding comparables would be:
a) Google keyword exact match metrics,
b) the industry for which the name is applicable (the more generic a name the wider the potential audience; the more industry specific the easier to gauge the potential value)
c) the ease that a name can be branded (the easier it is to brand the more marketing and advertising dollars that are saved by the buyer)
d) possible trademark issues (this would decrease the number of possible buyers)
e) the growth prospects of targeted industries (cloud computing, biotechnology, group social buying, mobile computing, social networking and other hot industries, have greater value than non-growth industries).
2) It is probably easiest to put a value on the technology that is deployed on the domain. Google technology which has many patents and other moats is clearly worth considerably more than Groupon technology which is very easy to replicate. Amazon logistics technology is worth much more than eBay's auction technology though each are dominant. Patents are good but are difficult to defend and therefore should not be considered. First movers of proprietary technology are worth much more.
3) The business can be evaluated just like any other business: e.g. the number of customers coming to the site, revenue, conversion rates, expenses and gross/net margins, potential growth in the marketplace, moats to competition.
Using this model, I think it is possible to come to a reasonable valuation. However, the big problem is valuing in an opaque market where much of the transactions are never made public. Gold is freely traded and the valuation is straightforward. Art and coins, less so, though there are open markets that help arrive at prices. In time, similar open exchanges may become available in the domain market but for now it does not exist.
