sales Why Are Companies Reluctant to Spend Money on a Good Domain?

[Whizzbang]

The last article on “Underpinning Domain Sales” sparked an interesting discussion on the domain forum, NamePros. One of the respondents asked the question, “Why are companies reluctant to spend money on a good domain?” In this article, I hope to answer that question.

In my opinion, the dominant reason businesses don’t spend money on domain names is because of ignorance. On the whole the domain industry has not been able to mobilise itself and communicate cooperatively to businesses about the importance of domain names. I’d like to unpack this a little further.

The biggest problem has always been the question of whom should put up the PR/Marketing money to generate interest and understanding in domains. Some people point to the registries, others the registrars while others say the current domain owners should all chip in. These discussiona often degenerate into name-calling and a lot of inaction.

What domain investors need to appreciate is that once they have purchased a domain name the registries and the registrars have effectively done their job. There is NO incentive for them to try and market on behalf of existing owners to increase the demand for already registered domains so the price goes up. That’s an almost impossible job.

The job of registries and registrars are to convince existing owners to renew and to get new registrations from wherever they can. On the whole, new gTLD registries have been excellent at selling their product to the domain investor constituency based on scarcity. “If you don’t buy this domain you’ll miss out like you did in the .com rush.”

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[frank-germany]

You are missing an important point, 98% of the population could care less if it's 'JohnsPizza.com' or 'JohnsPizzaShop.com'...one or the other isn't going to make the business look 'more important' and one or the other isn't going to suddenly grow the business. 98% of the population, if asked when ordering their pizza at Johns Pizza Shop, probably wouldn't even be able to tell you the URL off the top of their head...it only matters that much to domainers.

you are a really bright guy.

 

[poweredbyme]

I have 4 answers to your question:

1- Some businesses, especially small local types, don't need a website to sell their products. Domain is just a waste of money for them, not an opportunity.

2- Domains are closed for improvement. If a business has a website, changing its domain is usually very bad idea. Once a domain is selected and used, doors are closed for replacement. Domains are bought for only 1 time for the same business.

3- Domains needs to be purchased in the startup phase of new businesses along with other big expenses like renting/buying office and equipments. In that phase there is no revenue for the business. Budget for a domain is at its record minimum.

4- Domain pricing depends merely on the buyer need. So sometimes domainer might look like a profiteer from buyer's perspective. Because buyer knows if he could register before the domainer, he would pay only reg fee. So the domainer is trying to make profit just from acting earlier than him. Buyer also knows in his offline business, his profit is equal to sale price minus cost. What's the cost of a domain? Reg fee. Any price above the reg fee is perceived unfair by a buyer unless apparently there are other buyers (competitors of the buyer) who might pay more.

 

[frank-germany]

I have 4 answers to your question:

1- Some businesses, especially small local types, don't need a website to sell their products. Domain is just a waste of money for them, not an opportunity.

2- Domains are closed for improvement. If a business has a website, changing its domain is usually very bad idea. Once a domain is selected and used, doors are closed for replacement. Domains are bought for only 1 time for the same business.

3- Domains needs to be purchased in the startup phase of new businesses along with other big expenses like renting/buying office and equipments. In that phase there is no revenue for the business. Budget for a domain is at its record minimum.

4- Domain pricing depends merely on the buyer need. So sometimes domainer might look like a profiteer from buyer's perspective. Because buyer knows if he could register before the domainer, he would pay only reg fee. So the domainer is trying to make profit just from acting earlier than him. Buyer also knows in his offline business, his profit is equal to sale price minus cost. What's the cost of a domain? Reg fee. Any price above the reg fee is perceived unfair by a buyer unless apparently there are other buyers (competitors of the buyer) who might pay more.

have you ever sold a domain?

 

[poweredbyme]

have you ever sold a domain?

Yes I sold. What do you want to know?

 

[Cdomains]

We live and breath this stuff every day.

The average end user does not look at domains the way we do, and sometimes it is hard for us to see it like they do.

I think 99% of end users are not aware at all of the fact that domains could be worth more than reg fee.

Most don't know about the after market or domain name markets like Sedo, Afternic, etc.

Most have never seen the sales charts at DNjournal, so they have no idea of the values.

I can't tell you how many times I've had a shocked or angry reaction from an end user who inquired about a name and then learned the price was not close to reg fee.

In fact this is the reaction I get more often than not.

The only buyers who really understand the value are tech savvy business people and entrepreneurs.

These are the buyers who are willing to pay a good price for a domain, because they get it.

The rest are clueless.

 

[garptrader]

Joe's burger joint in a rural town does not need to spend a lot of money on a domain name and they probably do not need a website.

However a company which promotes its products and services directly to consumers online or which uses its domain in television, radio or billboard advertising can harm their promotional efforts with a poor domain. They may not realize it but ineffective forms of advertising can be far more costly than a good domain name.

 

[Cdomains]

However a company which promotes its products and services directly to consumers online or which uses its domain in television, radio or billboard advertising can harm their promotional efforts with a poor domain. They may not realize it but ineffective forms of advertising can be far more costly than a good domain name.

I totally agree, but try convincing them of the value.

 

[garptrader]

I once saw a company spending five figures monthly on Google Adwords. They were also spending six figures monthly on legal costs and had IT projects with consultants / programmers being billed in the $100-$200/hour range - regular invoices of five figures. They had a private jet for their execs with upkeep in the five figure range monthly and flew a huge staff of managers for an out-of-town offsite conference. Wonder how much that cost between air fare, hotels, rental cars, meals for dozens of employees? Given the large external audit staff that was there nearly year round, I am sure their audit fee was well into six figures. Yet I also saw a Godaddy charge - several crappy reg fee domains for internal projects. Some companies have money to spend on marketing and website development and everything else but spending on domains is just not on the radar.

 

[todaygold]

Yet I also saw a Godaddy charge - several crappy reg fee domains for internal projects.

Maybe I missed something, but why do they need to spend tens of thousands of dollars for domains that are only being used for internal, presumably short-term projects?

 

[Whizzbang]

This is a great discussion.
I think that domain investors on the whole understand the problems (as can be evident here) but there aren't many solutions being proposed.....time for another blog to kick the ball down the road methinks!

 

[Ben Price]

What they do care about is there own business and don't understand how a domain may potentially fit into their business plan. The reason for this is no one has made the business case to them about how a doman may assist them. This is something the seller needs to overcome.

Thanks for your reply.

There is only one thing a domain seller would ever need to educate a potential buyer upon, and that is whether or not, and to what degree, the name gets traffic.

Traffic, whether it be natural "type in", or something else, is a marketing value that all business owners will readily appreciate. However, conversation with them about the real value of a good .com, or did they realise that so-and-so similar name sold for X back in the day... (and so the name they're being offered now is a bargain!, etc)... is all just nonsense.

This leads me to my favourite domainer value-based gambit, "branding". Believe me, there is nothing more painful than hearing a domainer trying to explain to an experienced business owner (who has likely been in business for many years) that buying their domain will help them with their branding efforts.

It is like hearing a child lecturing an adult on " the facts of life"...

So it is traffic that is the only true value that a domainer can talk about with a prospective buyer, and everything else that flows from their mouth is just sales talk that the seller hopes the buyer will believe.

 

[todaygold]

This is a great discussion.
I think that domain investors on the whole understand the problems (as can be evident here) but there aren't many solutions being proposed.....time for another blog to kick the ball down the road methinks!

Seeing how at least half of the posters in this thread seem to agree that most businesses don't need to spend tons on a domain name, I'm not sure how most domainers understand the 'problem'.
The best 'solution' to businesses not wanting to buy your domains has nothing to do with the beating down peoples doors and harassing, err educating them...the best solution is to buy something people want...good domains.
Great domain names sell themselves. Take a look at the appraisal section...or my favorite, the 'make an offer over $500' section...where members seem to think 'BuyGreatBigHouses.Plumbing' should command at least $xx,xxx. If we educate domainers about what sells, what makes sense and what actual businesses want...then maybe we won't have as many of these kinds of threads.

 

[Joe N]

Seeing how at least half of the posters in this thread seem to agree that most businesses don't need to spend tons on a domain name, I'm not sure how most domainers understand the 'problem'.
The best 'solution' to businesses not wanting to buy your domains has nothing to do with the beating down peoples doors and harassing, err educating them...the best solution is to buy something people want...good domains.
Great domain names sell themselves. Take a look at the appraisal section...or my favorite, the 'make an offer over $500' section...where members seem to think 'BuyGreatBigHouses.Plumbing' should command at least $xx,xxx. If we educate domainers about what sells, what makes sense and what actual businesses want...then maybe we won't have as many of these kinds of threads.

But that's not what this thread is about. There will always be a lot of crappy domainers and domains. Domainaing is a business, and 8 out of 10 businesses fail in the first 18 months. That's never going to change.

We're talking about how businesses that should be using good domains are not. So your pizza shop example doesn't have any bearing.

Business owners need to be educated. I'm talking massive ad campaigns drilling it into their heads for years. I don't know who's going to foot the bill for that, but it's the only way. It's how opinions are changed these days.

And to @poweredbyme... The price of a good domain is determined by the free market. And it's justified by the time, money, opportunity cost, creativity, experience, and reputation of the domainer selling it. That's how you explain the cost to a potential buyer. No business in the world is as simple as "sales price minus acquisition cost = profit."

 

[todaygold]

We're talking about how businesses that should be using good domains are not. So your pizza shop example doesn't have any bearing.

Business owners need to be educated. I'm talking massive ad campaigns drilling it into their heads for years. I don't know who's going to foot the bill for that, but it's the only way. It's how opinions are changed these days.

Maybe I missed something. But who are you to say what businesses 'should' be using 'good domains'? Who put you in charge of other businesses decision making? If they are fine with what they have, that's their business.
And there have been massive ad campaigns for well over a decade...every major company has either their brand name or a 'category killer' .com in their ads...other business owners see that.

 

[urlurl]

My Points on why or why not a person/business will put up the money to buy a name


1. Size
How big of a company or project will it become. A person starting a blog about his cat vs billion dollar enterprises will see the value in solid domain name totally differently.


2. Confidence/Belief
Do they believe the company will succeed - is it worth the risk putting up thousands of dollars on a good name. If they are confident they are more likely to feel better about spending more.


3. Capital
How much money are they working with and how is it going to be allotted. Big difference in spending for a bootstrap project vs well seeded company make a big difference.


4. Future Potential
How large do they expect the business to grow. Is it going to be a neat little tool, directory, app, etc that is very limited in scale. Or does it have the potential to be the next; FB, twitter, uber, etc


5. Understanding
Do they have the general understanding about domains, SEO, and extensions. Are they aware of the secondary domain name market and how to obtain domain names that are already owned.


6. Alternatives
Sometimes there are just as good alternatives that are still available for regular registration.


7. Attainable
Is the ideal or perfect matched domain name even remotely attainable. A person owns an apple farm - We all know he's not getting APPLE .com, no matter how much he tries or has to spend.


8. Stubbornness/Ignorance
Some still see domain investors as "squatters" and will be dammed if they give any money to them


9. Presence
A business that doesn't or wont depend on internet traffic does need to shell out the big bucks for a great name. That food truck or local dog walking business will do just fine with whatever they reg.


10. Because
I wanted to even this out to a 10 point blurb. So my last point is "No Good Reason, Just Because'




These are a few key points (there may be more) I use when i price, sell and decide on buying names for investing.

'Know your Audience'

 

[Joe N]

Maybe I missed something. But who are you to say what businesses 'should' be using 'good domains'? Who put you in charge of other businesses decision making? If they are fine with what they have, that's their business.
And there have been massive ad campaigns for well over a decade...every major company has either their brand name or a 'category killer' .com in their ads...other business owners see that.

I don't know... Who am I to say people shouldn't smoke? Who am I to say people shouldn't go into work every day and do a half-assed job?

People (and business owners) are welcome to make whatever choices they like. That doesn't make them good choices.

Certain businesses set themselves up for failure with the choices they make. Sometimes a choice that contributes to that is cheaping out on their domain name.

 

[Ben Price]

We're talking about how businesses that should be using good domains are not. So your pizza shop example doesn't have any bearing.

Business owners need to be educated. I'm talking massive ad campaigns drilling it into their heads for years. I don't know who's going to foot the bill for that, but it's the only way. It's how opinions are changed these days.

Ok, but what is it exactly you're wanting to educate them on Joe?..

Apart from the traffic angle, which is something that is easily appreciated by business owners and is somewhat separate to the "education" process I think you're alluding to, isn't the only advice you could give a buyer something along the following lines:

"Well, short domains are usually better, and try to be descriptive in your name if you can... Oh, and if you want to play with brand-able identities then that's ok too"

Isn't this, Joe, all they would ever need to know about domains or do you have something else in mind for them?...

 

[Joe N]

Ok, but what is it exactly you're wanting to educate them on Joe?..

Apart from the traffic angle, which is something that is easily appreciated by business owners and is somewhat separate to the "education" process I think you're alluding to, isn't the only advice you could give a buyer something along the following lines:

"Well, short domains are usually better, and try to be descriptive in your name if you can... Oh, and if you want to play with brand-able identities then that's ok too"

Isn't this, Joe, all they would ever need to know about domains or do you have something else in mind for them?...

There are a few more things:

Greater credibility, improved visibility, more perceived professionalism, instant trust, improved marketing, brand protection, investment potential, increased authority, memorability, added clarity.........

 

[Ben Price]

There are a few more things:

Greater credibility, improved visibility, more perceived professionalism, instant trust, improved marketing, brand protection, investment potential, increased authority, memorability, added clarity.........

Haha, so funny. I think you should take a break from reading DN Journal for a little while...

 

[Joe N]

Haha, so funny. I think you should take a break from reading DN Journal for a little while...

So you asked the question to mock my answer? That's uncalled for. You're welcome to disagree, but I'd appreciate if you would keep the personal attacks to yourself.

 

[Ben Price]

So you asked the question to mock my answer? That's uncalled for. You're welcome to disagree, but I'd appreciate if you would keep the personal attacks to yourself.

Sorry Joe, no offence intended. Frankly, the last thing i'd want to do is challenge a domainer's mindset.

 

[TRY]

There are a few more things:

Greater credibility, improved visibility, more perceived professionalism, instant trust, improved marketing, brand protection, investment potential, increased authority, memorability, added clarity.........

Haha, so funny. I think you should take a break from reading DN Journal for a little while...

What Joe said is pretty much common sense and your response to it doesn't make sense.

Small businesses don't get it and in most cases don't really need it.
More and more companies each day get it and they usually can afford what they want and that's when you get that inbound inquiry.

 

[frank-germany]

But that's not what this thread is about. There will always be a lot of crappy domainers and domains. Domainaing is a business, and 8 out of 10 businesses fail in the first 18 months. That's never going to change.

exactly

Business owners need to be educated. I'm talking massive ad campaigns drilling it into their heads for years. I don't know who's going to foot the bill for that, but it's the only way. It's how opinions are changed these days.

no need for us to educated them

the market will educate them
as they will lose business
in regards to their competitors
or spend more money on advertising

 

[frank-germany]

There is only one thing a domain seller would ever need to educate a potential buyer upon, and that is whether or not, and to what degree, the name gets traffic.

not 1 of the domains I have sold as been sold based on the traffic

 

[frank-germany]

My Points on why or why not a person/business will put up the money to buy a name


1. Size
How big of a company or project will it become. A person starting a blog about his cat vs billion dollar enterprises will see the value in solid domain name totally differently.


2. Confidence/Belief
Do they believe the company will succeed - is it worth the risk putting up thousands of dollars on a good name. If they are confident they are more likely to feel better about spending more.


3. Capital
How much money are they working with and how is it going to be allotted. Big difference in spending for a bootstrap project vs well seeded company make a big difference.


4. Future Potential
How large do they expect the business to grow. Is it going to be a neat little tool, directory, app, etc that is very limited in scale. Or does it have the potential to be the next; FB, twitter, uber, etc


5. Understanding
Do they have the general understanding about domains, SEO, and extensions. Are they aware of the secondary domain name market and how to obtain domain names that are already owned.


6. Alternatives
Sometimes there are just as good alternatives that are still available for regular registration.


7. Attainable
Is the ideal or perfect matched domain name even remotely attainable. A person owns an apple farm - We all know he's not getting APPLE .com, no matter how much he tries or has to spend.


8. Stubbornness/Ignorance
Some still see domain investors as "squatters" and will be dammed if they give any money to them


9. Presence
A business that doesn't or wont depend on internet traffic does need to shell out the big bucks for a great name. That food truck or local dog walking business will do just fine with whatever they reg.


10. Because
I wanted to even this out to a 10 point blurb. So my last point is "No Good Reason, Just Because'




These are a few key points (there may be more) I use when i price, sell and decide on buying names for investing.

'Know your Audience'

thats more or less it