Before NFTs, There Were Domain Names

When the pandemic halted Jason Sheppard’s nightclub DJ career, he turned his focus to his favorite side hustle — flipping website domains.

Sheppard had stumbled into the world of domain investing just a few years earlier, after he noticed a domain auction on GoDaddy while helping a friend register a website. Intrigued, he did some research online and ended up buying a few domain names to sell down the road.

Since then, Sheppard has flipped several domains. He bought gallaz.com for $59 and sold it for $1,575. Funnelsecrets.com cost him $550, and he sold it for $9,500. He and his investment partner paid $7,600 for solvent.com, which a year later they sold for $60,000.

“I found that I really enjoyed it and had a knack for it,” Sheppard, whose investment portfolio now includes 6,000 domains, told me.

He’s just one of many domainers — investors and speculators who hunt down, buy up, hold onto and sell web domains — that help fuel the domain-name market.

The recent investment wave has seen people pour money into alternative assets like non-fungible tokens (NFTs) and cryptocurrencies instead of traditional places like real estate, stocks and bonds. While the concept behind these headline-grabbing JPEGs and virtual coins may feel new, you can trace their heritage back to domains — the original digital asset.

 

Domains Are Like Virtual Real Estate

Domainers often compare domain names to real estate, with one key difference: You can’t put your hands around them. But that doesn’t stop people from considering them a good investment.

“The thing that I love about domain names is that they’re like physical real estate, but they’re better,” Michael Cyger, founder and lead instructor at DNAcademy, a training platform for domain investors, told me. “They don’t have any property taxes. They don’t have tenants to deal with. You don’t have to deal with termites or your property getting worn down in some way. And there are no toilets to repair.”

The gold standard for a domain name is one or two short, memorable, easy-to-spell words, followed by .com. Having a domain that checks these boxes lends businesses a sense of authority and memorability, Cyger said. It’s a vital brand asset.

“The thing that I love about domain names is that they’re like physical real estate, but they’re better.”

Demand for domains never seems to run dry. New businesses pop up every day, and they need websites to match their brand names and to which they can tie back their email addresses. In lots of cases, they’ll pay top dollar for them.

Look no further than the case of Ring, the smart doorbell startup acquired by Amazon for over $1 billion in 2018. Ring started out as Doorbot before rebranding in 2014, and founder Jamie Siminoff paid $1 million for the ring.com domain name. On a 2017 podcast, he credited the domain for giving the brand credibility and estimates the domain alone was probably worth $30 to $50 million.

Aside from the potential brand value, easy-to-remember domains still see lots of traffic from internet users who type websites in by hand. Some domainers will slap digital advertisements on there, banking on the flyby traffic. The ubiquity of Google has done little to slow it down.

“You’d be surprised how many people still go to the URL line and type in the domain name itself,” Monte Cahn, the founder and president of domain auction and brokerage firm Right of the Dot, told me.

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The Industry Is Full of Opacity — and Opportunity

The easiest way to buy a web domain is to sign up on a registrar, like GoDaddy or Namecheap, and pay a few bucks a year for one that’s available because it’s either expired or hasn’t been taken yet. (This is called “hand registering” in industry speak.) As far as investable domain names go, the pickings in this situation are usually slim. The really good stuff has been snapped up already, so most of the action is in the aftermarket.

You can search online to find out what domains are about to expire and place a backorder for one with a registrar. If no one else places a backorder on it, it’s yours. If someone else does, though, the registrar kicks it over to an auction house where it’s sold to the highest bidder.

Auctions are held throughout the year, offering domains that have either expired or whose owners want to cash out on their investment. That’s where some of the splashiest deals are made.

Other deals take place through brokers, who work on behalf of buyers to contact and negotiate with domain owners. Brokers come in when somebody wants a specific domain that’s already taken. Many brokerage deals fly under the radar, and you’ll never see them discussed publicly.

No matter how you get your hands on a domain, the key is to treat it like any other investment: wait patiently to sell until you can get more than you paid.

But unlike investing in physical real estate, buying and selling domain names isn’t a well-documented process, Cyger, the domain-investor instructor, told me.

He describes the ecosystem as a complex web full of registrars, auction houses, brokerages, buyers, sellers and drop-catchers (the term for those who use software to scoop up just-expired domains), all of which, taken together, can be overwhelming for all but seasoned domainers to navigate.

“The domain industry is opaque still today and difficult to figure out for those who are new to it,” Cyger said. “So it’s still sort of the Wild West.”

High-value domains might grab the headlines, but most investors play in smaller spaces. With less capital on hand, they need to get creative in finding diamonds in the rough and valuing domains just right.

“I like two-word combinations that would make a good brand,” Sheppard, the investor, said. He bought and sold brambletree.com not too long ago, taking a chance on it because he liked the way it sounded and imagined lots of possible applications.

“You don’t know for sure what they’re going to sell,” he said. “But [the name] evokes a kind of rusticness.”

 

The Domain Pool Got Bigger

New investment opportunities befell domainers like Sheppard in 2012, when ICANN (the Internet Corporation for Assigned Names and Numbers, the regulatory body that maintains and coordinates the domain name service of the internet) began accepting applications for new generic top-level domains, which are the letters to the right of the dot (com, org, net and so on).

The ICANN community wanted to expand the crowded pool of domain names. Most of the good ones had already been taken and many weren’t being used. The expansion also allowed for opportunities in branding and marketing — the terms to the right of the dot were suddenly given meaning. While .com doesn’t mean much to anyone, .health or .law or .insurance signals an industry or expertise. Now, there are more than 1,200 top-level domains available, including .club, .shop and .beer.

Reg Levy, head of compliance at domain registrar Tucows, told me not everybody was a fan of the expansion.

Many within the intellectual property community pushed back on it, fearing bad actors would scoop up trademarked domain names and extort established businesses.

There were some naysayers among domain investors, as well. Many had snapped up premium digital properties, and scarcity had helped to ensure their value.

But many other domainers were energized by the expansion and saw it as an opportunity to further invest.

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... But Then Came NFTs

Despite the new investment opportunities afforded by the top-level domain expansion, some from within the industry have noticed a shift in enthusiasm since the NFT craze kicked off last year.

Domain industry analyst Andrew Allemann recently posed the question to his Twitter audience: “Are you investing money in NFTs that you would have otherwise invested in domains?” He received a telling mix of responses.

“​​I’d love to buy more domains,” one person responded. But until the prices come down, the user added, “I’m in a holding pattern.”

“I did buy two names this week,” another said, “but yes, absolutely.”

“Yes,” another respondent answered. “Domains are boring and overpriced at this point.”

Shane Cultra, a domain investor, told Allemann on the DomainNameWire podcast that he and many of his peers purchased the popular Bored Ape Yacht Club NFTs. And while he’s not taking money out his domain portfolio to fund his NFT investments, he admits the latter has received his extra time and attention.

“A domain is a digital asset. You can’t put your hands on it, but it has value. And it’s the same with an NFT.”

Cahn, who’s been in the domain investment industry since the mid-1990s, has also noticed that a lot of NFT owners and resellers are domainers he knows. He’s not surprised by it. In many ways, domain investments have made the concept of NFT investments easier to swallow.

“The concepts are very similar,” he said.

Sheppard holds similar views: “A domain is a digital asset. You can’t put your hands on it, but it has value. And it’s the same with an NFT,” he said. “As one of my good friends said, ‘As domain investors, we were built for this, because we understand the value in something that you can’t touch.’”

 

There’s Always Money in the Domain

Other digital assets may have attracted investors’ attention in recent days, but longtime domain investors are hopeful the value of the domain won’t wane anytime soon.

For one, Cahn says they’re recession proof. During the dot-com bust of the early 2000s and the recession of the late 2000s, his domain investments remained rock-solid, he said.

And demand is always in supply. Less than 60 percent of the global population are active internet users, according to Statista. Internet usage is growing in places like India, half the population of which isn’t yet online, despite being the second largest online market in the world. As more people come online, there will be more websites, apps and email addresses — all of which require domain registration.

“There’s only growth and increase in volume coming,” Cahn said. “And with the introduction of new extensions, there’s a lot more opportunity for people like my kids.”

“In order for it to have life on the internet, have existence, you have to have the domain name as your core foundation. So that’s why it’s so important. And that’s not ever going away. Not in my lifetime.”