Investing in Brandable Domains – Good Choice?
This is a Guest Post by Victor Pitts, Victor is a consultant to online businesses at VictorPitts.com and he is the cofounder of NameYourStartup.com, assisting startup businesses to acquire powerful brand names.
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A considerable number of domain investors have diversified their portfolio investments with “brandable” domain names. Some invest exclusively in these types of domains, bypassing generic domains and other domains which might produce some immediate income. These investors speculate that these brandable domains will someday be coveted by startup businesses, or existing businesses wanting to rebrand. While some investors have sold some of these this special type of domain names, most investors patiently wait for the buyer to contact them. Patience is required, because most startup businesses would not choose a brandable domain for reasons I will explain.
The whole concept of branding is to differentiate yourself from the masses, so people remember your brand and associate some value that you create, to that brand. Branding evokes in customers a perception of added value for which they will pay a premium price or develop loyalty to. Whether you are shopping at the grocery store, or an electronics store, you gravitate to the brands you know. These brands are known entities and have our trust (most of the time). It takes many years of consistent advertising and marketing to establish that recognition. That effort surely cost a lot. Most of the successful brands are proper nouns or they use words which do not have an intuitive meaning. Think Palmolive, Dove, Samsung, Dr. Pepper. With the advent of the Internet, these businesses moved their brand name online by simply removing the spaces from their brand name and added a .COM top level domain (TLD). Voila – instant brand recognition in the digital world.
Conversely, most of the online businesses took a somewhat different approach to branding their business by choosing to use brandable domain. A brandable domain, by most opinions is a short, none-descriptive domain, that is easy to remember, easy to spell, and passes the radio test (you get correct spelling just from hearing the domain name spoken). Well known examples are Google.com, Twitter.com, Yahoo.com, Amazon.com, and Trivago.com. You do not intuitively know the nature of the business behind the brand name based upon the name alone. These brand names have either no meaning on its own, or its meaning is so abstract that the average person would not understand the association. This allows the business to define the meaning and separate themselves from their competitors.
Creating a brand identity for businesses using brandable domains, required an enormous amount of work, time, marketing dollars and luck. There are many online businesses which chose this method of branding and have had impressive results. The Alexa analytics services globally tracks website popularity compared to all other sites on the web over the past 3 months. They publish a list of the 500 most popular websites online. Interestingly, 492 of the top 500 websites use a domain that is either a traditional brand name (proper name) or brandable domain. The remaining eight websites use another type of domain, called a generic domain. Generic domains are another common type of domain that domain investors have in their portfolio.
Does this mean that brandable domains are a better choice for startup businesses?
Yes and no. Even though the brandable name businesses dominate in many categories of products and services, they must spend a great deal of money to compete with businesses using generic domains. Business using generic domains have some significant advantages marketing online, because of current search engines algorithms. Search engines determine search relevancy of websites in part because of keyword matching of the search term to word/words within the domain name. The weight for this matching is significant. If you search any generic word for a product or service, you will find the search engine results full of website URLs using generic domain names. This means that the businesses utilizing generic domains names, get traffic from the search engines without having to pay for that traffic. Search traffic accounts for most of the traffic to any website, and for some industries it represents almost all the traffic the website will receive. This is a significant advantage for startup businesses, as most lack the funding needed to launch an expensive marketing campaign.
Besides the clear search engine advantage to businesses using generic keywords, having a product or service defining keyword within your domain, reduces the overall marketing expense required to tell people what business you are in. If your brand name is Candy.com, or Apartment.com, or Hotels.com or PictureFrames.com, potential customers intuitively knowns what business you are in. Your name says it all.
Generic domains are less expensive to market than brandable domains, and thus will appeal to a greater number of startup businesses. Still the case for brandable domains is strong, if you have the marketing budget to promote the brand. Generic domains are harder to get trademarked, because cannot trademark generic words like “chairs” or “tables” or “furniture”, or “accountant”, without some distinctive identifier attached to the name. It would not be wise to spend money on a costly TV ad campaign, without some trademark protection on your brand. If your business name was generic, then there are likely many competitors with similar names who would benefit from your marketing endeavors.
From an investor’s perspective, brandable domains are highly valued niche investment but you must be patient and wait for the right buyer to show interest. Understand that the domain has little to no chance of earning revenue in domain parking or as an affiliate business while you are holding the domain. Generic domains have a wider appeal for most startups, but most of these potential buyers are budget constrained, and that can impact what they can pay for the domain. Generic domains can sometimes be used in a parking network or in an affiliate network to produce revenue while you are holding the domain, but be careful with the latter so you do not cause any reputation problems for the domain. Like with most investment, having a mix of inventory is probably wiser than being all in for any single type of domain name.