A Beginner’s Guide to Domain Names, Their History, and How to Start Investing

We’ve all heard that investing in property can be one of the best investments you’ll make in your life. Still, many first time would-be homeowners find the dream of property just out of reach. Enter digital real estate, the type of portable online property that can be easier to flip than the most perfect “fixer-upper” home.

Digital real estate begins with domain names. Owning a good domain name is like owning a good street in the game of Monopoly. Own a portfolio of good domains and know how to develop them, and you’re on your way to becoming an online tycoon.

Over the past two decades, millions of domain names have been registered on the web, and domain registrations are on the rise. While many buy domains for personal, business, or brand identity, others buy domains speculatively with the purpose of holding and selling to the right buyer.

In recent years, a new type of domain—blockchain domains—has taken a corner of the market by storm. But before we dive into these newer domain types, let’s start with the basics of domain names as digital real estate.

What Are Domain Names Used For?

Most people need domain names for different reasons:

Some use domains as the primary URL for their website.
Others leverage multiple domains to support their brand.
Some see domain acquisition and investment as a marketing tool.
Others buy domains for protective reasons, ensuring competitors can’t get them—a common brand protection strategy today.

Domain names have become big business, with high-demand domains fetching significant prices. While many believe that the prime time to buy high-value .com domains has passed, it’s important to note that the market is far from over. More than 200 new top-level domains (TLDs) have entered the market recently, offering a fresh range of possibilities for a new generation of buyers.

For instance, according to Domain Name Wire, Hanes paid $30,000 for “t-shirt.store,” and Visual Dynamics paid $100,000 for “3D.software.”

3D.Software domain name sells for $100,000+

What Are Domain Names?

In simple terms, a domain name is a unique, human-readable web address (like “www.mysite.com”). Domain names replace long IP addresses with easy-to-remember names, making it simpler for people to find websites. Domains are used for websites, email addresses, and more, acting as digital real estate in the online world.

The Domain Name System (DNS) is a decentralized naming system that manages domain names and their corresponding IP addresses. When you register a domain name, you claim a piece of this digital real estate, which can serve as your online presence.

Domain names are used in a variety of networking contexts and applications, like email addresses and hostnames. Domain names act as the home address of a website, reading as a signpost for “www.mysite.com.” The domain name is the first thing people see when they visit a website. Domain names can be descriptive or non-descriptive in purpose, such as “My Site” or “Guitar Center.”

The History of Domain Names

The internet has come a long way since the first domain, symbolics.com, was registered in 1985. Many major companies didn’t recognize the value of domain names until the last 15 years or so.

One famous example is from 1994, when Joshua Quittner, a writer for WIRED, offered McDonald’s the chance to buy mcdonalds.com. They declined. Today, domain registration is a top priority for businesses and personal brands alike.

The Rise of Domain Name Investment

Since ICANN (Internet Corporation for Assigned Names and Numbers) opened domain registrations, entrepreneurs have speculated on domain names they believed would grow in value. What began as a small, niche market has exploded into a global business, with investors ranging from small-time domain flippers to major corporations.

For example, Verisign reports that registered .com domains have surpassed 128 million, generating over $1 billion in annual fees.

Over the last two decades, organizations such as magazine publisher Hearst, AOL, CBS, Salesforce, and Amazon have spent tens of millions of dollars on domain names, many of which are now inactive.

Even celebrities and high-profile individuals have entered the domain investment world. Lana Del Rey’s father is a well-known domain investor, and members of Middle Eastern royal families control some of the largest portfolios.

Why People Buy Domains

Domains aren’t sold on a one per customer basis. For this reason, many people buy names for ideas that they might further develop down the line, for the simple reason that it is available. Buying up particular domain names so that a competitor can’t, or buying variations of your brand name, a.k.a “brand protection”, is common practice in the domain world, and simply seen as common sense today.

Why Invest in Domains?

Investing in domains, or digital real estate, offers significant potential for high returns. At a cost of around $7 per domain, it’s an accessible business model for many. Domains offer scalability, global reach, and recurring revenue opportunities.

Some investors buy and hold premium domain names, hoping to sell them for 10 or 20 times their value down the line. Others engage in domain flipping, buying domains and quickly selling them for a profit.

Domain auctions on sites like Sedo, Dan, and GoDaddy offer a competitive environment where high-value domains often sell for premium prices. You can also find niche communities or forums where you can market domains to targeted buyers.

According to a CNBC interview, Sedo believes that Chinese registrants control 54 percent of these new domain names–a market that owns many of the world’s top two and three-letter dot-com domains.

Top Level Domains

A top level domain is the part of the domain address at the far right of the dot. It’s the .com in your gmail.com address, or the .org in wikipedia.org. The mighty .com has enjoyed the benefit of good marketing and rise of commerce on the web to become the undisputed TLD of highest value.

Even though many will tell you that the time for buying quality .com domains is already over, it’s not only the more premium dot coms making waves anymore. More than 200 new top level domains (TLDs) have entered the market in the last few years, and they are finding a new generation of buyers. As the younger, internet-native generations begin their own businesses online, they are embracing clever, snappy, descriptive and brandable names with clever TLD hacks like Beautiful.ly.

Despite concerns some have had about oversaturation due to the increasing number of TLDs, these new options open doors for more personalized branding opportunities. After all, there are hundreds of individuals named Joe, but there is only one joe.com — and if you don’t have a wallet the size of Manhattan, you’re unlikely ever to own joe.com. But while joe.com might be out of reach, alternative TLDs like joe.live or joe.social can allow individuals and businesses to stand out in new, creative ways.

How to Buy a Domain Name

Buying a domain name can be straightforward, but it’s important to consider factors like availability and the type of domain you need. For example, .com domains are ideal for commercial use, while .org domains are more suited for non-profits.

If the domain you want isn’t available, there are many other options like .co, .online, or even country-specific extensions like .co.uk. Finding the right domain for your needs is key when building your digital real estate portfolio.

To buy a domain name, start by finding an available domain name. Many websites will help you with this task. For example, if you are writing a blog on WordPress or Blogger, you can register your domain through them and it often comes included in the price of a website package.

While buying a domain is easy enough, choosing a name that you like and that is available for registration can be a time-consuming and even complicated process. It can be hard to find a suitable domain for your business without doing some research. Luckily, domain tools are getting more sophisticated: for instance, you can try an AI name generator that suggests brand name domains available for registration immediately.

If you want to buy a particular domain name but are unable to get the .com version, you could consider a ‘.co’, an ’.online’ or even a local country code extension like ‘.co.uk’.

How to Choose a Good Domain Name

Choosing the right domain to invest in requires some knowledge of SEO (Search Engine Optimization) and market trends. Knowing what people are searching for can help you identify high-potential domain names. However, the digital landscape changes quickly, so a domain that’s popular today may not hold the same value in the future. Domain investors need to stay current with trends and market cycles.

Expired domains that become available for reregistration can also be a good investment since they often retain backlinks that can improve their SEO rankings if you’re building a new site.

Did you know that exact match keyword domain names like “artgallery.com” or “localmovingcompany.com” were ranked high on Google in the early 2010s?

Then Google introduced the Exact Match Domain penalty in 2012 for sites with generic domains, but little quality content. Google core updates like this one can affect potential domain value, exemplifying the need to stay current eye on the market as a domainer.

Selling Domains for Profit

When selling domains, you want to get the best possible price: buy low, seel high. Many successful investors sell their domains through online auctions or specialized platforms. It’s important to note that the more valuable the domain, the busier the auction will be, and the higher the selling price.

However, avoid buying trademarked domains with the intention of selling them back to the original trademark owner—it’s a risky move that could lead to legal trouble.

Top Domain Name Sales

Here are some of the most expensive domain sales of all time:

Cars.com – $872 milllion
Business.com – $345 million
LasVegas.com – $90 million
CarInsurance.com – $49.7 million
Voice.com – $30 million

These high-profile sales demonstrate the significant value that premium digital real estate can have in the online marketplace. We’re likely to continue to see sales like these ones, and even higher, as the nature of digital real estate evolves.

Domain Investment as a Bridge to Digital Real Estate

Digital real estate sounds fancy, but consider that “domaining” is a relatively low-cost venture. With hand registration prices averaging around $7 for a domain, it’s accessible to a wide range of people. This makes digital real estate in form of domain names the most affordable type of real estate around.

It checks several important boxes as well.

As a business model, domain investment offers scalability, a global reach, and the potential for high-profit margins. It even allows for recurring revenue streams. Domain flippers, for example, often buy a quality domain and flip it for 10 to 20 times its value within just a few months.

Sure, owning a domain name extension might not seem like the flashiest investment in a world where technology drives venture capital and a 10% ROI can earn you Wall Street accolades. But in my opinion, domain investing is one of those slow, steady paths that can lead to significant returns over time, if you play your cards right.

It’s also never been a better time to get a foot into web3 domains and digital real estate in exciting new areas like blockchain and the metaverse.

The Reality of Domain Investment

Buying and reselling domains for profit, often referred to as domain speculation, can be a profitable venture for those looking to supplement their income.

However, it’s not always easy money. Factors ranging from the quality of your domain portfolio to your willingness to cold call or email using outbounding methods can affect your resale outcomes.

To turn domain buying and selling into a viable business, you also need to be familiar with search engine trends and how domain marketplaces operate.

For this reason, it’s wise to start viewing your domain investment as a hobby at first. Domain flipping in the right context can be a lucrative side hustle, especially for freelancers or those with flexible schedules, as domain auctions and sales often have short time frames.

It’s important not to expect domain speculation to replace your full-time income right away. Based on my research, factors like market fluctuations and search engine indexing updates, which are often unpredictable, can significantly impact your profits.

That said, the business model itself is simple. All you need is a laptop and an internet connection to start researching which domains are in high demand and determining how much to budget for your acquisitions.

Some experienced domain investors accumulate large portfolios, holding onto hundreds of domains in anticipation of specific search terms becoming popular and valuable. Be aware, however, that this strategy can require significant upfront capital and thorough risk awareness.

An Example of a Self-Taught Domain Investor

Domainer Ali Zandi is a great example of someone who turned domain investing into a successful digital real estate business. Starting out with quick flips, he moved into a more balanced approach, holding onto premium domains and selling them to end-users rather than other investors.

Zandi’s story is a testament to how domain investing can start as a side hustle and evolve into a profitable business. His journey shows that, with the right strategy, anyone can succeed in the world of digital real estate.

Conclusion

Are you excited to dip your toe into the exciting world of domain name investment?

Whether you’re just dipping your toe into digital real estate or looking to expand your portfolio, domain name investment offers a unique opportunity to build wealth in the online world. Even better, buy good names and develop them to sell on sites like Flippa. With the right strategy, a small upfront investment can lead to big returns down the line.

Stay tuned to our blog for more insights into the exciting world of domain investing, including emerging trends in blockchain and decentralized domains.

Thanks for reading!