Can a domain name be the difference between success and failure in a business? Are domain names the single best investment one can possibly make in one’s business? These are the main questions debated in an ongoing chain of posts, then my comments, and a follow-up post, and another of my comments and yet another post between myself and Andrei over at DomainingTips.

The conventional wisdom among domainers is that without the domain name, you’re nowhere, or, investing in domain names is the single best thing you can do to achieve some kind of “edge” in the competitive marketplace.

My opinion is different. I think the people who care most about domain names, are domainers. I don’t think that a domain name will be the key to success or failure and I can’t even parse the assertion that anything is “the best” investment because I think that statement is more rhetoric than anything else.

Let’s dissect.

The Only People Who Really Care About Domains are Domainers

It’s almost a truism. Why wouldn’t this be the case? The people who care the most about buildings are architects, the people who care the most about machinery are engineers, why should it be any different here? The difference is a common domainer fallacy, and it’s that they think other people care just as much about domain names as they do. They don’t.

The only thing other people care about when it comes to their domain names are their own domains. Outside of domaining circles, not a lot of thought goes into what makes a great name or getting effective usage out of domains. It happens. A guy once showed up at my house to look at a leak in the basement  and he had wetbasements.com emblazoned across the truck. He got it. But I doubt he would have mortgaged his house to buy wetbasements.com, if it had already been taken or priced too high in the aftermarket; he simply would have gone with something else that got the same point across.

Strictly anecdotally, I once pitched a publicly traded company here in Canada who was a publisher of financial information products. I’ve always loved that business and these guys had one that was languishing, on the decline, it had website leftover from the 90’s with a terrible domain but they were still pulling in $7M/year when I first pitched them (they were down to about $4M when they finally got delisted).

My turnaround plan included: rebuild the website, pull it into the modern age, rebrand it as stockmarket.ca (which I own) and transition from print to web. Their eyes glazed over. They didn’t get it. They didn’t care. Especially the domain name part.

Look at real estate agents. They’re still putting gmail addresses in their ads half the time, and 99% of their websites are their own names(.com). This is clearly idiotic to people like us, who understand all this stuff. But the fact is few do.

So the key takeaway to this point is this: Domainers tend to value domains as if everybody else cared about them the same way that they do.

But that isn’t how it works. You may be in love with your favorite public entity (Google, Apple, Groupon? Demand Media?) and that’s when you tend to over-inflate its value in your own mind, thinking that everybody else feels the same way. It leads to overpaying on assets and holding out for unattainable prices when considering a sale.

Can a Domain Make the Difference Between Success or Failure?

I say it can’t. It won’t. And there is plenty of evidence around to support it. They have names like Live Current and Banks.com. They have destroyed shareholder value in epic proportions. Conversely we have all the success stories and the domain names they didn’t use. Because the other powerful domainer fallacy is this:

They think that by owning the generic .com in a key vertical, you are destined to lock up that vertical.

The origin of this fallacy goes back to the days when there was a lot of type-in traffic and the default behaviour of web browsers was to simply append “.com” onto anything that wasn’t already fully qualified when typed into the browser location bar. It was a powerful phenomenon at the time and it really goosed the returns of some outfits, like webhosting.com, and of course, those were the easy breezy days of fat, lucrative domain parking revenues.

But those days are gone. The premise doesn’t hold up anymore. It was an aberration at the time, one that built some enormous fortunes, but anybody banking on that premise today is going to lose their shirt.

Books.com didn’t come close to killing  Amazon. We all know Craigslist, but not classifieds.com and DNS.com didn’t put all us other DNS providers out of business the instant they rebranded.

Further to this flawed assumption, is that the generic term is somehow the most desirable term to own in a space. That people are going to want to do business with the company that has the most generically uninspired name. Remember the movie “Repo Man”, when the protagonist’s parents are sitting zombie-like in front of the TV eating from tins labeled “food” and drinking cans labeled “soda”? There’s a flawed premise that the most unimaginative, generically named business is going to “win” because they own the .com that aptly describes their own space. I don’t know about you, but I don’t want to deal with the most generic, uninspired business I can possibly find in a market.

What is true is that successful businesses build successful brands, and the really successful businesses totally dominate their space, they just own it. But notice that when they do, they make their brand define the space, they didn’t take the generic phrase for the space and make it their brand. Hence, Kleenex. Not facialtissue.com. Coke. Not soda. Google, not search.com.

This mentality is gaining a new lease on life with the new TLD craze, where people are making bets that by obtaining the rights to operate some TLD in a vertical (.med, .law, .club, .pro *oops!*) that they are going to “lock up” that vertical, and that all the lawyers are going to file themselves into .law and all the doctors are going line up for .med, and all the clubs will brand under .club. What a dangerous assumption. The world is one big herd of cats. You think they’re all going to line up in single file and organize themselves into the categories you setup for them?

I don’t see it happening.

Domains are the Single Best Investment You Can Make in Your Business

This statement is purely rhetorical and has no real meaning. As an investor one understands all too well the old value investing principal (as espoused by Buffet and Munger)

Price is what you pay. Value is what you get.

Once you understand that statement, you will look at a phrase like “XYZ is the best investment” and recognize it as pure sloganeering. Without price and without value you have no way to gauge what is a good investment and what is flushing money down the crapper.

slots.com was once hand regged. It was then sold for about $40K. Good investment.

Then it was sold again for about $250K. Another good investment.

Last time out, it went for how much? Something like 6 million? It’s too early to tell if that was a good investment or not. It’s unlikely it will ever be sold for an amount higher than that, so what remains to be seen are things like:

1. how long will it take to recoup that investment
2. what kind of return will it earn over its lifetime
3. could that money have garnered higher returns had it been deployed elsewhere?

Without those questions answered, “was it a great investment” is a meaningless question.

Sex.com was purchased for something like $13M and the people who bought it went insolvent. Great Investment?

I bought gold at < $300/oz, I think it’s a great investment. Can somebody buying the same asset at today’s prices make the same assessment?

The point of all this is without knowing the price to be paid (or overpaid) for any asset, combined with the real returns you earn on it and then compared to what you could have earned deploying the capital elsewhere, you can never make the assertion that anything is the “best.investment.ever”.

You have to approach every situation on its own merits and weigh the options. You have to be very patient and you get your outsized returns by only swinging at fat pitches. That’s what value investing is about, whether its into domain names or anything else.

Pretend Your Category Killer Domain Doesn’t Exist.

One final piece of advice, one that I gave in that original comment , and I also told this to a group of investors putting together a run for .(something) who asked me to look at their business concept.

That is: Your business concept should make sense and have legs whether you own the domain , or the TLD, or not.

In the case of the TLD group, I asked them, why on earth would professionals in this space buy one of your domains instead of a .com? And they told me “Oh, because we’re going to build in all kinds of value-adds”. And I said, “Great! So why don’t you just build all the value-adds, launch the business, start making money and forget about all this TLD nonsense?”

Because here’s the thing. You are going to be competing in whatever sector against people who live and breathe that sector. They do not care about the domain name, they only care about the work and business within that sector. It energizes them, it gets them out of bed in the morning, it keeps them awake at night. Their entire worldview is framed by their work in that sector. Your business concept has to compete with them and their work and be executed with at least the same level of intensity. It’s your business concept and your execution that is going to be tested, not your name for it.