I recently helped broker the sale, for a substantial sum, of a client’s  generic-phrase “co.za” domain name. The client had never used the domain in any way in  the seven years he had owned it (except for renewing it every year).

On a relative level, generic domain names are worth whatever someone else is willing to pay for them.  In this case, the buyer decided the domain name would be valuable to them as the phrase contained in the domain name applied directly (and descriptively) to their industry.

But the transaction got me thinking about a broader question: how intrinsically important and/or valuable are domain names within a business’s intangible asset portfolio?

Before going any further, let’s take it as a given that to own your trade mark as a domain name is important; rest assured, though, that if a third party is trying in bad faith to deprive you of that domain name, there are powerful remedies for addressing this problem. So, we’re only talking about generic or descriptive domain names here.

A Partial Monopoly

One thing to recommend generic domain names is that they give you a partial, online monopoly in a descriptive word or phrase. For instance, once GlaxoSmithKline had purchased www.asthma.com in the mid 2000’s (for an extortionate and ridiculous amount), nobody else, including its competitors, could use that domain name. The domain name did not prevent others using the word asthma, but at the domain name level, the top-level domain name for asthma is now owned by GSK, and gives them an alternate medium for marketing their asthma drugs.
This kind of monopoly in a descriptive word is otherwise anathema to trade mark law. You could never register ASTHMA on its own as a trade mark covering pharmaceuticals. So, the fact that you can have a monopoly at the domain name level is a happy anomaly (and some would say loophole) of intellectual property law.

A History of What Generic Domains Used to Mean for Business

Before the tech bubble collapsed in the early 2000′s, generic domain names were big business. A case that exemplifies just how high the stakes got in the 1990′s, as individuals and businesses alike clamoured to register all manner of generic domains, was the protracted litigation saga that surrounded the domain www.sex.com.  The facts in brief: the domain was registered in 1994, fraudulently transferred in 1995, and by the late 90′s:

• generated more than 140-million page views a month;
• generated over $1-million per month from online advertising; and
• had over 9-million subscribers at a fee of $25 per month.

Court documents revealed revenues exceeding $100-million between 1995 and 2000. The final result: the fraudulent misappropriator was ordered to pay damages of $65-million.

Domain Name Sales Post Tech Bubble

Those predicting that the irrational exuberance and hype that characterised domain name sales in the mid to late 90′s would have fallen away after the tech bubble burst might be disappointed. A cursory search of the internet revealed the following sales of generic domains after the collapse of the tech bubble:

• www.vodka.com: an uncommercialised domain name bought for $3-million in 2006 by a Russian tycoon with holdings in Russia’s vodka industry; almost eight years later, the site remains a landing page (of sorts) that merely redirects users to a different trade mark domain name. The site has no advertising and no apparent prospect for revenue generation in and of itself;
• www.pizza.com: on the strength of the vodka.com deal, the owner of pizza.com, a largely dormant registration that had limited advertising (as almost all “parked” web pages do these days), auctioned the site off in 2008, netting $2.6-million; it is now an e-commerce portal of sorts, aggregating pizza delivery services by geographical location in the USA; and
• www.business.com: this, unlike the other two, was already a money-generating online directory at the time of its sale, with annual revenues in the range of $15-million. Impressive? Perhaps, but not really a revenue level that, in a rational universe, would demand, in 2007, a sale price of $350-million.

The Value of Domain Names Today: an Appraisal

A one-dimensional appraisal of the examples given above might imply that generic domain names, as instruments in their own right, are extremely valuable.

Despite the few, newsworthy examples of high profile post-bubble sales, though, generic domain names, that is the names themselves, are not inherently valuable. While the owners of pizza.com and vodka.com, both of whom had registered their domains early on in the life of the internet, lucked out on an extraordinatry scale, domain names as entities unrelated to broader trade mark and branding strategies, are not very valuable at all.

This is in large part because the way people use the internet has evolved dramatically since the 1990′s. It might be difficult to remember a time when the internet existed without search engines – or at least good search engines – but that time was less than 20 years ago.

While search engines today have a stranglehold on how internet traffic is generated and directed (and most of us are happier internet users for it, even when they accidentally-on-purpose totally breach our privacy), before search engines reached critical mass in the early 2000′s, the internet was more about trial and error. In those simpler days, an internet user wishing, for instance, to order a pizza, might well have tried his or her luck by typing in www.pizza.com. Such a pursuit was as likely to provide a fruitful result as typing in the name of a well-known pizza brand (e.g. www.pizzahut.com) hoping it had its own website (it might well not have at that time). Search engines at the time (remember www.altavista.net? It now redirects to Yahoo) were as likely to provide you with a useful result as they were to direct you to an article about pizza written and published in another country.

In addition to the search-driven nature of the internet (and perhaps because of it), there is also exponentially more content on the internet now than there was then. There were, quite simply, fewer things to look at on the internet back then, and in these circumstances, a generic domain name would certainly have stood out. Competing with almost infinite alternate possibilities today, a generic domain name, assuming its underlying website is not well-optimised in other ways, no longer lends the sparkle it once did.

Of course, it’d be misleading to claim the generic domain is not helpful at all these days; the actual domain is still relevant to search engine optimisation (SEO), but it’s one small piece of an increasingly large, complex, and constantly-shifting puzzle.

Today, it is the science of SEO, coupled with the near monopoly of search engines over how we use the web, that informs the inherent value of a particular website. The domain name itself, so long as it meets certain basic requirements (e.g. having a top-level domain such as .com and a word or phrase that is not too convoluted and doesn’t contain too many parts and hyphens etc.).

Almost all existing generic terms are taken anyway, so this opinion is probably moot unless you’re thinking of buying an existing domain name registration owned by someone else. If you are, don’t overestimate what it’s worth.

If you’re a fortune-seeker, the generic domains still up for grabs  are words or phrases that have yet to become descriptive or generic; even if your crystal ball is functioning properly, though, don’t plan on reitiring on the proceeds of selling these.

Written by Mark Smith, director, Ratiodex