Play the Domain Name Game

What do Fly.com, Houses.com, Loans.com, and Rent.com have in common? Each of these Internet domain names is for sale-for at least a million bucks.

It's no secret a firm's value is directly attributable to its brand name. In the offline world, purchasing decisions often are made based on familiarity with name alone. Brand is important online as well, but so is luring surfers to your site.

Attracting consumers online begins with clicking a hyperlink, perhaps provided by a search-engine result, or by typing in an intuitively relevant URL. That is why securing a generic domain name, at the initial cost of $70 for two years, can be such a monumental bargain.

To maximize the potential value of their URLs, some registered owners have turned to online domain auctioneers such as GreatDomains.com. For a nominal processing fee-and 7 percent of the take-GreatDomains will seek out bidders. The company has a proprietary model that establishes prices based on three variables: total characters in the URL (the fewer the better); the potential application of the domain to e-commerce; and whether it is a .com name, as opposed to a .net or .org.

The right domain can bring a huge return. Last week, eCompanies paid more than $7.5 million for the Internet address Business.com. Considering this, Compaq's purchase last year of AltaVista.com for $3.5 million is looking like a bargain. (Compaq has since sold AltaVista, domain name and all, to CMGI.)

What Goes Up Must Come Down?

Critics argue that current domain name valuations are radically

inflated-and that prices are headed for a crash. Domain name bears point out that services like Real Names permit searches using plain English, theoretically making URLs obsolete. But Real Names has a long way to go before perfecting its search software.

People who see domain names as overvalued note that the Internet Corporation for Assigned Names and Numbers has proposed adding a raft of new top-level domains to add to the list. In theory, the additional real estate would cut the upward pressure on pricing of .com domains. But memorable online addresses should be unaffected.

Cybersquatters could get a bonanza from the addition of new domains-in the past some have successfully blackmailed large companies into buying back control of their own names. But those days could be numbered.

Congress has been working on anticybersquatting legislation. And ICANN recently established a policy that mandates a loser-pays system of arbitration for disputes between domain registrars and registered trademark owners. This new policy should help curb cybersquatting, especially in secondary domains, like .net.

Creating a strategy for e-commerce has become essential to the long-term survival of nearly every company. Had IBM not been IBM, it might not have survived the recession of the early 90s. IBM lived to tell its tale of woe in part because of its famous name.

From this point forward, owning domain names that draw customers to a Web site will be the name of the game. And the best names in the Internet economy still end in .com.

For more in-depth coverage of the Internet Economy, visit The Industry Standard, a sister publication to Network World. Copyright 1999 The Industry Standard. All rights reserved.