There’s a great discussion taking place over at the domain forum, NamePros, where one camp is asking why businesses don’t buy domains for thousands of dollars well another group is suggesting that is way too much money. The fundamental question that needs to be asked by a domain seller is, “Who am I selling to?”

The vast majority of businesses in the world are small not large. These are often the family owned firms that may be running the local pizza shop or printing company. They may or may not have a website and given their clientele are within a few miles of their business they often have little need nor desire to expand to the rest of the world.

A successful small business is often one that allows the owner to pay themselves a salary. Remember that 80% of small businesses fail in the first couple of years largely due to lack of capital.

To ask a small business owner to put their hand in their own pocket and buy a domain name worth $10,000 plus dollars is a huge step. They are likely to decline the opportunity because they would rather buy a car or take their family on a holiday instead. One of the reasons why most domains sell for $1500 is because this large market has individuals within it that are prepared to risk smaller amounts of money.

Typically speaking this market segment is looking for an idea that will either make their life easier or allow them to get the jump on local competitors. They are fast moving and more often than not would buy a domain on an impulse. This market segment also provides the baseline of inbound enquiries to the marketplaces like Sedo and Afternic.

This brings us to the medium sized enterprises that represent about 9% of businesses. They are still often controlled by an individual who makes any significant monetary decisions and they will require a rudimentary business case for a $XX,XXX or more domain purchase. They do have a greater capacity to purchase a domain if they believe they really need it. The challenge here is to prove the domain's worth....more on this later.

The large corporate customer is about 1% of the market and have the capacity to pay significant amounts of money for domains they believe are a critical part of their strategy. I find many domain owners make the mistake of assuming big companies have lots of money just waiting to buy domains.

Inbound enquiries may or may not reveal whom they work for….ideally you need this information to better help build the business case for the domain. The first part of any discussion needs to be around this point.

Contrary to popular opinion, a marketing manager doesn’t have a large amount of cash they can just throw around….it’s already been allocated in budgets and it’s very unlikely to have a line item for domains. An individual rarely makes the decision for a large domain purchase but they may become your internal champion if correctly managed. Just don’t expect decisions to happen quickly in the corporate market!

I should say that your goal should NOT be to sell one of your domains but rather educate the individual on how they can sell the domain internally. There’s a big difference between getting this person’s sign-off and getting the other 32 sign-offs needed in the corporate structure for the sale to go through. This means you should be thinking about how you can make your internal champion look and sound like a domain name expert.

The first thing you should do when speaking with your prospective contact is to really listen. God gave you two ears and one mouth…..use them in that proportion! What you’re trying to understand is the reason why they want the domain….think about the strategic vision they are trying build. Given non-disclosures etc. you’re going to have to be very careful and tease some of this information out across multiple discussions.

In conjunction with your champion you then need to build a compelling deck that they can take internally on why the corporation needs your domain. Some of the slides in the deck are likely to cover:

1.  Quick overview of the importance of a domain

• Simple one page general slide covering importance of domains to marketing strategy. This will help get individuals that aren’t completely over domains up to speed.

2. Current market analysis for existing corporation/business/product unit.

• What is the size of the online market?
• What is the potential for growth?
• What are the barriers for growth?
• Traffic, Alexa rankings etc.
• Estimated online spend
• Look for natural type-in, search and advertising generated traffic

3.  Top three online competitor’s analysis

• Traffic analysis, Alexa rankings etc.
• Estimated competitor advertising spends.
• Look for natural type-in, search and advertising generated traffic

4.  Potentially do a domain analysis comparison

• Corporation versus competitors
• Length, type-in traffic (ie. Brandability)

5.  Why purchase the domain name?

• Add to strengths?
• Help shore up a weakness?
• Will open up a new market for a product/service?
• Seize the opportunity before a competitor does? This is a potential threat for the business and decisions will largely be about blocking a competitor from entering a market.

6.  About the Domain Target

• Existing traffic?
• Where does it fit within the market after the analysis?
• Is there any market research on brand recognition that would help support the case for the domain?
• Have you conducted any market research with your domain? Do some market research and spend a day making calls targeting potential customers of the company’s products…..asking them a variety of questions that may/may not support the case for your domain.
• Put a survey on the domain and see the results.

7.  What is the deal?

• Think in terms of NOT what the domain is worth but what the domain will bring to the business that may buy it. It’s all about understanding the strategy. I remember I had a company make an offer for one of my businesses and they wanted to do so on a EBITA basis. I said, “Not a chance, the IP in my business will increase your business by X%!”
• If you know the size of the market opportunity, then it becomes much easier to price a domain accordingly. Don’t every pick a figure out of the air as assume that it will be challenged and you must be able to justify it.

8.  Who are you?

• A brief about yourself featuring your expertise as a domain expert….it’s a bit of a don’t mess with me slide. You’ve sold such and such a domain at $Xm etc. This gives confidence to the buyer that you know what you’re talking about. Take guidance from your champion about this slide…..you may leave it out.

I could go on and on for what should be in the deck. Basically, the goal is to puts some empirical evidence behind why your domain is absolutely the asset the corporation should purchase. There should also be appendices with data backing up the slides.

It would be worthwhile “coaching” your champion (don’t be condescending….they got where they are because they’re smart) through the data so they know it intimately.

It may also be worthwhile jumping on a plane to be at hand in the event there are any questions once the project reaches the higher levels in the organisation. I’m amazed at the number of people that want to sell a domain for a huge amount of money but aren’t prepared to spend a few hundred dollars on a plane ticket.

There's a lot more that can be said about doing high end sales but I hope helps your thinking and gets the ball rolling.

The last article on “Underpinning Domain Sales” sparked an interesting discussion on the domain forum, NamePros. One of the respondents asked the question, “Why are companies reluctant to spend money on a good domain?” In this article, I hope to answer that question.

In my opinion, the dominant reason businesses don’t spend money on domain names is because of ignorance. On the whole the domain industry has not been able to mobilise itself and communicate cooperatively to businesses about the importance of domain names. I’d like to unpack this a little further.

The biggest problem has always been the question of whom should put up the PR/Marketing money to generate interest and understanding in domains. Some people point to the registries, others the registrars while others say the current domain owners should all chip in. These discussiona often degenerate into name-calling and a lot of inaction.

What domain investors need to appreciate is that once they have purchased a domain name the registries and the registrars have effectively done their job. There is NO incentive for them to try and market on behalf of existing owners to increase the demand for already registered domains so the price goes up. That’s an almost impossible job.

The job of registries and registrars are to convince existing owners to renew and to get new registrations from wherever they can. On the whole, new gTLD registries have been excellent at selling their product to the domain investor constituency based on scarcity. “If you don’t buy this domain you’ll miss out like you did in the .com rush.”

Once a domain investor has purchased a domain then there is a great reluctance to drop it as the domain may represent a significant windfall someday in the future. Essentially the registries and registrars are selling hope. By the way, I actually don’t have any problem with this as long as investors go in with their eyes wide open.

Once invested, many domain owners then turn to the registries for help in offloading their assets at significantly higher prices. You quite often hear at conferences statements like, “If I was running that new gTLD then I would……” Well, you don’t run the registry so stop wishing you did and work on the problems that you can actually work on. This is a bit of tough love but stop complaining and don't expect someone else to bail you out.

All of us would agree that .CLUB is a reasonably successful registry with an awesome team. Let’s imagine for a second they spent $20m or near enough to 100% of their revenue on marketing. CLUB (back of envelop calculations here) to help existing domain owners. Despite .CLUB being regarded as fantastic marketers they will be the first to admit that $20m is about 2% of what they really need to do a proper ongoing global marketing campaign.

What I'm saying is the best the industry has doesn't have the fire power to move the needle in educating the entire world about the value of domains. What they can do and actually do is target their efforts to maximise registrations and renewals.....this doesn't involve educating corporations.

So here’s the bottom line with registries and registrars. They love you registering and renewing your domains. They aren’t going to spend a huge amount so cash (even if they did have it) trying increase the price of your domains. In the case of .com if you drop a domain it’s likely to be picked up in a second. ccTLDs aren’t typically profit motivated and have other objectives while the new gTLDs don’t have the cash.

This leaves you to market and promote your own domains. It also means you need to focus your efforts and really think about how you’re going to educate your target market rather than sell. You’re fighting largely against ignorance…..so once you get over that hurdle what’s the next one?

We live in a market that has a MASSIVE supply issue. The new gTLDs are inevitably eroding the power associated with incumbent TLDs and in the process, have devalued the entire market (top end .com excepted). If I’m a new business, why would I pay thousands of dollars for a domain when I don’t know whether I’ll exist in 6 months’ time? I’ll just grab a new gTLD, it’s not like there is a shortage of them.

If I’m an existing business, then why would I spend a bucket of cash on a domain name when I can just use something I paid $10 for. I could save the money on the domain and put it towards marketing the product or service I’m trying to sell.

Yes, we know the importance of a good domain name because we are in the industry. Your task is to imperically prove it. You can’t just tell someone to spend $100K because they should….you have to give them hard cold evidence.

Here’s your next problem. The whole point of a domain name is that it’s unique….one of a kind and the reason the buyer needs it. The first thing most people do is bring out comparables…..which undermine the whole value proposition of uniqueness. I’ve always believed this strategy is flawed.....so I'd try to think through this a little more.

So why don’t companies spend money on domains? It’s sad to say but it’s largely ignorance combined the domain owner’s lack of skill to make a compelling case. If there is no business case, then there won’t be a sale.

There are some exceptions to this rule where a wealthy individual just “want a particular domain” and will pay anything for it. These are lucky events and should be grabbed with both hands.

The essential point is unless you are prepared to spend the time putting together the business case then don’t expect companies to want to buy your domains. I will go one step further…..you also have to pick up the phone at some point and present the case to the prospective buyer….ideally this is done face to face.

I should also mention the last reason why companies don’t spend money on domains. Because they’re doing other stuff and domains are complicated. Just think about it, should the marketing, IT, or legal department manage the asset once purchased? An internal champion in a large organisation would inevitably throw their hands up in the air and move onto buying another TV spot.

This is definitely a question your business case needs to answer and it had better be the market department or you’ll end up getting a sale worth pennies.

I know that I’ve rambled a little in this article but I hope that it answers the central question posed in the title. Feel free to poke and prod some of my suppositions with any comments.