This is part 1 of a 2-part series on domain names and startups; part 2 will be “Build Your Startup on a Vacant Domain Name”.
It is no coincidence that companies with the best domain names often tend to rise to the top of their space. Foursquare won vs. Gowalla, Loopt, and others. Wesabe lost out to Mint.com; Noah Kagan, employee #5 at Mint, later wrote that the awkward Wesabe name was a key reason. A startup called Corpora made headlines for all the wrong reasons after tech bloggers ran an image search to find the company logo.
Domain names are less important than they were in the first Internet wave, because so many people will access your service on mobile and/or via apps, and because type-in traffic is declining. However, they remain key to your email identity, and fundamental to your marketing and even capital-raising.
The ff Venture Capital portfolio is evidence of how much we believe this, e.g., our companies Alerts.com, Gobbler.com, Identified.com, Patents.com, Phone.com, and Plated.com. The awesome story of how CEO Joe Fernandez bought the Klout.com domain is one of many reasons we were excited to lead the seed round in Klout. I was formerly Founder/CEO of a domain name investment bank, and still own about a hundred domain names personally.
A good domain name can catch attention, biasing people to prefer your company over competitors, and making it easy to reach the website if and when they decide to use it. A bad domain name can sink you. Like a storefront and location in the offline world, your domain name is the very first vehicle by which potential investors/customers/employees evaluate your company before they even engage. There are three main factors to consider:
- Fit. The name needs to match the business.
- SEO. You want your company to show up first in the search results whenever someone is looking for a product you sell. Keyword rich domain names get a considerable boost in search rankings; an exact match is even better. According to Bill Hartzer, Director of SEO for Standing Dog Interactive, exact match domain names “will astronomically increase the chances that the site will show up on the first page of the search results for a keyword search that contains those keywords or keyword phrase. Currently, this ‘additional ranking benefit’ is only valid for .COM domain names that do NOT contain hyphens. The only other caveat is that the domain name must actually be a live website on the same topic as the keyword. Ideally, the home page should be about the topic of the keyword and it should be ‘optimized’ for that keyword phrase. Just purchasing an Exact Match Domain name is not enough.”
- Linguistic Characteristics. Although often overlooked, certain aspects of how a name is formed influence its memorability and appeal. The name’s spelling should be obvious from its pronunciation. Names with homophones will cause needless confusion. Other non-semantic variables are important as well. Using a dataset of over one million domain names, a study at Wharton and INSEAD empirically proved that nine such variables affect site rank by 2.75% or more. A well-named site can thus easily rank 10-20% higher than a poorly named one on a purely non-semantic basis. The best names tend to be short, to use dictionary words, to be devoid of hyphens, and/or to include a numeral. The sound of the name matters as well. The initial phoneme should be easy to articulate. Simple vowels work best. The presence of phonemes associated with disgust, e.g. the [uh] sound in “muck” and “yuck” and the [ew] sound in “puke,” anywhere in the name can have a dramatic effect in specific contexts. Gaming sites with such sounds rank 44.18% lower, while adult sites with the same sounds rank 7.24% higher.
“The right domain in the hands of a talented team can enhance their credibility with customers and partners, improve their conversions increasing ROI, and improve both retention and their viral marketing spend,” observed Gary Millin, CEO of WorldAccelerator.com, a platform which owns over 1,000 top-tier domain names with the mission of supporting teams in building companies on top of these domains. Andrei Zimiles, President of Doctor.com (a World Accelerator domain) said, “From day one, the Doctor.com brand has been invaluable to our growth and has opened doors with many players in the market which we are now proud to call partners. The domain also helps with and makes sense to the millions of patients that have visited our site to find the right doctor.”
Root Orange has developed a particularly innovative method for exploiting valuable domain names. They take generic domain names, e.g., WindowWashing.com, and allow those names to be used by more than one local business.
It is important to pick the right domain name early, because the penalties for switching can be severe. First, any branding and SEO equity you built up under the old name are jeopardized. Second, purchasing a new domain and moving a site are expensive and time-consuming endeavors. Third, as Tom Treanor explains, “[C]hanging your marketing materials, email addresses, and online and offline references, and links to your old site is a long, painful, and costly process.” If it is impossible to acquire your desired domain name early on, we recommend registering a similar name (e.g. xyz.co instead of xyz.com, if and only if xyz.com is not currently being used) so that there is minimal confusion when you ultimately switch.
For a startup, coming to the right price for a domain name requires doing homework and prioritizing marketing strategy. As a reference point, the average domain name is now going for $5,000-$20,000 – though as every domain name is inherently unique, averages can be misleading. Deals can be found, but are rare. Top domains can sell for 7 figures such as Insure.com ($16 million), Hotels.com ($11 million), and Wine.com ($3.3 million). Facebook paid $8.5 million for FB.com; see the top 30 list of all time. Fred Wilson at Union Square Ventures recommends startups spend as much as $50k on a solid domain name. There are some automated valuation tools on the web like valuate.com and estibot.com that use search traffic, backlinks, and other data to appraise the value in the domain name. Still, deciding on the right price for a target domain name is almost entirely an exercise in negotiation, not valuation. The automated algorithms can’t account for intangibles like name fit for the buyer’s business and the seller’s speculation on its worth.
I agree with James Siminoff that, if you’re a VC-backed startup, you should conceal your personal information when you initiate the negotiation process for a good domain name in order to detach the valuation of the name from your status. However, if you’re an unfunded college student, you should emphasize your current, presumably low-cash, status.
If the seller requests a ludicrous sum of money, be ready to move on if the negotiations won’t go anywhere. If the seller replies with an “I’m not sure,” that’s a golden ticket for negotiation. In the situation when a seller requests less than what you are willing to pay for the name, you should still negotiate them down a bit so the seller doesn’t get cold feet about undervaluing their asset. Ultimately, you should try to get a ‘yes’ in writing as soon as possible, and close the deal. For large priced domain names, you can use a firm like Escrow.com to hold the funds until the name has transferred, which eliminates the risk of a shady party on the other side of the transaction.
I am comfortable endorsing spending six or seven figures on a good domain name, but only after you have proven a significant market exists for your product, you have achieved product-market fit, and you have either earned a lot of cash in the bank (the best!) or raised tens of millions in venture capital. It will dramatically lower your marketing costs in the long run. But remember, great dot-com names often sell for well below their market value; it usually isn’t necessary to pay a large sum, because there are few buyers who will pay the highest possible value for a given name. 23andme.com bought geneticscreening.com for $2,200.
However, before you put all your savings into domain name speculation (been there, done that), note that there’s a sound economic reason for the low price of some high-value domain names. Only a small number of strategic buyers can use a good domain name at any given time, so therefore it’s very hard to get paid a lot of money for a given domain name. For a high sales price to occur, you need what economists call a ‘coincidence of wants’: a buyer with liquid cash and a need for your specific domain name.
My recommendation is to start your company with a free or very low-cost domain name, with a strong preference for dot-com. Note one of the key ways VCs filter the deluge of companies raising funding is their domain name. I’m much less likely to even open your deck if your domain name looks pathetic. I like bustaname.com and Namestation.com for brainstorming and moniker.com for registering names. If you can’t register something, there are plenty of short, memorable dot-com names that you can buy for a modest price; just look on Sedo.com, Afternic.com, etc.
Make sure that you have a clear upgrade path. If your initial name is greatstartup.co, and a speculator has publicly listed greatstartup.com for $10K, buy that domain name with your VC funding, but BEFORE you announce the VC funding and run the risk that the price gets jacked up. Don’t choose the name awesomestartup.co if there’s a live business at awesomestartup.com; it’s inevitable that you will get confused with them. One of the reasons we bought the ffvc.com domain was that our prior domain (ffventure.com) was getting confused with another unrelated firm with a similar domain. The domain name should align with the brand, the trade mark you can get and the image you are projecting.
You don’t always need to have all the cash on hand to purchase your domain name. One way is to lease or rent the domain name until your startup has enough capital to purchase it. Another option is to give equity; Aaron Patzer knew that Mint.com was a valuable domain name, but couldn’t afford it initially. So he gave the owner some equity in his startup, which was worth a few million dollars when Mint exited.
Although selecting the right domain name can be important, startups should ultimately consider this action as just one part of their marketing strategy. When deciding on the purchase of an expensive domain, startup teams should first consider whether the money might be better spent on other areas such as product development, customer acquisition, or hiring new talent.