December 29, 2018 (Sat)
Domains are assets not expenses
Image courtesy of Pixabay.com
Regular readers may notice that I often use the word "invest" instead of "spend" when reporting the amount paid by a company to acquire a domain. This reflects my conviction that domains are assets not expenses.
An asset lasts more than one year and some assets may even grow in value over time (examples: office equipment, real estate). On the contrary, an expense is gone in just 12 months (examples: entertainment, advertising). Domains are assets because they last a long time if not forever. In fact, a domain (digital address
) can be compared to land (physical address). Lands normally do not disappear and good lands increase in value over time. Similarly, domains do not disappear and good domains also increase in value over time. (Of course, there are also worthless lands and worthless domains.)
When you acquire a domain and build a store at this digital address, income is generated at this address year after year. As more and more customers come to this address to shop, the "foot" traffic increases. If one day you retire from the business and sell this address, the "foot" traffic will be very valuable to the next owner whose targeted customers are similar to yours.
There are already certain categories of domains that are guaranteed to sell at certain prices. First of all, one-, two-, three- and four-letter .com domains always have buyers, so do numeric .com domains up to 4 digits. Most single words in the English dictionary are sought after too. You can always find a buyer for such domains and there are domain brokers and auction houses keen to sell them on your behalf. Here are two examples of a domain increasing in value over time.
In 1990, Tim Endres founded ICE Engineering as a software development and consulting firm and registered the brand-matching ICE.com as his corporate domain. We don't know how much he invested in the domain, but I'll venture to say ZERO because it was free to register .com domains before 1993. It was a period of grabbing free "land". In 2000, the domain was acquired by a New York-based jewelry store to sell jewelry under the ICE brand. In 2014, the business did not work well and the domain was sold to a Texas-based company for $3.0 million. The new business failed and the domain was sold again this year for $3.5 million. In the 28 years of the history of ICE.com, the domain has increased in value from 0 to $3.5 million.
Now let's turn to China. In 2016, the domain NJS.com was sold at an auction for 404,000 yuan (about $60,000). Two years later, it was sold again to a fintech startup for 10 million yuan ($1.5 million) for development into a global digital asset exchange. The domain has gone live and NJS stands for "New Journey to Success". In just two years, the domain has increased 25 times in value.
In short, invest in good domains because they are valuable assets to keep.
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