Domain names have established themselves as a legitimate (digital) asset class over the years. While newsworthy sales such as 2019’s Voice.com acquisition for $30,000,000 have cemented this reality, companies often continue exhibiting reluctance when asked to allocate capital toward the acquisition of the best domain names for one venture or another.

In stark contrast, the same companies frequently manifest far more robust generosity allocating increasingly large budgets to marketing-related endeavors, even when it comes to branding campaigns that tend to be notoriously difficult to track and where results are more often than not elusive. The same way, a stark divide between offline and online real estate continues to exist, with the average company less than hesitant when budgeting sometimes-prohibitive amounts so as to secure offline real estate, yet balking when asked to spend a mere fraction of that on even the best of the best in terms of online real estate.

Spotting the Asymmetry

It tends to be nothing short of ironic that many businesses exhibit a peculiar reluctance to reach for their proverbial wallets precisely when asked to invest in assets that can end up generating asymmetrical results. As such, it makes sense to allocate a bit of brainpower toward the goal of spotting the most obvious examples of asymmetry when comparing domain names to goals/areas businesses tend to be more willing to fund:

1) Time: An asymmetry with respect to time becomes apparent when comparing a domain name investment to a marketing campaign, with the latter being dependent on a continuous flow of capital (more specifically, as soon as funding for a marketing campaign runs out, results follow suit), whereas the former requires nothing more than a one-time investment (the acquisition cost, with the domain owner being able to hold on to the asset that has been purchased indefinitely as long as a symbolic yearly renewal fee is paid)

2) Offline vs. Online: On a similar note, it is difficult not to spot an asymmetry when it comes to the “offline vs. online” discrepancy. Despite the fact that study after study confirms an obvious trend involving mass human behavior migration from offline to online (especially in a post-pandemic world), the average company is still reluctant to allocate proportionally more capital toward online real estate acquisitions. As such, opportunities involving anything from solid marketing campaign-related domain choices (which can be effective at both cutting costs by improving clickthrough rates and increasing revenue by improving trust and subsequently conversion rates) to even domain names related to the core business of the company in question (the main URL of the business, for example) are turned down time and time again. In stark contrast, opportunities involving offline real estate are still treated with far more generosity, despite at the very least being in the realm of diminishing returns at this point in time. Simply put, it is almost impossible for offline real estate investments to compete with their online counterparts in terms of marginal utility, yet budgets most certainly do not reflect this

3) Nominal Budgets: An asymmetry in terms of nominal budgets, plain and simple. More specifically, digital asset acquisition budgets tend to pale compared to… well, pretty much anything else. Throughout this article, we will go through various examples involving anything from metrics pertaining to specific marketing expenses such as billboard ads to examples which make it clear that despite domains arguably representing the center of a company’s branding universe, the costs associated with domain name purchases relative to let’s say market capitalizations are peculiarly low even when analyzing “outlier” case studies involving companies that have made acquisitions which top(ped) domain sales charts

The list of asymmetries could go on and on but the main argument has been articulated coherently enough for there to be little point in continuing. Instead, we will move from generalizations to specifics and analyze some of the most robust domain sales in digital asset history, with our main goal revolving around putting things into perspective and making it clear that even the most ambitious of acquisitions historically speaking represent bargains when taking a step back and seeing the big picture.

Why Million Dollar Domains Are… Inexpensive

Right from the beginning, it is worth noting that despite the internet in commercial terms being around since the nineties and despite the fact that when it comes to pretty much any imaginable industry, there has been at the very least a clear partial transition from offline to online for a wide range of activities, there has never for example been a $100,000,000 strictly domain sale. Not even a $50,000,000 one, with the number one recorded domain sale in history being Voice.com, a digital asset sold by MicroStrategy to Block.one for $30,000,000.

While $30,000,000 most definitely commands respect in nominal terms, it is worth analyzing the situation from the perspective of relative costs and pointing out that:

1) Voice.com at $30,000,000 was a clear outlier, with sale #2 in nominal terms being the Sex.com one at $13,000,000 (over 50% lower). Furthermore, there have only been three recorded 8-figure sales thus far, with the third being Tesla.com at $11,000,000

2) $30,000,000 represents a mere fraction of the $4 billion raised by Block.one during its initial coin offering

3) Relative to the reserves held by the company, it is a mere drop in the ocean when considering that Block.one holds approximately 140,000 btc and even compared to their Treasury bond holdings, the acquisition pales

To make the case even more compelling in terms of the relative cost of a million dollar domain acquisition, we have Elon Musk’s acquisition of Tesla.com for $11,000,000 along with a few simple research-based observations:

1) The Tesla.com acquisition represents a mere 0.00275% of Tesla’s market capitalization of over $400 billion at the moment of writing

2) Relative to its last-reported net revenue, it represents just 0.05% and the domain value relative to Tesla’s last-reported total operating expenses is in similar territory (yet again close to the 0.05% zone)

3) Compared to how much Tesla is paying on strictly interest on a yearly basis, the domain acquisition represents just 1.5% of the most recently-reported value or to put it differently, Tesla pays 65 times more on a yearly basis to cover its interest-related obligations than it has on the one-time Tesla.com acquisition

4) On the tax front, Tesla pays income taxes worth over five times more than the Tesla.com acquisition on a yearly basis at this point in time

For domain names as an asset class to be considered overvalued, there would have to be clear data which validates the idea that a trend of over-spending on the domain acquisition front is in motion, yet case studies which prove the exact opposite abound, whereas case studies that point to irrational exuberance in terms of domain acquisition budgets are nowhere to be found. Still, in the spirit of complete intellectually honesty and not jumping to conclusions before having a 360-degree perspective, we will move on from granular to broad by comparing domain acquisition budgets to a wide range of other projects the average business allocates capital toward.

Domain Acquisitions vs. Industry-Standard (Marketing) Expenses

It is difficult to find a better metaphor when trying to illustrate why domain names tend to be severely undervalued than marketing expenses, for the simple reason that two of the three asymmetries presented at the beginning of this article tend to be blatantly obvious:

  • On the one hand, the fact that marketing expenses do not have expiration dates and are a permanent variable in the budget equation, in stark contrast to what we can safely call a one-time domain acquisition expense (in light of the fact that yearly renewal fees for the overwhelming majority of domains are negligible or, if you will, symbolic). More specifically, CMO survey data indicates that marketing spending as a percentage of a company’s revenue is for the most part in the 6.5% to 10% zone, with it flirting with the 20% area for industries such as consumer services
  • On the other hand, the fact that nominally speaking, yearly marketing budgets oftentimes dwarf even the most ambitious domain acquisition budgets. For example, yearly spending on digital ads alone is projected to exceed $200 billion in the United States by 2023 according to eMarketer.com, with another (over) $100 billion allocated toward offline forms of advertising

Asymmetry #2 is worth dwelling on and analyzing in a more granular manner rather than limiting ourselves to the $200 billion headline number. We will do so with the intention of bringing specific (average) marketing costs in the spotlight so as to paint an accurate picture of marketing-related spending in the 21st century. To do so, we will be analyzing the so-called CPM metric or in other words, the cost per thousand impressions advertisers are required to pay so as to bring their products/services to the attention of potential buyers:

  • In the online world, based on Top Draw data, it isn’t difficult to come across CPM rates south of the $5 milestone, for example Twitter’s average CPM of $4.2 or Instagram’s average CPM of $4.8. On the opposite end of the spectrum, we have Google AdWords, with an average CPM just shy of $40 ($38.4, to be more precise), but AdWords has always been a bit of an outlier. Additional data points are represented by LinkedIn’s $7.85 CPM and $8.4 for Facebook Ads
  • In the offline world, sub-$10 CPM values represent the exception rather than the norm but still, it is possible to come across values as low as $2 ($2 – $5) for billboard ads. In most cases, however, CPM costs are more prohibitive, from $10 to $20 for radio ads, $10 – $30 for network TV advertising or $15 to $20 for direct mail, all the way to $36 for Super Bowl ads

What does this mean in the real world?

To provide one example, it means companies have to pay $4,000,000 to reach 111 million individuals via Super Bowl ads, a one-time $4 million expense for one burst of exposure. In stark contrast, there have been less than 20 recorded domain sales in excess of $4 million throughout the entire history of the internet, a one-time expense which can lead to unlimited future benefits.

For a less prestigious experience, US advertisers are asked to allocate approximately $342,000 for a 30-second television ad. Or $113,000 for a full-page newspaper ad, with the cost of such an ad in the magazine world being in $250,000 territory. Words cannot begin to describe how asymmetrically in your favor as a business owner it would be to allocate even the previously mentioned $113,000 budget toward the acquisition of the perfect domain for your business rather than on a one-time exposure experiment with results one can consider questionable at best.

The Window of Opportunity Is Narrowing

Business owners and individual entrepreneurs who are reading this article have the privilege, at this point in the 21st century, to be able to acquire even the proverbial best of the best in terms of domain name choices for less than it would take to secure a one-time full-page newspaper or magazine ad, let us not even mention more exotic ad spend options such as Super Bowl advertisements.

While competitors burn though marketing budgets on one-time experiments time and time again, savvy decision-makers have the opportunity to allocate perhaps even a fraction of those budgets toward the acquisition of premium digital real estate that will generate results indefinitely and furthermore, will not even be subject to physical deterioration and the costs this brings about compared to its offline counterpart (let us not even mention other variables, such as property taxes compared to domain renewal fees).

However, the window of opportunity is narrowing and as more and more entities are exposed to the realities that have been outlined thus far, it will become increasingly difficult to secure prime digital real estate at today’s more than reasonable prices. Use this opportunity wisely and make no mistake: it is, without a doubt, time-sensitive.