What do Fly.com, Houses.com, Loans.com, and Rent.com have in common? Each of these Net domains are 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 maximise 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% 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.)
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.
Assuming Real Names gets its act together, the fact that Web sites will be easier to locate in no way supports the theory of a market crash. There's no inverse correlation between Colgate Palmolive's stock price and how effortlessly consumers can locate its products. Rather, there's a real argument that services like Real Names will actually enhance the value of domain names.
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.
The 9th Circuit Court of Appeals recently handed down a seminal decision on domain names that gives legal credibility to the price disparity between .com and .net domains. In Avery Dennison Corp. vs. Sumpton, at issue was whether the registration and use of domain names ending with .net could potentially dilute famous trademarks, when those domains coincidentally identified individual surnames. The three-judge panel ruled for the little guy, Avery, primarily because the allegedly infringing domains at issue were not .coms. To the court, .net domain names were of little commercial value, and in no way posed a threat to an identical .com domain.
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. It 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.
Gene J. Riccoboni (email@example.com) is manager of legal affairs at On2.com, a broadband content company in New York.