I was standing on the pool deck of the Conrad Hilton Hotel in Punta del Este, Uruguay, when one of my colleagues let slip one of the best investment tips I’d ever heard. She’d just earned a 5,289% return on an investment. The return was remarkable, but even more arresting was the asset in question: a domain name.
A “domain name” is a plain-text version of a website address, like www.banyanhill.com. When you type in such an address, they’re translated into an associated numeric IP address — like 188.8.131.52, which corresponds to our site. This all happens in milliseconds, and it’s how every web page is actually “served” to Internet users.
To get a specific domain name — for example, for a new business you’ve just launched — you need to purchase it from a registrar. But first you need to find a unique domain name that isn’t already owned by somebody else. If the domain name you want is already registered to someone else, you have a choice: Pick a new one, or get out your wallet.
Type www.newyorktimes.com into your web browser. When the web page comes up, look in the address bar. You’ll see www.nytimes.com. The original address has been “redirected” to the one the Gray Lady prefers to use. That happens because at some point in the past The New York Times realized that it needed to own all the domain names that contained plausible variants of its name. If it didn’t buy them up first, somebody else might do it, and then they’d find themselves in a bit of a digital pickle. Some of their “brand equity” would leak off to others.
What if a company, celebrity or other well-known organization doesn’t do this? If their name is already trademarked and in wide use, they can ask for arbitration under World Intellectual Property Organization (WIPO) rules. If the domain name in question is confusingly similar, the owner doesn’t have any rights or legitimate interests in it, and the name is being used in “bad faith” — say, to extort money from a someone — WIPO can order it released. Famous brands that have won cases under WIPO rules include Swarovski, Armani, Burberry, Cartier and Dior.
But that procedure only applies if the name in question was trademarked before the domain name was bought by someone. If someone — like my colleague — buys a domain name before a new company is launched, the company has to pay to get it. How much they are willing to pay depends on how much they think the brand equity is worth … or will be worth someday.
At first blush this sounds impossible. How can an investor know what new companies will emerge and be willing to pay for reserved domain names? It’s actually not difficult. Most modern business start-ups don’t use a personal name, like they did in the old days. Some companies, like Spotify or Uber, go for something meaningless but catchy. But the vast majority of new companies look for names — and therefore domain names — that say something about the services they offer. Names like Localytics.com, Sendoid.com and ReMail.com tell you what those companies can do for you.
In some cases, there is only one option: That’s why Insurance.com sold for $35.6 million. But word combinations can be extremely valuable. That’s why some of the most successful new start-ups happily shell out upwards of $500,000 for a premium domain name that isn’t already part of the vocabulary.
That creates an interesting opportunity. If you go to a website like Bust A Name, you can enter a list of words that describe a business area. The site will generate a list of available domain names that you can purchase for as little as two or three dollars. You can grab up hundreds of domain names at a time. Even if only one of them pays off, you can easily earn massive returns.
The Chinese Strategy: An Investment Tip?
This may sound esoteric, but consider this: Chinese investors are currently buying domain names as a way to escape capital controls imposed by their government. They buy hundreds of domain names at a time, which they can then sell to foreign buyers, who pay them in foreign currency which is then deposited in non-Chinese bank accounts. All they have to do is hit two to three domain names that someone wants in the next few months or years, and they can create an offshore stockpile for a rainy day. Even if they only break even, at least the money is now outside China.
Anytime The Sovereign Society considers launching a new product, we take the availability of the domain name into account. We absolutely consider paying for one if we really think it’s a good fit. This sort of decision is made thousands of times a day around the globe.
And if someone like us is going to pay for a name, it might as well be you who benefits, right? While a speculative investment, purchasing domain names with the intent of selling them later offers a unique way to earn a substantial return. And if Uncle Sam ever decides to impose capital controls, you can thank the Chinese for showing us what else domains can do.
Offshore and Asset Protection Editor