If you’re reading this, then you know that a good domain name is something you should own. But maybe you don’t know why. Maybe you also wonder why someone would pay 4-5-6-7 or even 8 figures to claim a URL for their business. This article will examine why premium domain names have value and also posit the idea that smaller businesses should be competitive with larger companies in bidding for these assets.
Let’s begin with some linguistics jargon.
Defining Semantics: Denotation and Connotation
Semantics is a branch of linguistics that deals with the meaning of words. What do you see when I say “apple”; do you see a fruit, a computer, or a phone in your mind’s eye? And when you see an image attached to that word, how do you feel about it? Do you think of it positively, negatively, or indifferently?
Thinking of a specific object or concept by its literal or assigned meaning is called denotation, otherwise known as the dictionary meaning of a word. When you feel something about a word, you are connoting or experiencing characteristics about it based on your personal preferences.
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So to review, pick any word. Take note of the literal meaning attached to that word, then how you personally associate with it and the feeling or adjectives you would use to describe that object or concept. This is relevant to why domains have value, and why they serve as essential branding mechanisms for your business.
Branding Semantics: Controlling User Connotation
Branding is the promotion of a set of ideas in relation to your business. You want the denotation of a word to match the desired connotations of your brand to help target a specific behavior; mainly buying or clicking something. The job of a marketing tool, in this case a domain name, is to shortcut this process and make it more efficient.
By controlling ownership of a term you can influence the connotation and can create a semantic framework that links your business’s products or services to a certain word, phrase, or phonetics online. The denotation of a word creates the inherent meaning in the word itself, but you can also build upon it and “brand” it as you like. The power is when you blend or mind meld the inherit meaning of a term to be exclusively associated to your business while also controlling user connotations. This is why brands will also buy the generic word associated to their product or service category.
So, when investing in a premium domain, what are you investing into exactly? You are investing in the inherent semantic value of a word, phrase, or phonetics. To take it a step further you are opting to control the positive and powerful connotations between a term (or phonetics) and your business.
To recap, larger companies with big advertising budgets can pound a brand name into your head repeatedly even if the domain has limited inherent value. Conversely if you don’t have the ability to spend a large amount on advertising and can’t purchase regular TV and radio spots, then you need to invest in a domain that has natural inherent semantic value. Essentially, you need a big boy name to compete in competitive niches. You are not going to match dollar for dollar with corporate sized ad budgets that can brand anything it wants.
There can only be One: Domains are Unique Assets
There was a popular movie in the 1980’s called Highlander, and featured an immortal being that could only be killed by other immortals like himself — until there was only one left in the world. In domain investing there also can only be one. One asset, one brand that can draw the energy of a customer to that particular string of letters and extension. Only one that can harness the power of that domain.
Each unique URL represents a certain level of branding power. By holding claim to a top tier domain, that energy or the attractive force that it wields is what saves you money. If there is no inherent attraction in your domain, you must manufacture it, and manufacturing it from scratch will take an abundance of time and money.
Image Credit: http://www.imdb.com/title/tt0091203/
If you are small or mid-sized business (SMB), you are dealing with big companies that have both time and money on their side. They have a large workforce, and multiple departments with people toiling inside each one of them. If they match their resources with the power of the top keywords in your space, you just lost an opportunity to level the playing field. They just amplified their online strength, while you merely debated if a premium domain was worth the investment.
Each business niche has a small percentage of truly valuable domain names that have maximum natural semantic power. Your goal should be to grab the best domain you can acquire with the best budget you can muster. If not, your competition will scoop it up and further empower themselves.
The Scarity, Social Proof and Authority Principles
Robert Cialdini, a professor of psychology and marketing argued that there are six main principles of influence: reciprocity, commitment, social proof, authority, liking, and scarcity. The following is a quick look at three of those principles in action:
Scarcity + Social Proof Principle – Take for example 2 letter dot com domains. The permutation of 26×26 gives you a total combination of 676 domains. Only 676 out of 100 million plus dot coms. Without even understanding how scarce these types of domains are from a mathematical point of view, a general customer will conclude how special they are based on who else owns and uses them. The social proof of seeing large corporations having ownership would signify that someone who owns one is special in some way. To enter this club you must have a 6-7 figure budget, and for good reason, it signifies to the public that you are a big fish.
Authority Principle – Similar to how social proofs (testimonials, for example) can validate your brand, something can inherently contain a social proof. Like an offical uniform, the right domain can signify competence and professionalism. One word dot coms with a word relevant to your industry conveys that you are a leading presence in that field. How valuable is it to you to already be pre-sold to your customers as an authority? To many this instant foot in the door is very valuable and thus the reason for a 5-6-7 and sometimes 8 figure valuation on such assets.
Image Credit: http://www.slideshare.net/onlinedialogue/webs-of-influence-nathalie-nahai
Budgeting for a Professional Domain Name
Every business website needs a budget for hosting, web design, programming, SEO, social media, content, site maintenance, HR and so on — but often undervalued is the core foundation to all of this. The brand you want to build needs to be rooted in something that has room to grow. A weak brand has weak roots while a strong brand has healthy earth-gripping roots that will support the rest of your efforts.
If you look around at some of the successful people and businesses online you will see a trend. Either they invest in a premium domain upfront, or they build their business to a profitable point and reinvest into a premium domain later. Both have merit, but if you analyze the data, the companies that wait usually take more time and effort to thrive — and pay more for buying domains after this hesitation.
But the bigger question is why do successful companies upgrade their subpar domain name after they have achieved some success with their initial brand? The answer is efficiency, a cheaper way to get market and mind share. Each business metric or KPI focuses on efficiency. Every smart business wants to know how they can acquire a new user or client for less marketing dollars and effort; the never-ending quest for increased ROI.
If you want to build your foundation with a manual screwdriver instead of a power tool — that’s your decision. But know that a premium domain is the tool that can build your business faster and more efficiently online — and should be a serious chunk of your upfront marketing budget.
What kind of chunk are we talking about? A rule of thumb is a budget in the range of 25%-50% of your projected budget for your first 3 years of operation. Say that number is $50k; then invest $12,500 – $25,000 in your brand to buy domain names that are the best and most memorable you can land.
If you are looking to acquire an ultra premium domain you must budget for a starting price into the six figure range. The goal is to be practical, yet bold. After you configure your cash flow and projected earnings, you can determine what your operational budget is.
When investing this portion of your operating capital on buying domains, understand it is more than the intellectual property itself but essentially a discount on your traffic buying purchases. More organic traffic means less in paid PPC advertising costs, or lower per-click costs from a search engine if it helps you establish a better quality score. And remember that this is lifetime savings applied to your asset. Once you own a domain you can make it a fixed cost for a decade if you register it out for 10 years.
The exception to this rule of thumb is if you are buying as a pure investment. Then there are other metrics that come into play, such as the growth and appreciation trends per the domain category, the value to your company to stifle another company’s acquisition to a term, or longer term budget projections. Sometimes buying domains to “shelf” it for future use is an intelligent strategy, if you have the cash flow or bank account balance to do so.
The Next Steps in Buying Domain Names
If you are doing business or planning a business that will utilize online marketing to sell your goods or services, you need something that will help lure in your targeted demographics. Summoning the linguistical power of the brand and creating strong positive semantic connotations to your idea is what can make all the difference in your success. More importantly it’s about creating efficiencies on an asset that you can control and manipulate. Hopefully this article clarified some reasons why a domain name can help you do just that.
To start a list of possible acquisitions to acquire, check Flippa’s most active domain auctions and the Editors’ Choice premium domain name picks. As an online entreprenuer these are two places to constantly monitor what the market deems valuable and also to keep on the radar any domains that would benefit your business ventures. If you have a budget for a category-killer type domain you should also speak with a broker at Domain Holdings, a division of Flippa, or visit the brokered domain names section.
Your turn. What are your thoughts?