Greater Than the Sum of Its Parts

WIPO recently published a valuation method document written by Kelvin King, founding partner of Valuation consulting, which states, “the role of intellectual property rights (IPRs) and intangible assets in business is insufficiently understood.” Domain names are not trademarks, but they are among those misunderstood, intangible assets that few people know how to value accurately.

There is no concrete formula for valuating a domain name. Every situation is unique and determining the price tag of a domain requires an understanding of the domain name market, the industry related to the domain and Internet user behavior. A lot, however, also depends on general perception of its value.

King writes that when it comes to valuating property rights, “the value to each [interested party] will depend upon their circumstances.” The same is true of domain names where domain owners and buyers actually set the price. In the absence of comparable data (such as the sort of data that help people assess the value of their home), the seller’s perceived value of the asset sets the floor price. If the floor is palatable to the market, the value perceived by the buyer then determines the purchase price.

What we do at FairWinds is gauge the interaction of all these concrete and more abstract or nebulous factors to determine the value range of the domain. When we help our clients weed through their portfolios and uncover domains that are no longer of strategic value, we often get asked to evaluate unbranded domains for potential sale. If it contains a brand name, the decision isn’t to keep or sell, it’s to keep or abandon. Domains that are not tied to an active brand name should follow a separate path: keep or sell.

Our approach is twofold. There is the quantitative component, which looks at the current value of the domain based on factors such as the amount of traffic that it receives regardless of whether there is an active Web site, the average value of a sale or advertising impression for the industry, and industry sale or advertising click-conversion rates. The difference is that some industries and business models sell products and services online, while others generate leads or simply deliver marketing impressions through their Web presence.

There is also the qualitative component, which looks at the potential value of the domain based on its ability to be developed into a leading online brand. Valuation criteria for a generic/keyword domain’s brandability include:

• Its ability to evoke Trust and project Consumer Confidence
• Its strength as a Brand
• Its Commercial usability
• Its ability to capture intuitive type-in Traffic
• Its Uniqueness and ability to Resist Dilution
• Its Simplicity (in other words, is it Recallable?)

By combining these two evaluations, we can assess how much a domain is worth.

There are some domains out there that will provide your company with little return on its investment and some are just too expensive to acquire, but by looking around one can see that there are some deals to be had. Understanding the potential benefit that a domain can provide your company can reveal which domains could be a sound investment and which can be passed on.