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Does Paying Top Dollar For Domains Still Make Sense In The Age Of Apps?

 A friend of mine received an anonymous offer for $120, via GoDaddy, for a domain he had owned for years called FuzzWire.com. He did not know the nature of the offer—that is, whether it was from a well-financed startup—but he at least knew that since it came from GoDaddy, and was not just some personalized plea sent by email, that he should test the offer's limits. So my friend, an entrepreneur, matter-of-factly countered with $10,000. By the week's end, the interested party agreed to the offer and moved $10,000 to escrow.

Such transactions are common in Silicon Valley, where the right domain name can still propel a startup's chances of success. But given the increasing popularity of apps, there's a question of whether owning the right domain name is as important as it was when the world was driven by dot-coms and browsers rather than iPhones and Android devices. In other words, if you launch an app today—say, Foursquare, for example—is it necessary to purchase Foursquare.com if the primary use of the service is through the mobile app, which does not require a web address?

According to venture capitalist Fred Wilson, a good domain name is still important to building a successful consumer product, even if it's primarily a mobile app. Foursquare, a startup Wilson has invested in, decided to purchase Foursquare.com after launching with PlayFoursquare.com. Wilson advises companies to spend up to $50,000 for the right domain, a price that has dramatically risen in the past year, he says.

But at what point does the price outweigh a domain's benefits? Color, Bill Nguyen's mobile photo-sharing app, infamously purchased Color.com for $350,000, and Nguyen also purchased the UK-friendly Colour.com. Yet each of these sites is nothing more than a landing with links to the app store and a video demo.

"Prices in general [for domains] have actually not been going down with the boom of the app marketplaces," says Paul Nicks, GoDaddy's director of aftermarket services and auction product development. "There've been several seven-figure sales already this year—the value of a generic domain name is still on its way up, and as the Internet expands beyond some of the more developed countries, certainly prices will continue to skyrocket."

Nicks believes domain names, especially generic ones, are still important for a startup's branding, and that dot-com domains very much remain the industry's standard. "It's ingrained as the default—iPhones even had a '.com' button," he says. "A single character can still make a huge difference."

And even if a domain name is absurdly expensive, there can be marketing potential for purchasing at a high price. "Color.com got a lot of press just for buying that domain name," he adds. "In the age of Internet news we're in, even a large sale can in itself be a marketing tool to further propel your brand." SalesForce, for instance, made headlines for purchasing Data.com for more than $1.5 million, while Social.com garnered press attention for its sale price of $2.6 million.

Yet while expensive domains might make sense for established web companies like SalesForce, there are plenty of examples of successful app startups that decided against buying an expensive dot-com domain. Rather than purchase Pulse.com, the popular news-reading app purchased the less expensive domain Pulse.me. Jack Dorsey's Square, which has many web applications, bought SquareUp.com instead of Square.com. And other startups such as Instagram and GroupMe purchased domains like Instagr.am and Group.me, before purchasing dot-com versions. (These latter examples—Instagr.am and Group.me—are called "domain hacks" in the industry. Nicks says, "I see a lot of people buying them, yes, but I don't see a lot of usage for them.")

In a meeting last week with Scribd co-founder and CEO Trip Adler, I asked how much his startup spent to purchase the domain for his new app service Float. Float.com, he bashfully said, "was a lot." How much? Adler said he wasn't sure if he wanted to reveal the cost. Color.com proportions, I wondered? "It was a lot of money," he said. (Nicks and his team at GoDaddy estimate the domain's value value "in the $50,000 range, plus or minus $10,000." Scribd declined to confirm the price.)

For Nicks, who obviously has a vested interest in selling more domain names as a director at GoDaddy, Float.com is a good domain—a name that's both generic and brandable. The question is whether the value of the domain—the actual price Scribd paid for Float.com—actually adds value to the service, more so than it could add with a less expensive domain name or with the app alone.

At the very least, Float.com's expensive sale price has us talking about it. And that's got to be worth something.