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.

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6 Comments

  • Brandon MacKenzie

    Interesting article Austin. I wonder how people's opinions will change once ICANN's latest approval is operational… I recently wrote on my blog about how I believe the domain name asset class is about to crash. I personally believe that the user's natural tendency toward the use of natural language as an interface will supersede the traditional .com domains.

    If interested, the article is here: http://tinyurl.com/3gjwvg4

  • J R

    Isn't Fuzzwire.com still for sale at SEDO.  Do a search for the name in Domain Tools, and it will show up as for sale for $10,000.  This means that whomever bought it wants to resell it for the same price? Or the $10K that was made to your friend fell before it went through?  That is the case many times with domains.

  • Robert Fitzgerald

    As a domain portfolio owner and an app owner, we heavily rely on our web site to promote our app. We were able to hand register the exact match RecipeCostCalculator.com but would have paid a premium if we had to. The exact match URL goes a long way with tweets, links and general word of mouth. For every heavy hitter mentioned in this article there are millions of us small developers chipping away at a few hundred downloads a month and have a exact match URL with a splash page is a needed edge.

  • Kristin Eide

    Interesting topic. I think the "game" of securing a domain name forces new companies to get creative when naming brands and products. I had a conversation with a parent-to-be the other day about baby names. They said they wanted to ensure that their child's firstlast.com was available for purchase. I'm pretty sure parents weren't considering this when naming their children 15 years ago.

  • JH

    Apps mostly have value to websites that are daily destinations - facebook, ebay, weather.com, traffic, etc... Plus games of course. For others apps offer very little value.

    Values of the best-of-the-best .com brands are certainly up in the past year or two. For example, Zip.com recently sold for $1M, and Zero.com recently sold for $330K. I have WHIP dot COM for lease/financing (at 5 fig per year) - a brand that is literally as cool as it gets, and that works perfectly as verb as well as noun. 

  • Adam Strong

    As a domain broker I've seen a steady increase in requests for quality domains, many of these clients include mobile apps. These clients see the value in a solid brand that evokes what the company/product represents.  Float.com is worth far more than $60k and based on the former ownership it's no doubt they paid more.  Float has many of the best qualities of a brand name, far more than Scribd.  Nice acquisition !