Domaining is the business of buying, selling, developing and monetizing web domain names not for use as a website, but like real estate property. Domain name valuation vary according to a number of important factors:

• If it is composed of a generic dictionary word
• How lucrative the word's industry is
• How many users search for that exact keyword online
• TLD extension - .com, .net, .org, .tv, .mobi, .de, us, .pro, .me, .info, .biz, .co.uk, .info, fm
  
• How much browser-based direct type-in traffic is generated
  

A domain name is a URL addresses on the web that uniquely identifies a site. It comes in a wide variety of extensions with the .com being the most popular. Domainers usually generate revenue through domain parking, where they are paid based on the advertising clicks the domain generates. However, the process is frowned upon by surfers given the spammy nature of parked pages and the lack of user engagement those types of sites provide. Most domainers keep their domain names as an investment for the chance of reselling, forwarding traffic to another site that generates revenues for them or developing the domain names for profit.

Domainer is a term that refers to individuals or companies whose business model includes accumulating a portfolio of generic internet domain names. They consider their conduct in buying, selling, and developing domain names to be in the same spirit as real estate investing. Domainers generate revenue via domain parking as well as through the resale of domain names and by developing domain names into fully functioning websites. Domainers are also sometimes referred to as domain investors and bulk registrants. Domainers are able to purchase domains more cheaply from Domain name resellers than the average consumer due to purchases in bulk.

USA Today reported that many Domainers prefer to remain anonymous due to the competitive and controversial nature of their business. In the same report, it was stated that known sales of 5,851 domain names generated $29 million in 2005, compared with known sales of 3,813 names for $15 million in 2004.

Domain monetization is directly linked with what's known as type-in traffic, or, in Wall Street jargon, direct navigation, also known as direct request. Though it may seem odd in the era of powerful search engines, it turns out that millions of Internet surfers don't use the search engines at all. Instead, they type what they're looking for right into the top of their Web browser's URL location. Looking to buy music in the US? Type in Music.us. A page filled with music-related products comes up. Click on one of the ads and the advertiser pays Google, which in turn sends a share to the website owner. Looking for mobile music on your phone? Mobile users can type in Music.mobi in their phone browser and receive a music site optimized for their mobile screen. Another way a domain name is leveraged is through redirecting it to ones brand. For example, loans.com points to BankofAmerica.com, flowers.com redirects to 1-800-Flowers, jokes.com redirects to Comedy Central, Movies.com & Movie.com is run by Fandango (acquired from Disney), Video.com/Family.com redirects to Disney channels, Baby.com is owned by Johnson & Johnson, and love.com redirects to AOL personals.

No one knows for sure how much Web traffic comes from type-ins, but Google/Yahoo officials estimate that type-ins could make up 15 percent of their search business. Marchex, a Seattle-based company whose strategy is focused on type-in traffic, estimates that it accounts for nearly 10 percent of the global paid search market, which is projected to soar from $9 billion this year to $23 billion in 2009. That's why some domain names are commanding six- and seven-figure price tags and attracting big-money players. In November 2004, Marchex invested $164 million for a single domainer's portfolio. In 2005, Boston-based Highland Capital paid $80 million to acquire BuyDomains, a company with 500,000 names, according to people familiar with the deal. Says Highland principal Richard de Silva, who wouldn't confirm the price, "These are profit machines." [Buy / Sell Domain Names - Why Invest In A Portfolio of Premium Name Domains]

Some domainers also are creative and quite controversial with their virtual realty business. An example is Kevin Ham, the man behind the domain world's latest scheme: profiting from traffic generated by the millions of people who mistakenly type ".cm" instead of ".com" at the end of a domain name. Try it with almost any name you can think of -- coke.cm, yourname.cm, even anyword.cm -- and you'll land on a page called Agoga.com, a site filled with ads served up by Yahoo. Interestingly enough, "yahoo.cm" forwards to "yahoo.com". The whole business model is based on typosquatting profiteering. An example is the typo of "google.cm" that redirects to "sportsbook.com". Others include Godaddy.com. GoDaddy.com, the world’s largest domain registrar, is one of three members of a power-packed joint venture chosen by the government of Montenegro to operate the new domain extension which sold 100,000 .me domains in its first few weeks since its landrush including generating millions of dollars via .me pre-registration auctions.

Ham makes money every time someone clicks on an ad, as does his partner in this venture, the African country of Cameroon thst has the unforeseen good fortune of owning .cm as its country code, just as the United States runs all names that end with .us. The difference is that hardly any .cm names are registered, and the letters are just one keyboard slip away from .com. Ham so the opportunity in typosquatting traffic and made sure that his company, the Cameroon government and Yahoo would be involved in the venture. Whether this is an ethical business practice is another topic for discussion.

However there are risks in regard to parking, since most domainers use parking aka the "lazy domain monetization method" as their sole monetization strategy because they usually own thousands of domains and it is the most scalable method for generating revenues on the fly. Internet advertising could turn south since click fraud, in which someone writes a program that repeatedly clicks on paying links, is becoming a bigger problem for the paid search industry, making advertisers reluctant to spend. Many advertisers are already complaining about their links being placed on spammy parked pages. Due to advertiser complaints, both Yahoo and Google are revisiting their parked page strategy since it has generated a lot of negative publicity. Just the mere fact that parking pages do not place high in the search engine results is an indication that Yahoo and Google do not see value in parked domains for users, but they still opt-in to make money off them since so many people use direct navigation as a way to search. Some even speculate that Google, Yahoo, or Microsoft, will eventually buy up domainer portfolios and serve the type-in traffic directly to their advertisers without the need to pay nearly half the profits to the domainers.

The Domaining Opportunity

Domaining is all about opportunity recognition and spending time researching the industry. The best way to do this is join discussion boards and forums where other domainers hang out at and read, learn and exchange opinions. Slowly the virtual property market is becoming larger and larger, and now people every day are beginning to see the huge amounts of money that can be made, especially now that ICANN decided to open up the internet and allow new Top-Level-Domain (TLD) extensions in 2009 to flood the internet.

Sex.com, for example, sold for $12 million to Escom. Porn.com sold for $9.5 million to MXN, Business.com sold for $7.5 million, Fund.com sold for $10 million. In 1994, when Sex.com and Business.com was registered, there was no domaining industry. Some people knew some domain names were better than others, but the whole idea of buying and selling domains was unheard of. Fast forward to today, we see that domain names are now worth more than anyone could have ever imagined [Past Domain Name Sales Price Records - All-Time Highest Value Paid For Sale of Domains]

The early investors in the premium domain business have done very well in the resell market today. Even though almost all the premium domains are already registered, the domain name game is not over and it will not be for a while given the new decision made by ICANN to open up the internet to any extension imaginable. This means opportunity and new "land" to invest in.

Today's Domain Market Landscape

The key to today's domain market is to get in as fast as possible. This means pre-registering domains in new domain extension landrushing and participating in auctions. For example, .mobi, .asia and .me all held auctions for their premium domain names.

On the open market, you still have the ability to buy high-quality, premium domains. Domains like Business.com are not unattainable, but it will take a lot of work, research and perfect timing if you want to start from nothing and build a strong domain portfolio. empire.

A good domainer will take names that are left unregistered and have the ability to identify their worth. Will they pay back their annual $8 registration cost and make a profit? Identifying a domain that is worth money is a tricky business, unless the name is a generic word or phrase which have the highest intrinsic value. And since most names that have that kind of intrinsic value, such as Loans.com are long gone, domainers need to do additional research to stay ahead of the curve and find ways to identify which domains will have current or future intrinsic value.

Domain Valuation - How to Determine How Much Your Domain is Worth

The value of a domain is determined by 12 main variables:

   1. Length - How long is the name?
   2. Word-count - How many words?
   3. Clarity - How well does it describe its content?
   4. Memorability - How easy is it to remember?
   5. Market Size - Large, medium or small market?
   6. Market Potential - Is the market lucrative?
   7. Market Applicability - Does the name apply to the whole market or small portion of it?
   8. Hyphens/Dashes or Numerals? e.g MyDomain5.com or Music-CD.com (loses value)
   9. Any Substitute Names / Synonym Alternatives? e.g University.com vs. College.com (loses value)
  10. Any Abbreviations? eg PPV.com vs PayPerView.com (loses value)
  11. Any Variations - singular & plural nouns or verbs? e.g. loan.com (singular noun, verb), loans.com (plural)
  12. Domain extension / TLD? Is it a .com? (more value than others)

Of all the variables, the 3 most important factors in assessing domain value are the domain's TLD extension, its market size/potential and how well it describes its content.

Let’s look at some examples below.

MakeMoneyWithDomaining.com is a highly descriptive domain name but very difficult to type. It has too many characters so it is hard to remember, thus weaking its value. However, Sex.com is short, obviously intuitive and easy to remember giving it the $12 million price tag it sold for (plus the opportunity to monetize given the adult industry's huge market)..

Domainers can also tap into "lead-in" or "lead-out" domains. An example, is iTunes.com. The "i" is used as a lead-in and could mean "I" the pronoun or "i" referring to internet. Other examples could include iPhone.com, iFly.com, iMatch.com. Another alternative is the "e". Examples, include eMusic.com, eHarmony.com, eBusiness.com. "e" can stand for "electronic". On a similar note, lead-out domains can include words like "now" or "space" or "tube" or "ster". Examples include, Ticketnow.com, Musicspace.com, Friendster.com and xTube.com. All these extensions stem from popular properties that have become household names including Myspace.com, Napster.com and YouTube.com. The closer you get to the original piece of “land,” the more the domain is worth.

Domain Names are Virtual Property

Domain names are virtual real estate that come without the additional hassles that real property brings such as taxation, maintenance and electricity. All domains require is a yearly registration fee and perhaps hosting if you ar enot using a parked page for monetization.

There are 2 ways to get domains that have traffic:

1. Register one that already receives traffic (pre-registration, landrush, registration)
   
2. Buy one - also referred to as the “secondary market” or the “aftermarket” (includes auctions)
   

Domaining is a risky business if you do not do your homework and timing is also important (e.g. landrushes, pre-registrations, trends). If you wanted a clean and safe investment then you would be leaving your money in your bank to collect interest or invest in savings bonds not into domains.

You can register domain names with a registrar (such as GoDaddy.com, Moniker.com, Register.com.) that acts as your intermediary to the central registry. By opening accounts with the most common registrars, you’ll be prepared to buy and sell domains from other domainers, allowing for an easy and painless change of ownership as well as transfer from one account to another or internally.

Domain Traffic Types

Domains may have link popularity traffic i.e traffic that is leftover from a site that once existed at that address, or type-in traffic, the result of curious visitors typing a domain into their browser to see where it goes, also commonly known as direct request.

• Typo Domains - Typos, considered the “dark side” of domaining, can make a person a lot of money, but also put you at risk for lawsuits. Typo traffic runs a fine line between generic words, potential trademarks, and trademark infringement. Cybersquatting - the act of registering domains that include a trademarked word - is another controversial side of domaining that spells legal trouble all over it. I suggest you stay away from this kind of strategy.

• Traffic Monetization and Domain Tasting - Parking companies make their money from the traffic redirected from your domains, and in turn compensate you with a percentage of the ad revenue they generate. An entire market has evolved around “traffic tasting” or “domain tasting,” allowing a registrant to test a domain for traffic for a few days, and if they are not satisfied, remove it from their portfolio and receive a full-refund. However, domain parking is considered to be a quick‐fix to make money from the traffic generated by the domain until you develop it into something more useful for users. The disadvantages of domain parking are that (1) you do not receive repeat visitors (why would users return to static websites that never update with useful content?), (2) you do not receive search engine traffic (since there is minimal useful content and link popularity on the domain since no-one links back to your domain giving it credibility for search ranking) and (3) you can not customize your page much which makes your front page design look boring and generic (thus resulting to lower conversions and credibility).

• Development: Monetization Beyond Parking - While parking is easy, it does not do much to engage surfers or create recurring visits. The value of your domain rises is if the domain is developed into a full dynamically-driven site with real updating content and a revenue stream.
  

Domainers should not get too caught up with the notion that their domains are worth more money than their fair market value is. Too many domainers place too much emphasis on the “priceless” value of their domains. A smart domainer focuses on making a profit from buying or registering domain names for cheap and re-selling them at a reasonable profit.

Conclusion

My advice to finding and selling a domain name is to increase its value by researching and discovering a niche that you are knowledgeable about. Then after you register the niche-based keyword-rich domain, you develop it out by finding a reliable webhost, add useful web content to attract quality traffic, and promote it using viral marketing and search engine optimization (SEO) tactics such as link building. After you add a revenue stream to it and traffic starts coming in, the domain is ready to be sold. In other words, invest, develop then sell taking into consideration your time investment since time is money. Develop, develop, develop. But keep in mind, the true value of a domain is only determined by the end user and how useful the site is to them. Look at business.com. The domain sold for $7.5 million in 1999, but the owners Jake Winebaum and Sky Dayton developed it and sold it to R.H Donnelly for a whopping $345 million in 2007. The domain name premium generic name status and history contributed to the high sale, but so did its development and advertising network business model. The sky is the limit.