How Auctions Are Heralding Return Of Internet Real Estate Boom

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Like real estate, the prices for online real estate are booming again

The real estate market is booming again. No news there. But the internet real estate market is again booming thanks to the return of online domain auctions, and that is good news for the internet community.

In the late 1990s, as the dot com boom was going through the roof, domains (the sites on which websites are actually built) were being bought and sold for millions. Business.com sold for more than $5 million, Wine.com for almost $3 million. In the rush to buy up all the online real estate, prices escalated even more than those on the exuberant stock markets.

Websites have always been available for sale, but today the market for domains is returning. According to Kevin Michaluk, Vice President of DPMG, a Canadian web marketing company, people not involved in the business of the Internet are often unsure of the distinction between domain and website. “The domain name/website relationship is akin to a traditional business with a sign on the street to get attention and point to the location,” says Michaluk. “Assuming the business gets traffic, the long-term success of the business is based not on the name, but on the quality and pricing of the products and services offered. But your business will never have a fighting chance for survival unless it gets initial traffic and is easy to find for repeat business. In the online world, a great domain is like having the McDonald’s Golden Arches outside your business. It’s easy recognizable, intuitive, stirs emotion and draws you into the location. If it’s a quality website you will want to come back for more.”

The dot com bust of 2001 left many people with overpriced web domains and with the realization that most of the lucrative and preferred .com sites had been bought up. But, much like the upswing in the real estate market, demand for domains is again on the rise. In addition to a return of online real estate speculation, new “land” is being developed. In this case it is the expansion of overseas domains such as Italy’s .it and Austria’s .at. The European Union is also contemplating launching a new .eu domain address. However, despite these new domain extensions .com is still the most desirable.

Today, companies like DPMG are finding innovative ways to acquire and sell domains. DPMG is using EBay to market one of its domains, Gaybar.com. “This is a domain with huge development potential,” says Michaluk. “For the right developer, the potential revenue could be significant.”

“In general, domain pricing is very elastic,” says Michaluk. “Their value moves with the supply and demand curve. You can register a new domain name for only $7, but a domain name like China.com is worth millions to the right suitor, despite the owner of the domain having only paid $7 for it. The value of a domain is worth what someone is willing to pay for it, and auctions provide the ideal venue for both the suitor and owner.”

It’s the most basic business transaction. Sellers have a minimum price, buyers a maximum and if the two meet then you get a deal.

There are also a number of domain valuation services that act like real estate appraisers. “Domain valuation is a complex business,” says Michaluk. “Some sites have obvious opportunities, such as Gaybar.com, while others carry more risk. Domain evaluators forecast potential revenue based on many things: length of name, recognition, commercial development potential, existing traffic to the domain, recent transactions – these all affect value. Development potential is what makes a domain very valuable to someone; and people are willing to spend a lot on a domain if the name of that domain is an integral part of the business potential.” If you have multiple suitors for the same domain name then, much like real estate, the seller is in a great position as demand pushes prices up.

DPMG is listing the Gaybar.com domain at $125,000 in an EBay auction starting May 4, 2006. A significant portion of the proceeds will be donated to Equality Forum, a Philadelphia-based advocacy group and the Toronto-based Canadian Gay and Lesbian Chamber of Commerce.

For more information on the auction of the domain on EBay visit http://www.gaybar.com or for more information on the valuation and auction of domains contact Kevin Michaluk at 204.982.0011

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Kevin Hill
DPMG
204-982-0011
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