When
To Buy Traffic Domains?
Alex
Tajirian
April 2005
Traffic domain names have established website
visitors from search engine result-links (Google.com, MSN.com, etc.),
directory websites sites (dmoz.org, Yahoo.com), bookmarked links,
referral links from other websites, or browser type-ins. There are
three distinct types of traffic domain names: recently expired domain
names, parked domain names, and established websites. I will use
parked names to highlight the issues and pitfalls that need to be
considered when buying such names.
Parked domain names generate revenue through user
clicks, which is achieved by placing advertiser links on a Web page.
Every time a visitor clicks on any of the links, the advertiser
pays the domain name owner a pay-per-click (PPC) fee.
The three financially sound conditions to buy
a traffic domain are:
- If it is under-priced. Irrespective
of the volume of traffic, you do not want to pay the owner its
market value, i.e., the present value of its expected stream of
future income. Paying the market price is tantamount to engaging
in a zero profit transaction; a transaction that involves the
fair tradeoff between a fixed lump-sum payment today versus a
value-equivalent stream of future cash flows. Thus, a Net Present
Value (NPV) is a zero transaction. To make real economic profit,
your purchase must be a positive NPV transaction.
Under-pricing can be a result when the owner
is willing to sell it at a discount or when your valuation of
the expected future income is higher than the current owner's,
other things held equal.
Without an active exchange market in the specific
domain name, the market price is clearly not observable. Thus,
you need to either estimate it yourself of use a domain name
appraiser.
-
If you can add value by improving the quality
and accelerating the volume of traffic. In this case, you
would be willing to pay the market value of the domain name,
as the accelerated traffic growth results in a positive NPV
transaction. However, you need to be careful not to overestimate
the potential of increased quality (the revenue per visitor)
and traffic volume.
- If you can mange the parked domain
more efficiently by reducing operating costs. For example,
if you were managing a portfolio of parked domains, you would
be able to lower average management cost of the domain names.
Topic tags: parking
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