Selling and Buying an option to purchase a domain name at a fixed or negotiated price within a specific time frame could be a win-win proposition. While there are pros and cons to leasing domain names for both the Buyer and Seller, many of those shortcomings are not inherent with option contracts.
From the Buyers' viewpoint, Buyers can lock in a price and guarantee that the domain name will be available at a specific price for specific length of time. This affords Buyers opportunities. For example, if a prospective Buyer first needs board approval to buy a domain name, purchasing an option contract is ideal. The same applies to Buyers who need to line up financing before fully committing to buying a domain name or for Buyers who need to think about the purchase for a couple weeks. In addition, domainers who have a keen eye for under-priced names and a penchant for domain flipping may want to lock in a price and quickly identify and contact prospective end-users.
From the Sellers' viewpoint, the best scenario is that the option results in a sale. Secondly, selling option contracts minimizes cash flow challenges and would certainly generate more revenue than passive PPC income. Additionally, unlike a lease, the Seller maintains control of the landing page and would still offer the domain name for sale during the option (but not at a fixed price). Option contracts are less complicated than domain name leasing contracts. That fact alone may ease a Buyer's anxiety about securing a domain name with a formal agreement.
Sellers would need to determine when to offer an option because doing so may adversely affect impulse buying . . . but then again, the impulse to buy a option contract is an easier commitment. Option contracts are best used for flash sales, giving under-capitalized domainers or end-users an exclusive opportunity to purchase a quality domain name while they locate adequate capital.
I see the essential components as follows:
1. Automating the process on your landing page, which would include listing the domain at a fixed price, advertising the opportunity to buy an exclusive option, implementing a click through system (reviewing legal and option terms/fixed price), clicking to agree, and then onto cart for payment (PayPal and/or credit card)
2. The option contracts should be inexpensive and easy to understand (i.e. $20 option for 14 days for domain names selling at $5k or less. $40 for $5,001 to $10k, etc). You would need to experiment with different price points and time frames.
3. Develop a system (automated or manual) so when an option is purchased, you can quickly modify the landing page to replace BIN link with an Inquiry link.
4. Continue to use an escrow service for the domain name purchase. Email the Option Buyer a link to purchase the domain through an escrow service at the agreed upon price but remember to deactivate the link after the option period.
It is difficult to know whether option contracts would have a place in the domain name industry. IMHO, it makes sense in theory but it's more likely to succeed if Godaddy or Sedo implement it first.
By Stephen R. Wilson
Preparing for the inevitable
Domainers need to discuss succession options with family members/business partners sooner than later because unlike other forms of business assets or investments, common knowledge about the domain industry is scant. As such, many attorneys, accountants, financial advisers and astute business people may not know enough to help your successor make domain liquidation and/or business decisions.
Once you have identified who will take over ownership your domain portfolio, it is unlikely that that person would know intuitively how to proceed with selling or managing domains. While explaining the domain industry is conceptually simple, the practical application is difficult to absorb because there are too many moving parts. Rather than subjecting your successor to a realtime overview of DNS settings, valuation principles, and domain auctions, one solution is to create series of screencast videos . . . to be viewed later.*
Create a one page document and email it your successor with a “Do Not Delete” subject. This document should identify where to find the Master spreadsheet or database that contains a list of your domain portfolio, which should include statistics/offers/metrics/valuation/registration, etc.
The one page document should also identify where to find a series of screencast videos that your successor should watch within three weeks of your death.
In my first screencast video (I used free Blueberry software), I showed where to find the latest Excel file and focused my discussion on only five columns that would enable my successor to identify which domain names needed immediate renewal. The objective of this screencast is to prevent losing valuable domain names before the survivor determines the best course of action.
The five columns are “Domain Name,” “Renew Y/N”, “Renewal Basis,” “Expiration Date,” and “Registrar” (w/ login credentials). The screencast video shows how to sort/filer information, etc. (important for survivors who are not proficient using Excel formulas/macros).
I recommended renewing all “Renew Y” domains for two months from the date of viewing. This should give your successor adequate time to determine whether to liquidate entirely, in part, or to continue managing the portfolio.
The “Renewal Basis” column heading is important because it states the primary reason for your valuation and in turn why the domain should be renewed (even though it may look like a name you should drop). The reasons are “Offers,” “Revenue,” “SEO,” “Name/Acronym,” “Brand.”
The first screencast video should be simple and concise with concrete examples (I recorded the steps to logon to a registrar’s website, select domains to bulk renew, etc.)
The second and third screencast videos focus on “Domain Liquidation” and “Legacy Domaining” respectively.
The Domain Liquidation screencast should consist of a candid, sobering and painful assessment of the difference between wholesale liquidation and end-user retail (i.e. “I think this domain is worth $10,000 to an end user but don’t expect to liquidate it for more than $500”), along with the recommendation that the survivor should try to work with a reputable domain broker who may have clients that buy wholesale domains in bulk. Understanding the “renewal basis” is critical because a broker may glance over hundreds or thousands of domains and pretty much nail the valuation of the name itself “This domain is only worth $500 not $10,000” . . . BUT if the broker knew that the domainer’s valuation stemmed from “SEO,” (or Offers) he/she would price that domain much differently. For example, I have 13 character dot org domains that is neither generic nor brandable and only generates revenue of $5 annually but it’s worth $1,500+ because it has a Domain Authority of 50, a Pagerank of 7 (RIP PR), and other desirable metrics. Nobody should expect a broker to dedicate dozens/hundreds of hours painstakingly researching and individually pricing thousands of domain names.
The third and last series of screencast videos is for the successor/survivor who wants to make a more informed decision whether to continue managing the domain portfolio. Each of these videos should be both comprehensive and specific to one distinct element of domaining. “Renewing/Transferring,” or “Parking/Keywords” or “Negotiations” or “Valuations” . . . etc.
Putting this all together is time consuming but it’s rewarding to know that your successor/survivor will bear the fruit of your hard work because you were able to impart knowledge at a time when he/she needed it the most.
* The foregoing suggestions assume that there is no legal impediment for your spouse/shareholders/family member/successor to have the authority to renew and/or sell domains names. There are simply too many relationship/business permutations to provide any meaningful or thorough guidance from this post. I recommend that you investigate “how” your successor obtains legal ownership of your domain portfolio before you do anything else. The suggestions also assume that your successor does not have a family member or a trusted friend with significant domain industry experience who is willing and able to act as a surrogate or mentor.
By Stephen R. Wilson
1031 EXCHANGE FOR DOMAIN NAMES
Section 1031 of the U.S. Tax Code enables investors and business owners to defer paying capital gains taxes for the sale of tangible (and intangible) investments and/or revenue-generating business property provided that certain requirements are satisfied. Individuals involved in real estate transactions are likely familiar with this tax deferral option but the same advantages are also available to domain name investors. In a real estate context, after you sell investment property you have the opportunity to defer any capital gains tax associated with that sale provided that certain conditions are satisfied such as using the proceeds of that sale to buy another investment property.
If you sell a domain name that you had acquired as an investment or used it as a revenue-generating business asset, you have the same opportunity to take advantage of the 1031 exchange tax deferral but you also must abide by the same strict requirements and deadlines. First, you need to use a qualified intermediary, which is a person/company that holds the sale proceeds in escrow until you identify a replacement domain. The qualified intermediary holds the sale proceeds in escrow to ensure that the investor never has actual or constructive possession of the sale proceeds.
The replacement investment/asset needs to be of "like kind" to the investment or business property sold. In other words, you cannot sell your bungalow and buy a domain name to defer paying capital gains on the sale of your bungalow . . . and you cannot sell a domain name and use the proceeds to buy a racehorse.
You have 45 days to identify the replacement domain name and 180 days to purchase the identified domain name. Utilizing a payment plan should satisfy these requirements because you are able to identify the domain within 45 days without needing to buy it . . . and then arrange for a 6 month payment plan.
If you hold the replacement domain as an investment OR as a revenue generating asset, you can again take advantage of the 1031 exchange when you sell that domain. And so on.
I will note that the 1031 exchange treatment for individual investors or business owners who have an incidental involvement with domain names may differ from the 1031 exchange tax treatment for full time domainers. Again, please discuss options with a qualified professional.
FYI: Flipping domain names, although fun and sometimes lucrative, does not qualify as an 1031 exchange because when you purchase a domain name with the intent to flip it, it is neither an investment nor a revenue-generating asset. Although there is no bright line rule, tax professionals recommend holding the property for two years before trying to sell it if you plan on using a 1031 exchange.
The purpose of this brief article is to raise awareness of this possible tax deferring strategy to domain name investors. It is NOT intended to offer financial or legal advice. You will need to discuss the 1031 exchange option with your accountant, financial adviser and/or tax attorney.
By Stephen R. Wilson
Branding with cctlds
Most large US based companies have an International presence. Marketing goods and services to specific countries is often achieved by forwarding the cctld version of the brand to a subpage of the .com website. As such, Microsoft.de redirects users to Microsoft.com/de-de and Apple.co.jp redirects users to Apple.com/jp/. Some companies, such as Netflix (and Walmart), redirect all cctlds to their .com landing page. (I suspect that once you sign in to Netflix for example, the content is displayed in accordance with your language and country). Whereas other companies, like Alibaba, only use .com (cctld version do not redirect or resolve). I surmise that all of these companies adopt the purveying principle that there is only one primary brand and that brand resides as a .com. Why confuse the world with cctlds?
Amazon, Disney, McDonalds and Google think differently (sorry Apple). They do not adopt that default position of having .com serve the world. In my opinion, these companies are forward thinking in their marketing approach. Amazon, Disney, McDonalds and Google essentially customize their brand to each country/region. Identifying itself as Amazon.es to Spain's residents is a far better strategy than using Amazon.com in Spain. Although there are many large non US companies using .com domain names, I sense that the rest of the world considers .com as US-based whereas a cctld would be focused more on the needs of the resident of that country. Moreover, using the cctld as a unique brand sends the subtle message that "we are here to serve you . . . " as opposed to "we are here in the US but we also have an office in the Netherlands . . . etc."
Recently, Amazon invested another $3 billion to continue building its infrastructure in India. In the announcement, CEO Jeff Bezos said, "Our Amazon.in team is surpassing even our most ambitious planned milestones . . . ." His words were purposeful. Bezos understands the importance of building a sense of trust in whatever country you are marketing your goods and services In sum, the message is that Amazon.in is an Indian brand that serves India . . . and Amazon.it is an Italian brand that serves Italy. It makes so much sense to carve out the distinction between .com and cctld yet International companies often acquire the cctld for defensive purposes only or to redirect the cctld to a specific subpage of the .com. As globalization expands, we should see more major brands marketing sub-brands featuring cctlds. These brands are famous enough to eliminate any possible confusion .com and ccltds. Accordingly, the advantages of marketing the cctlds version as a sub-brand overwhelming outweigh any perceived negative ramification.
By Stephen R. Wilson
Voice Search and Domain Names
Voice search applications will continue to improve and become more popular as the technology matures. When that happens, it will undoubtedly impact the value of certain domain names. Although suggestive/arbitrary/fanciful domain names are all the rage (with known benefits), thanks to Siri and other voice search applications we may start seeing a return back to higher valuations for generic domain names.
My first test was to ask Siri to “Open website plenty dot com.” Siri did just that interpreting that my voice command for “plenty” should be spelled “plenty.” As it turns out, plenty.com forwards to plenty.co.uk, which is a manufacturer of household cleaning products. Siri could also open Plenti.com but my voice command would need to spell the domain name, as in “Open website P, L, E, N, T, I, dot com.” I will note that plenti.com was ranked 825,845 in the Majestic Million but plenty.com and plenty.co.uk were not ranked. Accordingly, Siri’s interpretation of my voice command had nothing to do with website popularity (at least in this case).
For all its good, Siri is not perfect. For example, there is a popular upscale restaurant in Boston called “No. 9 Park.” Accordingly, this restaurant uses the domain name “no9park.com.” Although Siri usually does a good job interpreting when a number should be spelled out or displayed as a number, I could not get Siri to open no9park.com. Siri would interpret my voice command to “open website No 9 park dot com” as noninepark.com (not registered yet). Also, searching for any acronym starting with the letter “U” would be interpreted as “you” so upon your command to “Open website U,M,P,C, dot com” Siri would interpret that as youmpc.com.
Once Siri interpreted your command, however, it would attempt to open that particular website even if that particular website did not exist. In sum, with the noted exceptions, Siri’s algorithm trusts that the person giving the command knows what he/she wants.
In contrast, Google voice search was inferior in many ways. Upon my voice command to “Open website plenty dot com,” Google opened Plenti.com. Perhaps if someone in the UK tried this voice command, Google would open Plenty.co.uk (forwarded from plenty.com). The location of the mobile device may play a role in the results. Like Siri, however, Google voice search opened the correct website when I spelled the domain name (“open website P-L-E-N-T-Y dot com”)
Google voice search failed to recognize many new gtlds (though it did recognize the voice command to “Open website domains dot Google.”). More troubling, even when it correctly interpreted my voice command (text output confirmation) Google would open what it thinks you want as opposed to what that text showed. Google’s voice search algorithm is probably skewed to coincide with text searches at Google.com.
If you believe like I do, that voice search applications will emulate Siri, this bodes well for generic domain names (unless you want to spell out your search command). It would be interesting to know what percentage of consumers use Siri/Google Voice to open specific websites as opposed to asking questions or seeking information.
Lastly, mobile voice search applications also erode one major benefit of shorter domain names (easier to type in mobile browser). Accordingly, perhaps the proliferation of mobile voice search applications will begin to close the valuation gap between short domain names and longer descriptive/generic domain names.
By Stephen R. Wilson
Foreign Trademarks . . . in Tonga, Jamaica and Trinidad and Tobago
IP attorneys representing major companies have effectively thwarted Trademark trolls by utilizing Section 44D of the Lanham Act (Trademark Law), which “provides for a priority filing date to eligible applicants who have filed an application in a treaty country . . . within six months of filing the first application to register the mark in a treaty country, the filing date of the first-filed foreign application is the effective filing date of the U.S. application.” This provision allows companies to file an application in treaty countries (such as France, Japan . . . but also in Tonga, Gambia and Togo, etc.) and then subsequently use that date of filing as a priority date when filing a trademark application with the USPTO. The applicant must provide a verified statement that the applicant has a bona fide intention to use the mark in commerce.
One colossal benefit of filing a trademark application in Tonga (and a few dozen other small countries) is that there are no searchable trademark “applications” online. Essentially, nobody would know that the company filed a trademark application in Tonga as early as six months before filing a trademark application in the USA. This gives companies autonomy while securing domain names and other IP rights in stealth mode.
Once the Tongan Trademark Office grants a trademark, those trademark registrations become public because unlike trademark “applications,” trademark “registrations” are searchable online. Many large companies either withdraw the trademark application prior to registration or simple cancel the registration. Of course, this is done after the company secures all the necessary IP rights/domain names. If withdrawing the application or cancelling the registration is a foregone conclusion, however, how can these companies file an application in Tonga based on a “bona fide intent” of using the trademark?
It is difficult to prove that there was no bona fide intention to use the mark in commerce. The company can support withdrawing the application by claiming that it HAD a bona fide intention to use the mark on the filing date but it subsequently decided to withdraw or cancel for myriad reasons. When there is a pattern of this conduct, however, I wonder if a case could be made that the company (and/or its outside legal counsel) is filing a trademark application in Tonga for the sole purpose of establishing an earlier application date in total secrecy. Section 44D was not intended to provide this secrecy loophole. It would be interesting to see what would happen if someone challenges the genuineness of filing an Tongan application based on a bona fide intent to use to when the “intent” is questionable.
I sense that for the foreseeable future the Tongan Trademark Office (and those other small countries) will not rush to make trademark applications searchable on the Internet. Doing so would be akin to biting the hand that feeds you application fees.
This post is not a solicitation. My one and only client is Keyword Acquisitions. As such, I am not available for legal representation.
By Stephen R. Wilson
Inexperienced domainers often panic when receiving a Cease and Desist letter. In contrast, seasoned professionals may roll their eyes and shake their head. In either case, the most prudent approach is to cease and desist and/or contact a domain name attorney (who will likely tell you to cease and desist until the allegation is investigated). Sometimes the Cease and Desist letter takes on a bullying tone. It’s important to take legal bullying seriously but do not take it personally. By its nature, lawyering is an adversarial approach to resolving a conflict (regardless of merit).
I do marvel at some of the tactics outside counsel use when sending a Cease and Desist letter to individual domainers or mom/pop domain name companies. The legal bullying in these instances is often over the top. As a general rule, attorneys do not advocate for their client in a bullying tone when communicating with another attorney. Non-attorneys should receive the same basic courtesy.
Hiring an attorney to deal with a legal bully sometimes pays great dividends even after paying legal fees. Indeed, once you get past the rhetoric an opportunity may present itself.
Many years ago I received an unrecognized email inquiring about the availability of a generic .org domain name that I had registered six years earlier. I responded that I would consider selling the domain and invited the individual to make an offer. Estibot valued the domain name at $1,900 but I valued it a bit more. I never received a response to my invitation and that was the end of the email thread. Weeks later, however, I received a Cease and Desist letter from a large law firm alleging various nefarious misdeeds, which included citing my willingness to the sell the domain name as evidence of bad faith. This was the first time that I learned that there was an existing trademark for the generic word. The trademark holder's attorney apparently did not know that I was an attorney.
After a bit of research, I learned that the subject trademark was two weeks short of the potential five year incontestability distinction. I contacted the opposing counsel and introduced myself. I thanked him for notifying me about his client’s trademark but I also informed him that I planned on contesting his client’s trademark because my domain name registration predated his client’s trademark application date. Timing is everything. If the opposing attorney had waited two weeks, filed for an the incontestability distinction and THEN sent me a Cease and Desist letter, any negotiation leverage to challenge the trademark would have been compromised. Negotiations commenced.
The fresh out of law school opposing attorney showed his negotiation inexperience. During the course of negotiations, he bragged that Hilary Clinton spoke at his client’s annual convention. His motivation for this statement (seemingly) was to show how popular his client’s brand was to the free world and thus any challenge to the trademark would be futile. I took his statement another way . . . namely that his client had plenty of cash to throw around because I was fairly certain that Hilary Clinton did not speak at his client's convention gratis. Unfortunately, I had already given the opposing attorney a number. . . but after hearing that bit of Hilary news, I didn’t need to budge on the price. Ultimately, the sales price was many multiples larger than my initial valuation of the domain name.
If you hire an attorney he or she will know what legal strategies will resonate with the opposition. In the above matter, the possibility of losing a trademark to an incontestability challenge was real (even if it was a bit of a stretch). The opposing attorney could not take that risk.
In conclusion, don’t panic if you receive a Cease and Desist letter. Hire a domain name attorney. It could be an opportunity to resolve an alleged conflict and to get more of a return on your investment.
This post is not a solicitation. My one and only client is Keyword Acquisitions. As such, I am not available for legal representation.
By Stephen R. Wilson
Godaddy's Expired Domain Name Auction Revenue Sharing Agreement
Godaddy emailed me an offer recently to participate in a beta program called Godaddy's Expiry Auction Revenue Share Agreement. In accordance with the Agreement, Godaddy and the registrant would share 50% of the revenue generated from the net sale of the registrant's expired domain names. I declined Godaddy's offer primarily because the so-called revenue sharing came in the form of Godaddy in-store credits instead of cash. I also note that the proposed agreement empowered Godaddy with a healthy dose of discretion to decide whether to bestow these Godaddy in-store credits. Nevertheless, I applaud Godaddy for taking a step in the right direction. I do not know of any other registrar willing to share revenue on the sale of expired domain names even if said revenue is akin to coupons.
Like every other commercial venture, however, I suspect that Godaddy has a business agenda that is unrelated to altruistic reasons. One fairly obvious agenda is that Godaddy is cancelling too many auctions because registrants are redeeming domain names. There are various circumstances why this may be occurring at a high rate. First, registrants could track expired domain auctions to determine whether any of their expired domain names are receiving bids in excess of the redemption fee. Secondly, expired domain auction participants could contact the registrant directly and make an offer to buy the name. The registrant would then redeem the domain name and sell it directly or redeem the domain name and hold it. In either scenario, Godaddy is likely losing auction proceeds because registrants are opting to redeem domain names.
Although Godaddy benefits by charging a redemption fee along with renewal cost, it loses revenue when the winning auction bid significantly exceeds the redemption fee. It’s understandable that Godaddy would want to partner up with registrants to prevent this from occurring though I doubt that many domainers will accept in-store credits as the exclusive form of revenue.
I wonder whether there is another reason that is more forward thinking and defensive in nature. Carefully crafted Terms of Service language and ICANN's rubber stamp allow registrars to auction expired domain names without registrant notification and/or approval. Do registrant's have any rights to challenge the registrar's windfall? I will explore these issues in a future post.
Any opinions expressed in this blog SHALL NOT be deemed to be legal opinions and/or legal advice. Do not be a fool and think that a blog replaces competent legal advice. Proper legal advice is ALWAYS derived from legal research based on the specific facts and circumstances of your case. There are many highly competent attorneys representing individuals and companies in myriad capacities. Hire an attorney! But not me . . . I am not available.