Staking a claim on domains beyond dot-com
In the $1 billion market for Web addresses, country-specific domain names are the latest sector to heat up.
By Paul Sloan, Business 2.0 Magazine editor-at-large

SAN FRANCISCO (Business 2.0) -- Real estate prices might be falling in some areas - but that's for physical real estate. Virtual real estate, in the form of Internet domain names - the part after the "www" in a website's address - is on a tear and showing no signs of slowing down.

By some estimates, the market for registering and trading domain names could reach $2.5 billion this year.

And in the latest twist, domain investors have been bidding up prices of domain names around the world. The dot-com ending - ".com" - is still the Rodeo Drive of the Web, but as Internet usage spreads around the globe, the demand for suffixes like .eu (European Union), .es (Spain), .cn (China) and .br (Brazil) is heating up, too.

What makes domain names so valuable is the boom in Internet advertising. Part of the appeal of generic, easy-to-remember names is that people often search the Web by typing website addresses directly into browsers, a phenomenon that's referred to as direct navigation. Site owners then turn that traffic into cash by filling their sites with relevant ads provided by Google (Charts), Yahoo (Charts), and other online-advertising networks.

Diversifying in Internet real estate

Tim Schumacher, CEO of domain-name trading website Sedo, says that, like stock investors, domain investors are looking to diversify. And one way to do that is to invest in non-dot-com domains from elsewhere in the world. Several American-based registrars are offering ways to buy domains from other countries, but of course it takes some research to figure out which ones might make sense to gamble on.

Schumacher argues that the trend is just beginning, and in many countries the market has huge potential. A key reason is that in many parts of the world, dot-com is not the preferred domain suffix. In Germany, for instance, companies advertise their .de Web addresses more prominently than their .com addresses. "It's really a local thing," he says.

Current hot markets, according to Schumacher, include .mx (Mexico) and .pl (Poland). In some countries, he says, "These addresses will rival dot.coms."

An overseas Internet gold rush

Even with Google and Yahoo's best efforts, the Internet advertising revolution is still in its early stages, especially overseas. But if they're successful at bringing online ads to more countries, overseas domain owners are going to find themselves sitting on prime property.

"As people in many regions go online, these names will become great pieces of real estate," says Marc Ostrofsky, president of iReit, a private company that is accumulating domain names and is backed in part by Starbucks (Charts) founder Howard Schultz. In the past year and a half, iReit has amassed a domain portfolio of more than 400,000 names.

This spring it spent millions of dollars - Ostrofsky describes the amount as "mid-seven figures" - to buy up a collection of names ending in .de (Germany), .nl (the Netherlands) and .fr (France). The firm is now looking into deals in India and China.

Dot-coms tapped out?

One explanation for the offshore-domain gold rush is pretty straightforward: Try to register almost any dot-com name, whether an acronym, a compound word, or even a common typo, and you'll find it's gone. Snagging one requires paying big bucks to an individual holder or bidding in one of the many after-market domain name auctions that go on at sites like Sedo and SnapNames.com.

Some recent sales have been eye-popping: Diamond.com sold for $7.5 million. Even misspelled words are commanding a high price: morgage.com (that's right, without the "t") fetched $242,400.

"The dot-com [suffix] is so saturated that if you want a strong keyword or an acronym you're not going to get it without paying six figures," said Ron Jackson, editor and publisher of DN Journal, the domain industry's online trade journal. "That's why a variety of extensions are breaking out like crazy this year."

Those suffixes, or "extensions," as they're known in the industry, are still far cheaper than the dot-coms, but the market's growth is impressive. Even United States's .us geographic extension, which carries nowhere the near the cachet of .com, has seen some surprising transactions, such a sale this month on Sedo of Hangover.us for $9,500.

There are other reasons for the non-dot-com boom. Some regional extensions are only just opening up for business, which can create a stampede of speculators. In April, the 25-nation European Union finally launched the .eu extension, and the rush to snap them up made for the biggest out-of-the-gate domain offering ever. The suffix quickly became the Web's eighth most popular.

The .eu launch has been tainted by controversy, however, with accusations that domain speculators set up phantom companies to snag the best names. But the aftermarket already has enriched some: In July, Hotels.eu sold for $330,000, according to Sedo, and Shopping.eu fetched $200,000.

They may not be fetching the multimillion-dollar price tags that a good dot-com can get. But if the big money investing in domain names has this trend right, this is just the start of a boom in overseas Web addresses.

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Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer.

Morningstar: © 2014 Morningstar, Inc. All Rights Reserved.

Factset: FactSet Research Systems Inc. 2014. All rights reserved.

Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved.

Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor’s Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2014 and/or its affiliates.