When somebody has a great idea for a business, one of the first things they do is to go online to GoDaddy or Network Solutions and register every variation of the domain name around their brilliant epiphany. Combine this with late-night drugs or alcohol and some folks will register thirty or forty domain names at a shot. Then, over time, after they have slept on it, sobered up, and/or discovered that somebody else has already acted on a similar idea a couple years ago, they abandon the idea but still own the domain name.
As a result, lots of domain names get snapped up but never used. So, they are in domain name limbo. What complicates matters more is if they register the domain name for several years. And on top of that, there is this super domain name limbo when they get expired.
When domain names expire, they go into this auction pool. While I recently purchased BizPulse.com (a set of dashboards that pulls data from Basecamp and Freshbooks to help business owners do a better job of forecasting and managing cash flow, managing customer expectations, reducing customer invoice shock, and load balancing their human resources) from a domain name auction, I learned a lot about how the domain name auction works and the people who live in that space.
How do Domain Name Auctions Work?
The first thing you do is to place a minimum bid (about $69) on that domain name and it goes into something called a Back Order. If you are the only person to bid on the BackOrder then you pick up the domain name upon expiration. But, if several people bid on the Back Order, then it goes to Auction. Once it goes to Auction, there are about 5 days to bid and if there are competing bids in the last 5 minutes of the Auction, then the Auction stays open until no more bids come in.
Don’t Pay Money for Domain Name Back Order!
Not all domain name Back Orders are the same. I have spent plenty of money (up to $35 per domain name) on GoDaddy to Back Order a domain name. It’s not worth it. GoDaddy is just printing money (your money) and keeping it with nothing in return except an email to say that the domain name was not available. Total waste of money. Don’t ever pay money to Back Order a domain name!
Now, the Name Jet Back Order is different because you only bid, you don’t pay any money unless you are the only bidder.
How to Win a Domain Name Auction
So, once the domain name goes to auction – because more than one person Back Ordered it – then there are about 5 days to bid. The minimum bid is $69 and you can see who are the other bidders.
I knew there were Domain Name Squarters and Domainers out there who snap up and collect domain names. But, usually, unless it’s a really hot domain name, they are pretty cheap because they consume on a larger scale. If they can pick up a domain name on the cheap, i.e., less than $100 then it’s probably worth it to them. Otherwise, they simply move onto to an easier target. So, right off the bat, I bid $95. Within an hour or two, somebody else bid $102. So, I immediately countered with $105. I was willing to go up as high as $1,000 but nobody countered after that and I ultimately picked up the domain name for not much more than my monthly beer and wine budget.
Watch Out for Domain Name Investors
Investors will buy low and sell high. But, they also want to mitigate risk. What was interesting was that before I owned BizPulse.com, I had already purchased variations including BzPls.com and BizPuls.com. So, what these Daomainers, Domain Name Investors, Cyber Squatters, Typo Squatters, and Domain Name Squatters to do to mitigate risk is they start fishing for buyers first.
During the Domain Name Auction for BizPulse.com somebody actually contacted me and asked if I was interested in buying BizPulse.com. Of course, I immediately reply with a resounding, “NO!” Had I said yes, then they would have bid on the auction, competed with me, and bid up the price.
Even more interesting is that somebody else I know who owns a similar sounding domain name was solicited to buy BizPulse.com for $5,000! The solicitor, one of those Domain Name Speculators (Squarters, Investors, or whatever you want to call them) was fishing (phishing) for buyers before he bid on the domain name. If he knew he had a buyer before the auction ended, then he knew how high he could bid without spending money. Had he a promise of $5,000 for BizPulse.com then he could have bid as high as $4,500 and still walked away with a profit.
How Do You Find Out Who Owns a Domain Name?
Whois.net will tell you who registered the domain name, unless it was a private registration. If it is a private registration, then you are out of luck. If it is not private, then often you can get the name, company, phone number, email, and address of the domain name owner.
Sometimes the best way, but also the most expensive way, to acquire a domain name is by contacting the current owner and buying it from them. Usually, when somebody goes to a registered “owner” of a domain name then the owner suddenly thinks the domain name has value – because somebody else wants it. So, it is a tricky and difficult art of negotiation to successfully and cost-effectively buy a domain name from somebody.
(I put quotes around registered “owner” because there is no such thing as actually owning a domain name. If you happen to register it, then you “own” it as long as you pay the annual registration fees, taxes, and other associated government fees. And, if somebody else owns the copyright to that domain then they might be able to simply take it from you via ICANN rules. So, don’t think that just because you have registered a domain name you own it. If anything, you are just renting it. If you die or let it expire, it goes back into the pool.)
I have bought domain names from people for as much as $15,000 and as little as $150. The cheapest way to acquire a domain name is to register an unregistered domain name (about $10), back order a domain name that expires ($35-$69), or win it in an auction ($70-$150). Once you try to buy a domain name from somebody who has currently registered it, then you should expect to pay some money. By the way, I have sold domain names for over six digits ($XXX,XXX.XX USD).
Anyway, the way these Domain Name Investors, Squatters, and Speculators find you to solicit you is likely through either the Whois database or simply by Googling that brand (BizPulse) and seeing what comes up. Perhaps you have a Twitter account or Facebook page or something like that with the brand name. Perhaps you might like to own the .com or .co version of that brand. So, they solicit you to see if you want it and if yes, then they have more confidence in bidding on the auction.
How NOT to Start a Business
As I said in the beginning, most people…
- Have an epiphany (step 1)
- Go online and register a bunch of related domain names (step 2)
- Go to Legal Zoom and register the company as an LLC (step 3)
- Pay some web developer to put up a websites (step 4)
- Try to generate revenue from it (step 5) then
- Actively try to find customers, see what they want, and then tweak their business around those customer needs (step 6)
Personally, I think we should start a business in the opposite direction.
- Find out what customers need but haven’t discovered the perfect solution
- See if you can get money (or a promise of money) from those potential customers to develop a solution
- Put together an effective website that satisfies their needs
- Register the company not as an LLC but probably a Delaware Corporation
- Get the domain name
CFO (Cash Flow Dashboard) for Basecamp and Freshbooks
By the way, if you use Basecamp to track time and Freshbooks to send invoices and track expenses, you might want to try BizPulse™ and see if it helps you do a better job of forecasting cash flow, managing customer expectations, and reducing customer invoice shock.