Domains as Collateral – How Websites Became Commodities

Domains as collateral

There was a new entry into the twenty most expensive domains ever bought in April 2014 as Chinese smartphone maker Xiaomi paid £2.1m ($3.6m) for ownership of Mi.com. Their primary reason for splashing out would appear to be the difficulty many westerners have pronouncing their name and as they look to expand into the English-speaking world, a simplified name and domain was key to their branding.

Linguistic issues aside, the factors that determine the value of a domain name and influence how valuable it is to a business as intellectual property are fairly obvious. Though the internet offers a seemingly infinite amount of space and choice, the reality is, just like with bricks-and-mortar real estate, premium space is limited and highly sought-after.

“domain.pawn”

Although there are now a huge range of domain extensions, from the international – co.uk and co.jp, to the organisational – .gov and .org to newer profession-specific extensions like .diamonds and even .plumbing, ‘.com’ has always and probably will always be the most recognisable and sought after top level domain.

In the past couple of years .co has emerged as a desirable extension, partly based on its use in URL shorteners such as t.co (Twitter) and g.co (Google), but also in the way it was marketed as a domain for tech companies and entrepreneurs, who typically lead where others follow when it comes to online trends.

Finding a domain that is short, memorable, SEO-friendly and that can easily be incorporated into a company’s wider branding becomes more difficult each year and as the importance of domains as collateral increases, so do the opportunities for intermediaries to build an industry around them. Whether it be selling sought-after domains, branding new extensions or using domains as collateral for lending.

Average Cost of TLDs | Domains as Collateral
source: http://tech.co/average-price-of-co-domain-2013-07

As a result there is now a whole industry dedicated to letting firms use domain names as collateral. Much like we at borro offer loans against cars, gold, watches and artwork, companies like inteLend and Domain Capital offer financing in return for the keys to your website. Ownership is transferred until the loan is paid back in full, but with the website operating as usual.

Non-tangible collateral like brand names or logos have been included in balance sheets, traded and loaned against for years, so with domains becoming the primary portal with which many businesses operate it’s likely we’ll see more and more of this type of activity. In fact, say you have an incredibly popular Twitter account or Facebook page, could they be used as collateral? It may be against terms and conditions, but so is selling such accounts and that happens on a daily basis.

Ten Most Valuable Domains | Domains as Collateral

There have been countless stories over the years of people buying up domain names and selling them on at a profit, such as back in 2003 when Microsoft forgot to renew Hotmail.co.uk, and those who were lucky enough to be early adopters in the days when sex.com, shopping.com, holidays.com were all available are still busy counting their money. But, what will the next valuable domain extension be?

The examples of .co or .tv seem to suggest that increasing the popularity, and in turn the value of domains, depends on marketing it to organisations and generating awareness amongst in the public consciousness. In the same way that a physical retail location depends on footfall, domain extensions depend on awareness and trust to drive their use.

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