Why are domain names still valuable?

The domain name system was created some 40 years ago. Today there are 370 million domains across over 1500 extensions. They have faced many hurdles along the way, but somehow still remain essential.

In 2000, paralysis struck the stock market. Virtually over night he realization that companies on the internet also had to be profitable became tangible fact. Everything about money crashed, and the so called dotcom bust was a reality. Some argued that the value of domain names was now history.

Then again, in 2008, actual reality had the audacity to strike once more. This time the effects were even more disastrous. Banks and institutions fell and were bailed out by the US federal government. Domain names took another mighty blow.

Right around the same time, Apple launched the App Store. Suddenly, people could do what they did on the internet on a set of bespoke software items accessible on their phones. People rallied around this novelty; made bold predictions about what it would mean. The popular opinion was that domain names would now become a thing of the past.

Then social media happened. Everyone had to be on Facebook and Twitter, and a personal website was no longer necessary. Domain names took another hit.

Then voice recognition software was supposed to transform regular searching patterns. Instead of typing the query, people could just utter it, somehow bypassing the use of domains. Yet again, because of this, domain names were supposed to perish.

At the same time, right in the midst of all of this financial turmoil, the early settlers of domain investment however doggedly kept staking out serious claims to serious properties.

Today almost all of the early investors have however sold the portfolios they built. The story behind why they did is a story about the biggest threat to the type of domain name value that they had invested in. In essence, basically at the flick of a switch, the original investment rationale (that search terms was the key to value in domains) was being squeezed dry by search engines.

This started back in 2003 when Google set out on a path to maximize their business model. They had innovated search and now it was time to profit from that innovation. Business owners could “buy” keywords, eventually through a bidding process, and pay to rank for them. A series of algorithm updates further and further reshaped the search engine into an advertising engine.

What’s called domain parking, where advertising on a specific domain landing page could earn so called cost-per-click revenue withered away, as Google established it’s position. (The quote of the day among domain investors was that Google was now drinking their milkshake.)

The algorithm updates kept coming, and at the same time, consumer behavior started gradually shifting. Not only did parking not pay anymore, people started regarding Google to be the internet itself. Domains and especially domains that consist of generic search terms suffered.

Before this development, domains had palpable clout if they were descriptive and generic enough to match a search query. This was known as “direct traffic”. As a consequence, all of the portfolios of the early domain investors were geared around these notions. This is why they sold them.

Fast forward to the early 2010’s. The brand and brand name oriented world we live in, and that in all honesty Google simply acknowledged and adapted to, starts to have impact in the way that the next generation of domain investors view value. Marketplaces such as Brandbucket start moving. Marketplaces where the key value was not direct traffic or whether the domain name “says what it does and does what it says”.

It becomes clear that there must exist a value in domain names that goes beyond traffic.

And even though domain names have certainly faced many challenges along the way, the current one being Gen AI and the uncertainty that stems from how this technology will reshape search behavior, there seems to be really nothing that threatens the one remaining fact that a brand needs a name, that this name should be functional and resonant, and that the domain name should optimally be the exact match of that brand name.

Brand names will remain the key symbol for a brand, and consume billions upon billions in marketing. The matching domain will remain one of the best investments in IP that it is possible to make for a brand.

I would in fact be very surprised if new ways to use the internet in any way was able to hurt this resilient incarnation of domain value at all.