Domain Name Trade Gives Rise to Whole New Breed of Brokers

As a real estate broker, Steve Newman routinely saw properties change hands for millions of dollars. Now he’s betting that the same thing will happen with the virtual real estate of the World Wide Web.

The recent sale of the Internet domain name Business.com for $7.5 million gave Net watchers a glimpse of just how valuable a Web address can be. Though many observers scoffed at the news that the buyer--Santa Monica-based business incubator ECompanies--paid that much for the Web handle, Newman predicted such sales will soon become commonplace.

“We’re still at the tip of what’s to come,” he said. “People think this is an anomaly, but selling names for $1 million is going to be an everyday event. It used to be a big deal when a house sold in Beverly Hills for $1 million, but people aren’t shocked anymore that a house sold for $1 million.”

If Newman is right, his Universal City-based start-up will be in a good position to cash in. GreatDomains.com is one of the largest of a new breed of “domain name brokers” that is facilitating the sale of Internet names. Other competitors include Afternic.com, INeedADomain.com and Websitenames.com.

GreatDomains.com was not involved in the Business.com deal, but the firm was responsible for the sale in August of the Drugs.com name for a hefty $823,456. A deal to sell the name ForSaleByOwner.com for $835,000 is currently in escrow, and a few other names offered on the company’s site--including Loans.com, Houses.com, and Taxes.com--have drawn bids in excess of $1 million, said Newman, who runs the company with Chief Executive Jeff Tinsley.

Experts estimate that hundreds of thousands or even millions of Internet names are available for sale at about 50 domain name broker sites and on auction sites such as EBay. In addition, thousands of people could end up selling the names they have registered if unsolicited offers were to come along at the right price.

The practice of buying and selling domain names was popularized by so-called cybersquatters, individuals who registered trademarked names such as McDonalds.com with the goal of reselling them to companies at inflated prices. New laws have made such sales illegal, and analysts don’t expect cybersquatters to bring domain name brokers much business.

Domain names ending in .com, .net and .org typically cost $70 to register for a two-year period. But more than 6 million names have already been registered, and that means that people looking for simple or snappy monikers are increasingly finding that they are already taken.

“There’s only one .com, and there have been enough registrations that we’re getting to the point where it’s difficult to find a word that hasn’t already been registered by somebody,” said Mark Radcliffe, a partner with Gray Cary Ware & Freidenrich in Palo Alto who specializes in Internet law.

GreatDomains.com lists more than 150,000 of those names on its Web site. As with other sites, sellers can post their listings and buyers can peruse them according to subject matter or price. Buyers and sellers use e-mail to negotiate a final price and, when a deal is struck, the broker collects a fee.

In the case of GreatDomains-.com, the listings are free, although customers can pay for premium placement, and the company collects a 7% to 15% commission and a $250 escrow fee from the seller.

GreatDomains.com also offers escrow services for transactions that aren’t listed on its site, and the company generates other revenue from online advertising and sponsorship agreements, Newman said.

Internet Development Corp., a Reno-based domain name speculator, has about 200 names listed on GreatDomains.com--including Skateboards.com and CaliforniaWines.com. The company has sold about 10 names through Great-Domains.com that altogether netted about $100,000, said Kent DeLong, the company’s vice president.

“The Internet is the Wild West of business nowadays, and the quality of individuals you’re dealing with is important because there are an awful lot of hucksters out there,” DeLong said. “If you can deal with a company that has a good reputation, it makes the business aspects of this Wild West a lot easier.”

GreatDomains.com is about to launch a new service to judge the value of customers’ domain names for $75 an appraisal. The firm has developed a four-part test for determining the value of names. All things being equal, names are worth more if they’re short, if they end in .com, if they are suitable for e-commerce, and if they are so catchy that they attract visitors in the absence of any marketing, Newman said.

Domain Name a Buyers’ Market

So far, sellers seem to have inflated notions of what their names are worth. The average listing price on GreatDomains.com is more than $32,000, but the actual average sale price is only $14,500.

Industry observers believe the market will evolve to the point where names are routinely sold for between $10,000 and $100,000, with some extraordinary names going for millions of dollars.

“These days, a successful e-commerce company is worth $1 million a letter,” said Naseem Javed, president of ABC Namebank, a New York firm that specializes in selecting names for businesses and their products.

That doesn’t mean Great-Domains.com’s business model is risk-free. The entire trade in Internet names could dry up if new domain name suffixes like “.biz” and “.store” are introduced, relieving pressure on .com. Systems such as RealNames, which allows Web surfers to find a site by typing in simple keywords, and the book-marking functions available on Web browsers could also reduce or eliminate the need for catchy domain names, Radcliffe said.

Newman won’t reveal much about the company’s finances except to say that revenue is “growing significantly.” Both traffic to the site and the number of bids have been growing 50% a month, he said. Prospective buyers make about 500 bids on a typical day, but Newman won’t say how many of those bids result in sales.

Still, the company has been able to convince some that it has staying power. Several top executives from Santa Monica-based IMall (which was recently acquired by Excite@Home) invested a few million dollars in October, and GreatDomains.com is currently seeking additional funding from venture capitalists.

“Initially, I doubted whether names could ever generate sufficient interest and turnover to create a real marketplace,” said Anthony Mazzarella, an investor who served as IMall’s chief financial officer. “But the more time we spent together, the more we appreciated how analogous this business is to the commercial real estate business. This is going to be a continuing business, not a two-year shakeout.”

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Times staff writer Karen Kaplan can be reached at karen.kaplan@latimes.com.