Does Success Hinge on a Domain Name?

Startups scrambling for domain names—the shorter and catchier, the better—find themselves in negotiations with owners of desirable Web addresses

by Kerry Miller

Editor's Note: An earlier version of this story incorrectly characterized the owner of the fave.com web domain as a "cybersquatter." As readers have pointed out, the term is generally used to refer to the owner of a domain name that contains a trademark that is owned by someone else. This is a corrected version.

Andrew Frame had several criteria for the name of his VoIP (Voice over Internet Protocol) startup. It had to be universally pronounceable, memorable, and short—ideally, no more than four letters and two syllables. Of course, the dot-com domain name also had to be available.

There are now more than 71.1 million registered .com domains—about three times the number of domains registered using .net, .org, .info, .biz, or .us combined. Every possible two- and three-character dot-com domain name was claimed years ago, as was virtually every word in the English dictionary.

So Frame, much like an increasing number of entrepreneurs, has been playing with sounds in hopes of hitting upon a unique combination of vowels and consonants that he could turn into a brand—and a top-ranked result on Google (GOOG). It's a strategy that's given rise to a generation of startups with monikers more Teletubbies than high-tech—Lala, Lulu, Zlio, Zoho, Ning, and Zing.

Let's Make a Domain Deal

Some of these quirkily named young startups—Bebo, the social-networking site, and Etsy, the online crafts marketplace, for example—have caught on. Yet the naming trend has also drawn considerable eye-rolling among Web denizens, inspiring tongue-in-cheek pages like Web 2.0 Name Generator and the quiz "Web 2.0 or Star Wars Character?"

Now, all but about 20,000 of the available four-letter dot-com domains have been snatched up as well—many of them by speculators buoyed by the high-profile sales of generic dot-coms for prices unseen since the first bubble burst (see BusinessWeek.com, 6/25/07, "The Domains of the Day"). Business.com, which for years served as a cautionary tale of investors' irrational exuberance after selling for a reported $7.5 million in 1999, sold for $350 million in July.

Among these domain-name buyers is Steve Luo, a hardware engineer from California. Luo started buying up four-letter domains early last year after he noticed that the relative scarcity of four-letter domains meant that even random combinations like rmnd.com were selling for many times the $9 or so they cost to register. Luo now owns several thousand four-letter domains, which as of recently included peeb.com ($4,000), qurr.com ($400), and wwuw.com ($900).

Choosing an Address

Over the last year, Luo has sold about 1% or 2% of his portfolio—about seven or eight domains per month—for an average price of around $1,000. (Despite the publicity big-ticket sales generate, less than 1% of domain-name sales break the $100,000 mark, with the average sale price about $5,500.