Small Business

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

Editor's Note: An earlier version of this story incorrectly characterized the owner of the 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, 6/25/07, "The Domains of the Day")., 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 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 ($4,000), ($400), and ($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.) But, convinced that his domains will only continue to appreciate in value, Luo is in no hurry to sell.

Speculators like Luo are one reason that naming has become a series of calculated compromises for many startups. And while the naming process is typically most fraught for Web-based businesses that consider their Web addresses central to their branding, domain-name availability is becoming a key consideration for other new businesses, too. Jon and Jeff Seymour found that Persona, their first-choice name for their localized Web browser, was already trademarked. Their second choice, Fave, wasn't—but was taken. After the owner turned down their multiple five-figure offers, the Seymours decided to register instead.

Other entrepreneurs say they would sooner come up with an entirely new name than settle for the imperfect dot-com address. This is especially true in the U.S., where the extension .us is far less popular than the country-code domains in other countries, including Germany (.de) and China (.cn).

Able Names

Andrew Frame's first choice, the "friendly sounding", was parked but not active, and Frame was able to purchase it for the "reasonably low price" of $2,000—though he says he probably would have ponied up as much as $10,000 before pursuing another four-letter alternative (see, 7/19/07, "A Web Phone Called ooma").

The idea that shorter domain names are more memorable, more "brandable," and therefore more valuable has become so widely accepted that many entrepreneurs take it for granted. Domain-name reseller Sedo advises buyers that "a shorter domain means reduced risk of typo errors, easier memorability, faster type-ins, and more flexibility in promoting the domain. For these reasons, most businesses who can afford it buy a domain of five characters or less." But are those businesses really getting what they pay for?

For his part, Steve Manning, managing director of San Francisco-based naming firm Igor International, doesn't buy into what he calls the "fewer keystrokes mentality," and says landing the perfect four- (or five- or six-) letter domain name isn't nearly as important as many businesses think (see, 7/6/07, "What's in a Name?"). Manning says his company has done just fine as "The biggest mistake we see is people choosing a lesser name because they can get the dot-com," he says. "You can still find a good name—people are looking in the wrong place." (see, 8/13/07, "How to Find a Domain Name")

Power Delusions

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