Remarks

The Pricing of Internet Domain Names Looks Kind of Random

You'll pay more for .pizza than .beer—and both cost more than .news

What does it mean that a web address ending in .pizza costs more than one ending in .beer? Or that .bar costs more than .academy? That .church is pricier than .company? Hard to say. Maybe it doesn’t mean anything at all.

Judging from a casual browse, the rental rates for top-level domains (.com, .net, .pizza, etc.) seem to be only tangentially related to the forces of supply and demand. They look more like a big pricing experiment in a sector of the economy that’s in flux.

“It’s not a true market,” says Joseph Cohen, the founder and president of a Brooklyn-based startup, Universe, that makes a phone app for building simple mobile phone websites. “There’s sort of a market, but it’s not very efficient or liquid.”

The most popular domain name, .com, is also the cheapest on Cohen’s site. It costs just $2.99 a month for a package including the domain name, web authoring tools, and hosting. He charges more for .sexy ($9.99 a month) and .farm ($6.99 a month).

You might think that a .com address would be more expensive since it’s more popular. The twist is that the name you want for your website probably isn’t available with a .com extension. So, sure, you can pay just $2.99 a month, but you’ll have to come up with a long, complicated tongue-twister that won’t look good in ads and on business cards.

As in the Cambrian explosion of 500 million years ago, when many of today’s life forms came into existence, the number of top-level domains exploded in 2012 after the Internet Corporation for Assigned Names and Numbers (ICANN) authorized about 1,200 new ones. That's when .pizza and .beer, for example, became available. So even though angelospizza.com is taken, GoDaddy.com can rent you angelos.pizza. Short and to the point.

Likewise, “If you sell diamond jewelry and no .com is available for less than six figures, you might want to consider .diamonds or .jewelry,” says Chris Boggs, founder of Web Traffic Advisors in Wilton, N.Y.

That still leaves the question of why the various custom domain names vary so much in price. One reason seems to be that the market is young, and both buyers and sellers are trying to feel their way toward what’s good value for the money. Entrepreneurs that spent a lot of money for top-level domain names may try to price higher to recoup their costs, which can be tricky because customers don’t really care about their suppliers’ costs.

Pricing is set at the wholesale level by the owners of the various domains. The retailers just pass their costs along. “We’re very straightforward,” says Universe’s Cohen. “We buy them and we mark them up.”  

 According to the website nTLDStats.com, the most popular of the new top-level domain names is .xyz, with a 21 percent share, followed by .top, .loan, .win, .club, .vip, and .online. Most of the 1,200 have virtually no takers. By the time you get to #308, which is .poker, you're down to a 0.01 percent market share. That’s frustrating if you’re the investor who gambled on .poker.

Except in cases where multiple parties applied for the same names, picking up a new domain name in ICANN’s 2012 allotment was free, so the people who landed the popular ones are minting money now. Free, that is, except for a $185,000 application fee, a sum that looms large if you have one of the new domain names with virtually no customers. Which is most of them.

Says Roland LaPlante, who is on the marketing committee of the Domain Name Association and is a senior vice president at the domain registry Afilias: “People said it was just a license to print money, but that is not the case.”

 

    Peter Coy
    Bloomberg Businessweek Columnist
    Peter Coy is the economics editor for Bloomberg Businessweek and covers a wide range of economic issues. He also holds the position of senior writer. Coy joined the magazine in December 1989 as telecommunications editor, then became technology editor in October 1992 and held that position until joining the economics staff. He came to BusinessWeek from the Associated Press in New York, where he had served as a business news writer since 1985.
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