Jake Joyce
Jeremy Aguero
When most of us think of the commercial real estate market, we think of office buildings, strip centers and local malls. We think of the 7-Eleven down the street, our doctor’s office around the corner or the mammoth Costco seen from the freeway.
We also think of valuable locations along the Strip, where not that long ago Elad Properties paid more than $1.2 billion for a 34.5-acre parcel where the New Frontier once stood, or locations that seem to never work, like that building in every neighborhood that has been 15 different restaurants in the past 10 years.
Although the traditional commercial real estate market is struggling with elevated vacancies, multiple years of available supply and reduced prices, a new commercial real estate market has emerged and is thriving — the one that trades in quality locations along the digital highway.
You can register most new domain names (those not registered with the Internet Corporation for Assigned Names and Numbers) for $5 to $15 at sites such as GoDaddy.com, Register.com, or NameCheap.com. That said, the best domain names can fetch seven-figure price tags on the resale market. Toys R Us bought Toys.com for $5.1 million in 2009 from National A-1, a domain holding company. During 2010, Slots.com sold for $5.5 million, Dating.com for $1.75 million and Photo.com for $1.25 million.
Although these higher-priced sales may garner the majority of the attention, thousands of domain names trade hands daily on sites such as Sedo.com, SnapNames.com, and Moniker.com, which operate as a virtual Multiple Listing System for domain names. Sales reported the day this article was being written include SnowShovels.com ($1,850), GlobalSense.com ($5,000), Scorpio.net ($7,500), and NetChat.com ($2,500).
Much of this cyber real estate is being accumulated by investors, who want to later resell the domains at higher prices or are looking to take advantage of some unique angle. Atop this list is Kevin Ham, who made hundreds of millions of dollars strategically acquiring web domains and who CNNMoney.com, once called “the most powerful dot-com mogul you’ve never heard of.”
On the other end of the spectrum are real businesses seeking to fortify their own digital strategies and an army of tech-savvy Internet entrepreneurs that are willing to build to-suit or on spec. Why not? The cost of entry is fairly low and the marketplace is global. Sedo.com reports that the average cost of a .com domain on the resale market is about $2,500, the average cost of .net sites are about $1,700 and the average cost of .info sites are under $1,000.
Returns can be significant, particularly where improvements add value. Flippa.com, an online marketplace for buying and selling of websites, recently reported that FinishedRentals.com sold for $300,000, EyeNot.com for $10,000, and EnglishMoviesOnline.net for $3,200 — all built but untested.
Many have tended to trivialize or even dismiss the place of eCommerce within the larger economy, scoffing at Twitter, Facebook or MySpace as irrelevant marketing black holes.
That said, the underlying trends are as clear as they are compelling. MasterCard Advisors’ SpendingPulse, reported U.S. consumers spent $36.4 billion online this holiday season, a 15.4 percent increase when compared with 2009. Not only did this growth well outpace that reported in retail spending overall, but online expenditures are gaining market share in a number of important categories, including those slower to appear on the digital highway such as furniture, jewelry and shoes.
Although the demand for bricks-and-mortar strip centers and offices is waning, the market for online commercial property is not only picking up the slack but expanding at a clip that is almost unfathomable. Online storefronts have a number of competitive advantages, not the least of which are comparably low cost of entry, access to 2 billion Internet users (266 million in North America), and less regulatory interference.
They also have their fair share of challenges, including the formidable learning curve in developing and deploying a digital strategy. Terms such as search engine optimization, pay-per-click advertising and canonical issues can be confusing and are outside of the frame of reference for many traditional business operators. These hurdles also provide an easy excuse for sitting on the sidelines or posting a Web page that is little more than a glorified brochure. I would be willing to bet that most of those same business owners don’t know how to build an office building or a retail center either, but I know they need one to compete. If they don’t apply that same thinking to the online commercial space, their days may be numbered.
Jeremy Aguero is a principal analyst and Jake Joyce is project manager at Las Vegas consulting and research firm Applied Analysis
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