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How does Priceline's 'name your own price' work?

Is it worth it for a startup to buy a great domain name for $500,000, given an initial $1M investment from an angel?

  • Our info: + A brand new web startup. + $1M investment from an angel investor who really supports us. + Aiming to build a well-known consumer brand. + Located outside Silicon Valley, but in a major US city. We know we want to go all out for our domain name. We do not believe in the http://zazzle.com, http://zappos.com, or similar name choices. Yes, of course it can work, but we believe it's a big advantage to be called http://mint.com, http://path.com, http://yelp.com, http://facebook.com, http://hotels.com, etc. We want a domain that's as good as the ones listed above. We found one. It's as good as http://mint.com roughly, and quite good specifically for what we want to do with it (build a brand). After much negotation with the owner and crazy talk of millions of dollars we're in the neighborhood of a deal we could live with: + $220,000 purchase price. + Minimum monthly payment towards that purchase price of $1200. + 8 year term by which time we have to have paid off the purchase price. + 1% equity (common shares) BUT with a gaurantee that the company will make these worth $280k should the company ever sell. + If the company fails we do not owe the full purchase price we can simply stop paying and return the domain. No other obligation. Another way to look at is that we owe $2,291 per month for the next 8 years, plus 1% equity with a gaurantee that the owner will make $280k off his 1% if the company is sold. Our next best option for a lesser domain is: $80,000 cash one time. It is only lesser because the name overlaps with a well known existing non-web product brand name. Our dillema is deciding between these. 1) A lesser domain for $80,000 that we have to pay out now (out of our $1M investment). 2) The ideal domain, but a much higher price that's not fully due for up to 8 years. Please note: We will only be spending $1200 per month in option #1 (the expensive domain) for the first few years. We won't even consider paying off the $220k purchase price until (and if) that becomes a very affordable amount of money. We have 8 years. So our concerns: 1) Which choice should we make? 2) What would future investors think of our decision if we went either way? Would it scare them? Would they think we are dumb?

  • Answer:

    $500,000 is a helluva lot of cash in absolute terms, and 1/2 your available capital.  I tend to agree with Yishan... the fact that you're even asking the question in this manner conveys a certain amount of naiveté, and while not certain failure is quite possible if this is your primary consideration for where to spend money. I had a small amount of related experience with 2 other domain transactions, http://Mint.com and http://SlideShare.com. while both of those were painful but modestly rational, in general I don't know that 6-figure domain transactions are worth it. it's possible on the low-end they can accomplish an alternate method of customer acquisition for a reasonable cost, if amortized over a few years.  this should be contrasted against other methods of customer acquisition, and the costs of hiring people who could add other value to the startup. while individual situations merit further discussion, in most cases paying anything more than 5,000-50,000 in cash, or 25,000-250,000 in deferred equity is probably a waster of time and money. some evaluation criteria for this question: 1) what's a realistic assessment of type-in domain traffic for the domain in question (how many people would naturally type in the letters), and what is the differential cost in the above for a short/memorable domain vs one that isn't 2) what would the equivalent amount of users/traffic cost in paid marketing if you didn't get it for "free", and how often will users return based on remembering the name vs not, and what is that retention worth. 3) how much capital do you have available and what does it mean for remaining capital if you use it on this one source, also are you buying the domain in cash or equity, and is it immediate or deferred. 4) what period of time is the transaction being amortized over, and how much incremental traffic / users would you get by owning the domain vs buying users vs working on other features / campaigns to accomplish same.

Dave McClure at Quora Visit the source

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RJ Johnston

One advice I would give is not to fall in love with a domain name. Are you sure you exhausted all the possibilities? Do you really want to have a domain with 4 characters (as http://mint.com has)? Why not 5 or 6 or 7? Is it a CVCV (consonant-vowel-consonant-vowel) or another combination? Is it a keyword or a brand name? Does that domain mean something or it's a just made up word? How about that less expensive domain name? How it's structured (consonants,vowels)? Did you do a research to see how much a domain name in related to what you want was sold after market? How much do you actually know about domaining? It seems to me that the owner of that domain got you by the balls (if I may say that). He felt you got in love with it and now is squeezing the last drop from you. Did you negotiate directly, did you tell him upfront who you are and what you wanna do? If you did you you might have just encouraged the owner to ask for more... Who is the owner? Is a known domainer or not well know? A known domainer knows how to negotiate stuff and if you laid down your cards upfront then there is not much you could do. In this case maybe would have been better to get an intermediary to negotiate for you, not disclosing who you are (Facebook did that, for example, when they bought http://socialgraph.com domain name for a mere $1,300 - guess how much the owner would have asked if he would have known it's Facebook which wanted the domain?) Somebody said to execute and worry about the domain later. Well, partly it's true but you have to think that if you become successful then the domain you want will become much more expensive (case: Facebook itself. It paid $200,000 for http://facebook.com after it was clear they are becoming successful. Groupon paid $250.000 for http://groupon.com. By contrast, Twitter paid just $7,000 for http://Twitter.com, way before they knew or the world knew they will become successful.). You should really look into other possible brands you want to have. Regarding giving equity...I guess that becomes a new trend in this domain world. http://Candy.com sold to a company by a well known domainer who asked $3 million cash AND 3% of the company. He got that. There are 9 million monthly searches for "candy" keyword on Google. Guess who is on the one of the three positions on the first page? Yes, http://Candy.com. I bet they get a lot of visitors only because that. Free marketing. Those millions spent in acquiring the name may very well worth it. Is your domain searched like that, Jack? What is the market where your company wants to make a splash? But it's not always the case when a founder wants to give equity. Sometime ago somebody asked if I give him one domain name I have (I didn't buy that domain name to re-sell but to develop into something). After listening what he wanted to do (which was pretty much in the same field I wanted to develop that name) I asked for equity (not even 15%) or even rental. He denied both and walked away...oh well. In your place I would try to look at other options too...look closer and remember about negotiations (and about falling in love with a domain name). Then, after you got all possible options, decide. As a bonus for you, here are the top 500 domain sales ever: http://www.domaining.com/topsales  (do you think your domain would belong to this list?)

Mircea Goia

Your startup is doomed.  I am willing to bet money on this, like maybe $50 or so. You are not in Silicon Valley or NYC (or you would have said so), meaning your chances of acquiring early-adopter consumers is exponentially lower.  One way to increase your chances of success more than any domain name could would be to spend the money moving your team to one of these two locations. Further, you believe that a "word" domain name compared to a non-name domain name is superior to branding to the degree that you are even considering spending $500k on it?  Do you know how much implementation and actual sales and marketing can be had for $500k?  Or even $220k? Let's say that you spend the first $500k on product implementation and marketing.  Is having that domain name worth twice again as much product implementation and marketing?  Not only that, but if your marketing has some viral component, doubling your spending might give you well more than 2x the return.  Is the domain name worth 2x all the rest of your work? I know that you're not forking over the full $500k now, and that it's "only" $220 on signing.  But $220k is still a lot of useful capital.  I wouldn't even say that $80,000 is worth it for a branded consumer startup - you should be spending less than $10k.  A $10k domain name and $990 of money to spend on product implementation and marketing efforts is a much better bet. The best investors will think you are dumb, but if you achieve traction you will still get some mediocre investors.  However, I think in all likelihood your startup is probably doomed because you are even seriously considering this question.

Yishan Wong

The answer here is pretty simple. In your financial plan, what percent of revenue will be allocated to branding and marketing? As much as marketing is pivotal in business, I'm hoping you aren't thinking around 50% . Either way, $500,000 or even $220,000 is a lot of money. However, 1 million is NOT you're current revenue. So the question we've all been waiting for is... How much does your company make each month? If it's $0 then don't even think about creating a $2,291 pain in the ass monthly expense. That's irresponsible and will turn off even the most amateur of investors. If it's $10,000 then your numbers are $2,291/$10,000 which means you're allocating 23% of revenue to ONE branding investment. This is still a bad decision. You should not put your whole marketing or branding budget in ONE investment or avenue. If it's $20,000 then your numbers are $2,291/$20,000 which means you're allocating 11.5% of revenue to ONE branding investment. This is the best scenario of them all being that you still have cash to invest in various ways in your business. Ultimately, investors will respect the latter of the three over the others every time. And you as a founder and entrepreneur should always be striving to be in the latter group. Not the immature college founder that blows money on every thing he wants to think he needs for the company. Personally, I would choose to be that one competitor company that pops up over night and does everything 10x better than you. Simply because I chose to buy a $12 domain and spend my million dollar investment in all the places you couldn't.

Tim Samuel

We paid a few hundred bucks for our name and I thought that was high!  I love the idea of having that perfect domain name as much as the next entrepreneur,  but I also realize that it might not be the perfect domain name down the road.  And I'm certainly not willing bet 500K that it will be.  With a great team and solid execution, you can have a monkey throw darts at a board of random names and they'll make it work.Even if it is the best domain name in the world for your business, I'd still rather spend that money on development/design, sales or marketing, and buy a cheap, decent name to start with.  Prove your business first.  With good execution, you'll overcome a less-than-perfect domain name, and probably be in a much better position to pay for a better one later.Not sure you realize how much you can do with 500K, but as an example here's how I would use it for my startup: Website Development Mobile App Development UI/Design http://www.rocketclub.co (a great startup that helps you find passionate users to help you grow and in return receive micro-equity and/or cash) Legal Interns Marketing And I'm estimating after one year, I'd only use half of that 500K!  I'm proud of where I've managed to take my startup with only one developer (me), one co-founder and a part time intern.  All on only 25K of funding from http://plugandplaytechcenter.com/.So I think I speak for most struggling entrepreneurs out there when I say that you should consider yourself lucky to be in a position where you can even consider spending 500K on a domain name.  One last thing - even if down the road you do end up with the next Facebook, PayPal, YouTube, or Reddit, it won't be because you picked an amazing name.  It will be because you got an awesome team with great execution.Good luck to us all!MikeCTO/Founder http://www.TraderMob.com

Mike Karmindro

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