Wednesday, August 24, 2011

Getting the (Right) Domain of Your Dreams


Using a short, brandable domain name has always been an important element of any web startup’s success; a necessary but not sufficient condition (see Pets.com et al.). Last week Fred Wilson wrote a great post on how he thinks startups should go about procuring domains. He offered a list of tips for those going through the domain buying process, which I was inspired to add some thoughts to:

“Don’t obsess about getting a name that is descriptive.” This is a great point, especially when viewed through the lens of trademark law. To establish trademark rights in a brand that also describes your goods or services, you have to be able to show “secondary meaning”, i.e. that when consumers see your brand, they read it to indicate that you are the source of those goods or services, not just for that descriptive meaning. Tim Ogilvie points out in the comments to Fred’s post that this can lead more people to be comfortable registering similar domains to profit off of your investments in driving traffic. Kickstarter was a great choice that edged up to this line, but arguably stayed in the less problematic territory of “suggestive” marks. Zynga obviously did just fine staying at the far end of the spectrum with a made-up, “fanciful” mark, just like Pepsi, Exxon, Reebok, Verizon, and many other Fortune 500 companies.

“If you own a domain that can work, give it serious consideration.” This is also good advice, with the caveat that you should make sure that domain isn’t already just a typo away from another brand (see above). To work off Fred’s example, you may have owned zyngz.com for years, and it might seem like a perfectly serviceable brand for your crowdsourced directory of “oh snap!” quotes, but that doesn’t mean it’s not going to be more trouble than its worth. I’m not suggesting that Zynga could just waltz up and take the domain from you—we’ve won similar cases—but you could easily spend as much money in such a fight as you could have buying a new domain in the first place.

“Be prepared to pay up for a good domain.” Fred thinks it’s unlikely you’ll find a good domain for less than $10,000, and that’s certainly in the range we’ve seen. It’s a wide range—we’ve been involved with sales ranging from hundreds to millions of dollars—but it’s an important data point to see an expert early-stage investor who is willing to send up to $50,000 of his money out the door immediately to get the right domain. You may not feel like paying for an intangible asset rather than productive man-hours at this point in your startup’s life, but if it’s the right domain, you will end up buying it, and it’s only going to get more expensive.

“Think about rent to own.” This is an interesting option that we’re starting to see more frequently, and it can be the most feasible option if the owner wants cash and you have very little to spare at the moment. It’s also good if you have a fairly tentative, non-descriptive brand that you’re working with, because it may lower the cost of rebranding; you only pay for the time you use, so if you find that bonzu.com just isn’t forging a connection with users, you can leave it behind more easily. That said, you might be able to get more than you paid for a domain in the end, but domain speculation isn’t core to most startups’ businesses; it’s likely not worth the distraction.

“Think about offering equity instead of cash.” You have far more of the former than the latter in the early stages, and the domain seller might very well be interested in taking the risk to get at the potential upside. I’m sure the original owners of facebook.com and foursquare.com, for example, wish they had taken (or had the opportunity to take) equity. If the owner is reluctant to take equity, you may be able to entice them with some kind of reversion provision—so that if your startup flames out and stops using the domain, they get it back—but be wary of incurring that obligation, and talk it through with your attorney before that becomes part of the deal.

“Find an intermediary.” This can be a key part of the transaction. Negotiating through an intermediary can prevent a rapid escalation in price from the seller seeing your clear need for the domain (or your clear ability to pay). Getting a lawyer  with experience conducting these types of transactions involved will allow you to avoid common mistakes and let you minimize the distraction of the acquisition process.

As is often true on Fred’s blog, there’s a wealth of information in the comments on his post, so make sure to read those, too; there’s a lot of collective expertise in that community.

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