Domain Name Valuation 

In today's Internet business world, decreasing development times, readily available financing, and increasing number of highly-skilled and experienced IT professionals with entrepreneurial spirit have made it is virtually impossible to establish any kind of sustainable competitive advantage. Vital building blocks of any "dot com", ranging from a business model to the source code, can be replicated in less than a month. However, it is clear that several successful companies have managed to retain market leader positions for long periods of time, while being fiercely attacked by similar or sometimes even superior competitors. The major reasons for their success are the first mover advantage, network externalities effect and high-quality domain names. One of the greatest challenges for any online business is to bring new visitors to the site and make them come back again. A good domain name indeed helps to solve this problem. In many cases, instead of using a search engine or a directory service, potential visitors simply goes to a site with a domain name, which best describes the desired information, product or service. The traffic for sites with such descriptive high quality names as sports.com, sex.com or cars.com is measured in hundreds of thousands and millions hits per day. Therefore, potential savings resulting from having a good domain name (say one company is paying $0.06 per clickthrough, while the other one has a million hits per day because of its domain name; this results in $1.8 million per month in comparative advertising savings). The net present value of these expected savings is the actual value of the domain name. In many cases, including those when the domain names are purchased in the expectation of selling the m in the future, a domain name can be compared to a stock option and valued in the similar way using a binomial model. 

The three key factors that affect the value of a domain name are memorability, length and industry, product or service focus. The domain name, which is short, meaningful, relevant and easy to remember, it is also very "intuitive", easy to find and adds a lot of value to the firm.

Several companies have attempted to formalize this approach for valuing domain names by coming up with complicated formulas incorporating many different factors. Examples of such domain name valuation (appraisal) tools are: DotComDealers, Dominame, ShoutLoud.com, etc.