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Finance By Example

Handsome Returns on Sex Scandal Domain Names

Domain names pertaining to the Clinton-Lewinsky sex scandal derive much of their value from the commercial traffic they generate and, in many cases, will continue to generate. Furthermore, their historical significance makes them valuable collectibles. Regardless of the outcome of the scandal, the parties involved will win a permanent place in American history. The result? Several of these domain names will become even more valuable over time. These represent a great many figures directly related to the scandal, including the president, Lewinsky, Tripp, Starr, and the attorneys of both camps.

A great opportunity exists for entrepreneurs to turn these names into formidable cash-generating sites. Bruce Fisher and Dan Stetser at MCS Internet Solutions are generating over 134,000 hits a day at their LindaTripp.com. site. And the online bookstore at Lewinsky.com also draws an inordinate amount of traffic.

Domain names representing issues themselves are also likely to command premium prices. People seeking information about, say, scandal or impeachment can enter the respective name in their browser and quickly find what they are looking for. Should they make the mistake of relying on a search engine for this purpose, the tens of thousands of sites they called up would hardly expedite their search. Thus, domain names that contain within them specific search words seem to be the most logical place to begin to gather important information. Such information "hubs" are, and will continue to be, invaluable assets.

Impending top-level domain extensions such as .rec offer intriguing alternatives to traditional .com addresses. We are convinced, however, that .com domains constitute the Fifth-Avenue property of cyberspace. Moreover, search engines and browsers will be programmed to search first for .com addresses.

Misconceptions
The market value of a domain name, as with any other financial, real, or intangible asset, depends on the future benefits which the investor expects to derive from it. The values of artwork and of Netscape stocks are good illustrations. Art-collectors pay millions of dollars for masterpieces whose scrap value is negligible. Similarly, Netscape, Microsoft's browser competitor, was selling its stock at more than eighty times its earnings. In fact, while they had a market value of billions of dollars, they showed no signs of generating profits: but investers must have expected them to do so in the long run.

Some have denied domain names any real value because they cannot be used as collateral for loans. But banks lend individuals money based, not on human capital, but on the income they assume they will make in the future. Banks don't use human capital as collateral because human capital cannot be estimated with sufficient precision.

Whether you should buy these domain names now or rather after the scandal has already subsided depends on a number of factors, including your expectation of the outcome and how much capital you are willing to invest in the enterprise. To be sure, the broad range of domain names associated with the scandal enables one to diversify and thus to avoid the financial risk of allying oneself too exclusively with one side or the other. And if you wait too long you might have to pay an even higher price, as the uncertainty would be greatly diminished. Either that, or by then they will have already been developed into successful web sites generating revenue for years to come.

By Alex Tajirian (Managing Editor), and Brett Robbins (Indiana University)

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