It wasn't a great school year for Steven McDonald. He didn't win a single track meet, and he was rejected or wait-listed by every college he applied to.
McDonald's fiscal year, however, has been phenomenal.
It started last September, when he paid $620 for the Internet domain name qsd.com and, two weeks later, sold it for $12,000 to a fellow domain trader, or "domainer." Since that first investment, McDonald has grossed $325,000 from flipping domains.
"It's pretty cool," says the Southbury, Conn., teenager.
And he's not the only one who thinks so. As the real estate and credit markets plummet, the so-called domain aftermarket, where Internet addresses that cost less than $10 to register are bought and resold for thousands of dollars, is thriving.
A precise measurement of the industry is hard to come by, because most domain trading companies are privately held and the majority of their biggest deals are subject to nondisclosure agreements. Ron Jackson, whose trade magazine DNJournal tracks the sale of domains in public deals and auctions, says domain name sales in the first half of 2008 reached $68 million, up about 12% from the same period last year. Jackson estimates that entire aftermarket did $700 million in sales in 2006. Since then, sales likely have topped $1 billion.
"Domain sales are still going up by double digits," says Jackson, who is a domainer himself. "The low-hanging fruit may be gone, but there's still a lot out there."
The fiercest competition is for domains that use short, generic words--such as porn.com or fund.com--to describe lucrative Internet businesses. Fund.com sold for $10 million in March. But such domains were almost all snatched up in the '90s and again in the wake of the dot-com bust.
And as a sign of the growing demand for the Internet's limited valuable real estate, seemingly meaningless URLs, like qsd.com, or McDonald's latest investments npt.com, cjz.com and hyb.com, are now worth thousands of dollars in the domain aftermarket. It's now all but impossible to register a new two-, three- or even four-letter dot-com domain at registrars like GoDaddy.
Most of them are functioning Web sites or they're in the hands of domainers, who trade them back and forth, betting that the letters will inevitably match the acronym of one of the millions of new companies and organizations that go online each year.
"Back in the day, who would have thought that a random-group-of-letters-dot-com would be worth something?" says Jeremiah Johnson, chief operating officer of the domain auction site Sedo.com. "Well, to that company that has the corresponding name, it's worth a lot."
The highest reported sale of a three-letter domain this year was $202,000 for cpc.com. The Web address was sold to Contract Pharmacal Corp. by the registrar Moniker, which, like Sedo and other domain marketplaces, auctions domains for investors looking to sell and brokers deals for buyers seeking domains that have already been registered.
Appraising a domain is an inexact science. Johnson says Sedo has developed formulas that take into account the length of a domain (shorter is better), its inherent traffic (the number of visitors who type it directly into a Web browser) and the selling price of similar domains.
There's also a hierarchy in the value of domains based on the popularity of the suffix, or "extension," that follows the name. For example, a ".com" domain name is generally more valuable than ".org" or ".net," which in turn fetch more than newer ".info" or ".us." domains.
Although Jackson says he's having his best year yet for three-letter ".us" names, he sells them for a relatively modest $1,000 each. But that's not too shabby, considering he bought the domains for $8 apiece.
"Dot-com is always going to be the blue-chip standard," Jackson says. He reasons that the extension is ingrained in the minds of Internet users. Even new industry rules that will allow registrars to use almost any extension--theoretically expanding the domain universe by billions of names--will have little impact on the dominance of ".com." As a result, "all of this new property is going to be wasteland, because it's not going to be recognizable to the public," Jackson says.
In addition to flipping, domainers have other ways of making money from their investments. Most domainers post ads on their Web sites, which can generate a decent monthly income. And Jackson says more and more domainers are teaming up with Web developers to create their own online businesses.
Then there are even more creative arrangements.
"I've leased a domain to the president of Spain," says Adam Dicker, a domainer who owns DNForum.com, a site where domainers chat about industry trends and sell domains to each other. Dicker says the Spanish premier José Luis Rodríguez Zapatero rented his domain, zp.com, and used it as the homepage for last spring's presidential campaign. Maybe it helped. Rodriquez Zapatero was re-elected. Notes Dicker, "And he paid a good buck."