94% Annual Domain Name Price Appreciation
June 15, 2006
Using a new statistical methodology the annual price appreciation on a very large class of
domain names is estimated to be 94 percent. The paper outlines the methodology and
points out its advantages and areas for future investigation.
To estimate returns from domain name price appreciation, one can adopt statistical
techniques developed to study the art and wine markets. Although these models are also
viable for studying domain names, they require the availability of prices on multiple
purchases of the same domain name over time. Unfortunately, however, examining our
database of over 4,500 sales records since 2004, we are unable to find enough
observations to meaningfully implement such an estimation technique. Thus, we
developed a new robust methodology to overcome this major obstacle.
Our methodology is based on the following steps:
1. Classify the domain names in the dataset, described below, into groups with
similar characteristics using tree-regression techniques.1
2. Estimate the average quarterly price for each group.
3. Calculate price appreciation for the first quarter of 2006 over the first quarter of
2005 for each group, by taking the difference between the average prices of these
two quarters estimated in Step 2, above.
4. Calculate the weighted average of price appreciation, where each group’s weight
is the total sales value for the group in the initial period divided by the sum of
total sales values in the same period across all groups.
5. Calculate the compounded annual appreciation rate obtained in Step 4, above.
1 For a general application of regression-tree techniques, see Ales Tajirian, “Valuing Domain Names:
Methodology.” For the list of domain name characteristics, see Alex Tajirian, “Appraisal Based on
Estimating the Value Generating Process.”
94% Annual Domain Name Price Apprecia