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What is and How To Determine Intrinsic Value

So how does one determine intrinsic value? Intrinsic value can be broken up into three main categories:

1) Shortness (brevity)
2) Obviousness (intuitiveness)
3) Rememberability (memory)

Let’s look at some examples below.

FileYourTaxReturnOnline.com is an intuitive domain name, to say the least. While obvious, it’s also cumbersome to type. It may suffer in the rememberability/memory field, since it suffers in the shortness/brevity field. Without looking — can you distinguish that it was: FileTaxReturnOnline.com, FileTaxReturnsOnline.com, FileYourTaxReturnOnline.com, or FileMyTaxReturnOnline.com? You see the challenge.

While intuitive, its length, which impacts rememberability/memory, weakens its value (and sales price). Conversely, Sex.com is short, obviously intuitive and easy to remember — hence its more than $12-million worth.

Let’s now take a look at capitalizing on emerging industry paradigms. An example can be observed through a single letter of the alphabet: the letter “I.” Think iTunes.com, followed by iPod.com, catapulting into idog.com, icat.com, iconference.com, and I-dont-know-whats-next.com! “I” is not easy to copyright or trademark. It is “generic,” providing much room for opportunity. “I” could stand for “me,” for “Internet,” for “Italy,” for “Illinois,” or, dare I suggest, “inconceivable!” The progression in this paradigm provides a wealth of opportunity. The wave of “I” domains continues to build.

Now enter the enterprising domainer. The very second any news coverage regarding iTunes came out, domainiacs began registering and speculating about the future — risking the cost of tens of thousands of domain registrations related to iTunes.

Why? Because many of those names do or will hold substantial value in the domain market, since the use of “I” is almost a household standard. Those domains will get traffic , and traffic equals money.

Domainers see that future value (sometimes distant-future value), and they know that something not worth anything now could be worth a fortune later.

The minute iTunes release hit the news, the good “I” domains, like idog.com, ifriends.com, etc., became valuable.

A Primer on Speculating

Let’s now compare that to something tangible. There is a patch of land out in Nevada. It is a desert, and  no one wants it. Then suddenly people start building there for one reason or another, maybe oil, maybe vacation resorts, maybe a school, etc. Property value around construction sites starts going up because the area is expected to bring in more people. Pretty soon a place called Las Vegas is born. That piece of property that you owned on the downtown strip is now very coveted and if you sold, you would be a millionaire from a piece of land no one wanted years ago.

Now, look at the Information Age. With computers and the Internet, we have sped economic and social progression, as well as the rate at which new technology is adopted. What happened in Las Vegas over the course of 100 or so years only took 15 years after the advent of the Internet. It took 100 years for patches of dirt and desert in Las Vegas to be worth tons of cash. Now, in only 15 years, domains once considered merely ordinary are worth up to $13 million.

Going back to the “I” comparison, let’s say you pick up a domain that is close to the original property, iTunes.com — something like “iMusic.com” or “iDigital.com.” The closer you get to the original piece of “land,” the more the domain is worth. It happens for a number of reasons, all of which will be explained in later chapters.

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