Categorized | Domaining Tips

Leasing Domains – My Opinion

Posted on 28 November 2013 by Andrei

I have to admit, receiving a healthy payment each month *and* getting to keep your asset sounds great but to be perfectly honest, I have mixed feelings about the potential of leasing domains.

Let me explain why.

First of all, let’s try to see things from the perspective of the person you’d be reaching an agreement with.

Realistically speaking, the thought of investing time/money/energy to develop a domain I don’t own isn’t very appealing because I’d start by asking myself two important questions:

1) What if, as of a certain point, the owner decides to start charging me considerably more?

2) What if the owner ends up selling to someone else?

Sure, these risks can be somewhat mitigated by handling the transaction through a trusted third party but domainers have to understand that even though this possibility exists, some people will still be reluctant.

Next, let’s try to see things from the perspective of a seller.

As a seller, I’d ask myself one important question:

What if the person who uses the domain screws up royally and I’m left with “damaged goods”?

For example, let’s assume he chooses a risky SEO strategy.

Or that his website ends up having a negative reputation.

… you get the point.

Actually, I’d also ask myself another question:

What if I end up missing out on a huge future sale?

It could happen.

For example, you agree to let Company A use the domain over a period of 3 years for $100/month.

Great.

Now let’s assume Company B contacts you 2 years from now and makes a huge offer.

The result? You have a huge offer on the table but are morally as well as legally obligated to let Company A use the domain until the 3 year period expires.

As far as I’m concerned, my strategy is fairly straightforward: I always try to obtain a sale, so that’s my initial approach.

If the end user can’t afford it, I’m willing to let him/her pay me over a period of x months. So instead of paying me $y, I’d let that person pay me $y/12 over a period of 12 months, for example. After the final payment is made, the end user would receive the domain.

This approach is basically a compromise between a domain lease and a sale. One the one hand, you’re being flexible but on the other hand, you’re not being too flexible. I’d advise against letting end users pay you over a period of many years because there are a lot of things that can go wrong. Instead, we should be talking about months and that way again, it’s basically a reasonable compromise between selling and leasing the domain.

If the end user wouldn’t be able to afford paying me over a period of x months either then on a case by case basis, I might decide to lease the domain in exchange for a more affordable monthly payment. The monthly payment would most likely end up being considerable lower but in some cases sure, it might be a decent solution.

This post could very well turn into a novel and that’s not necessary because I’m sure you understand the message I’m trying to get across.

I’m not saying the business model has no potential, I just wanted to explain that even though receiving monthly payments without having to sell the domain sounds great in theory, there are elements which can make both parties think twice before sealing the deal.

9 Comments For This Post

  1. Robin Says:

    Maybe the problem is in the perception more so than the concept.
    What if I’m offering an exclusive advertising agreement in which the advertiser is in control of the content posted on the site for a fixed period of time at a fixed price with the first right of refusal at the end of the agreed time. Most of the companies that could benefit from this concept are already in a business and should be looking at how a great domain name can be used to promote their business and maybe not on the basis their entire business should move to a domain name that they do not own. Think of it more as a bill board in Time Square. The value may be in controlling the name and space even if it is under utilized instead of having your competition having the use of the name.
    robin

  2. Tom Says:

    All these issues can be said in exactly the same for a physical storefront lease, yet almost all storefronts are leased not purchased. I believe domainsherpa had a show on this topic recently as well that had answers for all these questions.

  3. Andrei Says:

    @Robin: the thing is, the other person usually has to invest time/money/energy to develop the domain, I’d agree with your argument 100% if we’re talking about a situation which involves simply implementing a redirect and basically sending its traffic to an existing site.

    So in other words, you own DomainA.com which receives let’s say 10,000 uniques a month and the owner of SiteABC.com (where SiteABC.com is a website that already exists and simply needs some additional traffic) basically pays for that traffic. In this case sure, I agree with your argument.

    But in most cases, the person who is contacting you wants to develop DomainA.com as opposed to simply being interested in the domain’s existing traffic, in other words he/she wants to turn DomainA.com into a website. This involves all sorts of costs (marketing, design, programming etc.) , which is why a lot of end users will not be willing to invest time/money/energy to develop a domain they don’t own.

    @Tom: that’s a good point but in my opinion, some offline business models don’t necessarily translate well online, which is why at least for now, there isn’t all that much volume when it comes to the domain leasing business model compared to sales (don’t get me wrong, I’m sure there are a lot of examples but the volume is extremely low compared to the volume of domain sales)

  4. Logan Flatt Says:

    @Andrei, re: your response to Tom.

    Tom is 100% correct — business people all over the world spend tens of thousand or even hundreds of thousands of dollars leasing physical retail storefront space every year, building out the store, renovating it, remodeling it, etc. for years even decades without ever thinking of trying to buy the commercial real estate their storefront is located in. For them to expect anything different with a retail storefront online is not rational thinking. It’s purely emotional – there is an unprecedented sense of entitlement around domain names that prospective buyers, lessees, and/or licensees have that is found nowhere else in business.

    A domain name is simply virtual raw land. One holds onto the raw land until a buyer or developer comes along. Oftentimes, a developer doesn’t want to buy the land from the owner, he just wants to develop on it — a strip mall, an apartment building, a mixed-use development, etc. anything that can generate free cash flow for the developer/building owner to generate a profit after paying the landowner the lease payments each period — using a 99-year lease.

    If a buyer comes along later and convinces the landowner to sell the land under the lease, the buyer has to honor the remainder of the 99-year lease. It is similar for domain name leases or license agreements. I encourage folks to download Nokta Domains’ licensing agreement and read it — it’s very well thought out and comprehensive. Most of these common own vs. lease/license worries are addressed in a similar manner as a real estate lease agreement with protections for both lessor and lessee. Just as it should be so that it’s a win-win situation for all parties.

  5. Robin Says:

    Andrel

    I agree that the model doesn’t fit every situation but it does address very many scenarios. An example would be, if I own an insurance company operating in a certain geographic area. The company may already be branded and established as “robinsinsurance.com” but controlling the GeoIsurance.com for that area may bring a business advantage that your competition may not have if you control that domain and the content. If leasing a domain name that isn’t for sale can provide your company with a competitive advantage it is worth doing. The question that should always be in the forefront is ,what would I think if my competitor controlled the name and exploited the opportunities associated with that control.

  6. Andrei Says:

    @Logan Flatt: again, I agree 100% when it comes to the offline world. When it comes to the online world however, the numbers are just not there (at least not yet) and based on my analysis (nothing scientific, just my experience corroborated with the information I have from other domainers), the number of domain leasing arrangement pales in comparison to the number of domain sales.

    That brings us right back to my previous argument, the fact that some offline business models don’t translate all that well online, at least not yet.

    Why?

    Maybe it’s because the market isn’t mature enough.

    Maybe because domain prices are not high enough to be as prohibitive as commercial real estate prices (any business owner would love to actually own the commercial real estate he or she is using but the prices are way too high for this option to be affordable).

    Probably for several other reasons as well.

    Maybe as the market matures and prices go up, we will see domain leasing gradually do better and better as a business model but for the time being, I just don’t see any indicators which point that way.

    @Robin: I agree that when it comes to the example you mentioned, for example, domain leasing makes sense. Since the insurance company you referred to already has a website, it doesn’t have to develop GeoInsurance.com.

    Based on my experience however, most end users want to actually develop the domain they’re contacting you about and that’s when domain leasing no longer represents an attractive option for them because at least for the time being, most end users aren’t willing to invest time/money/energy developing a domain they don’t own.

  7. Rev Says:

    Every contry have to write a law to stop search engines (google) from owning new gTLDs, and you will see the number of leasing agreements skyrocketing.

    Search engines CAN NOT RUN A TLD, except the ones that match their own trademarks. It is simple: they ARE SEARCH ENGINES, THEY ARE REQUESTED TO BE NEUTRAL, IMPARTIAL. OF COURSE NO ONE CAN TRUST ABOUT THE IMPARTIALITY OF A SEARCH ENGINE THAT OWNS HUNDREDS OF TLDs AND WILL TRY TO OWN THOUSANDS OF THEM IN FUTURE. THAT WILL BRING GOOGLE TO OWN CONTROL OF THE ENTIRE INTERNET.

    Leasing depends from the LAW THAT MUST BE WROTE AND ENFORCED AGAINST GOOGLE OWNERS HAVING THEIR HANDS ON gTLDs.

    IT IS VERY SIMPLE TO UNDERSTAND.

  8. Matthew Says:

    Agree for cheaper domains you want to look at low monthly payments and wrap it up in months if possible. For the bigger ones I like longer terms (usually up to a max of 3 years) and larger monthly payments.

    There is the possibility of SEO damage but I think it’s unlikely and I don’t worry about it. It’s better to get some monthly payments on it and then have to let it drop (in a worst-case scenario) than to never sell or lease it. You’ve got to take that chance rather than playing it safe.

  9. gtld gerry Says:

    In just a few short months, all of the new gtlds will have failed miserably and the frenzy for .com will begin. Renting will then be the norm. A no brainer to me.

 
 
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