Why does a domain name matter?

Domain names have been at the heart of the internet since its inception. They are an intrinsic part of how we communicate and connect with the world nowadays – everything passes through a domain name. We access online content; we buy and sell things; we communicate with each other for work and leisure. For businesses, domain names are fundamental strategic assets, but unfortunately, many entrepreneurs don’t appreciate them for their rightful value. Why is that?

Background

When you look into the history of domain names, it feels like they fell victim to their success in a way, or to be more precise – the speed of their success. We went very quickly from « what is a website? » to « I need a good website » to « I need a good website, and strategy to market my goods/services online », to « my business can not survive without a good strategy online ». See, I didn’t drop the « domain name » there by accident. The reality is that many entrepreneurs still don’t even know the difference between a website and a domain name. They just didn’t have the time to learn that.

Digital acceleration – some perspective

Let’s put things in perspective. Do you remember typewriters? Do you know how long it took between the first prototype and them becoming an integral part of every office? Since the machine was prototyped and patented across the world independently by over 50 inventors, it’s hard to put an exact number, but it’s over 100 years, with the most significant gap being 310 years. Fax machines? Over 100 years. Business cards date back to 15th century China. All that to say, the internet changed the speed at which progress happens in a big way (by far not just in the way businesses operate, but let’s stick to that as it’s our main topic).

The internet was officially « born » in 1983, the first domain name – Symbolics.com registered in 1985, and the web became publically available in 1991. In the last 38 years entrepreneurs have had to learn at a crazy speed, *as things develop*, on the fly, what is the web, what is what on the web, how to make it work, and how to use it to their advantage.

Here’s a throwback that will make you think. On New Year’s Day 1994, there were an estimated 623 websites. On the whole internet. I repeat, *on the whole internet*. By mid-1994, there were 2,738 websites, according to Gray’s statistics; by the end of the year, more than 10,000. There are 1.88 billion websites on the internet in 2021. Let’s just write it out, not thousands, not hundreds of thousands, not millions – 1,880,000,000. And counting.

…there has not been, in the entire history of mankind, anything that has changed so dramatically as computer communications, in terms of the rate of change.
1969, Steve Crocker, Internet engineer

That quote is from 1969. When I started in IT some 15+ years ago, it was still a bit of a struggle to convince some small business owners they even need a website. « I have a listing on The Yellow Pages », « Website? No, my clients know where to find me », « I do my business face to face, I don’t need that. ». But suddenly, everyone has a website. And every client has a phone, and if you don’t exist online – you don’t exist.

As a consumer, you can sit there and watch the show, take what you like, pass on what you don’t. As a business, you can’t. Well, you can, but at what cost?

Companies will need to be digital to play—but they will need the right strategy to win.
Ragu Gurumurthy, Rich Nanda, David Schatsky, Deloitte.com

And a good domain name strategy is at the heart of a good digital strategy. Yes, you can use third parties and pay them to get you traffic or even sell on third-party platforms. That all depends on your short and long-term goals as a business and has its pros and cons. Global scandals with privacy and security, censorships, high prices, and manipulation techniques are just some of the downsides of building a brand dependent on third parties. That said, being independent is not cheap nor risk-free, so when starting out, it’s often not even a choice. This is why you often see businesses investing in their brand more as they get more established.

COVID-19 and digital acceleration

Whether we like it or not, our entire lives are now wrapped around the web. Your average three-year-old kid can use a smartphone before they can form a sentence. And if anyone was skeptical about the fact that you have to build a strategy for your business online in order to survive, the COVID-19 pandemic cleared any doubts.

According to a new McKinsey Global Survey of executives, over the COVID-19 crisis their companies have accelerated the digitization of their customer and supply-chain interactions and of their internal operations by three to four years. And the share of digital or digitally enabled products in their portfolios has accelerated by seven years.

Respondents are three times likelier now than before the crisis to say that at least 80 percent of their customer interactions are digital in nature.
McKinsey Global Survey

Something I believe is very important to notice, we are talking about digital acceleration. As in, it means there is a process that has been sped up by the pandemic. But that process was there before that, it was happening and real before the pandemic. What we saw happen over the course of this crisis is what was happening anyway, just slower. If a business had the time to wonder whether to or how to adapt and develop online, the pandemic accelerated what was going to happen anyway if they don’t – they would struggle and eventually fail. Some were ready for that more than others, but one thing is for sure – those who survived will take their digital presence a lot more seriously.

The before, now and after of domain names

The effects of the pandemic are relative to the sector a business operates in, so of course, some industries were more touched than others. What is very interesting though is that across industries, business leaders acted a lot quicker in response to changes, in order to survive. Big and small businesses managed to organize work remotely; figure out how to deliver their services and goods online, where their customers were; adopt new technologies; improve their online security and much more. All that happened literally over months, sometimes days.

And you know how we like kicking ourselves with « I should’ve known… » type of comments? When asked what is the reason to not implement those changes before the pandemic¹ over half of the executives cited « it wasn’t a priority », followed by « the required changes represented too big a shock to established ways of working » and « IT infrastructure was insufficient ». Heard those before? Let me go first, I’ve actually said those sort of things myself.

What is the moral of the story? Let’s try with a classic.

It is not the strongest or the most intelligent who will survive but those who can best manage change.
Charles Darwin

What is a domain name for a business today?

After this quick trip in time, let’s get back to domain names and how their role has evolved and changed over the years. Today, a domain name is a lot more than just an easier way to reach your website online. Let’s have a look.

Computer object

The purpose of the domain name is literally to find and identify your website online. So, at its very basic, it is an identity. You can choose any domain name to point visitors to your website – it can be long or short, it can have different extensions, it can contain dashes and numbers, you can even have it with different characters – Cyrillic or Chinese for example.

Brand asset

Nowadays, many businesses are completely online and even those offering physical products do their promotion and sales primarily online. Online is where your customers spend their time and money. So, in a similar way to choosing a location for your business in the physical world, you choose a location for it online. And that location is your domain name. You can have a boutique on 5th Avenue or sell products in your backyard – your choices will be defined by your target audience, the specifics of the product or service you offer, your means, and ultimately – your ambitions.

Your email address is also not to be underestimated – this is the way you and your entire team will connect to your customers, business partners and investors for the lifetime of your brand. The simpler it is to remember and spell the easier that communication will be.

All over your marketing and advertising materials and campaigns – the domain name is the link between any piece of advertising and a visitor landing on your website, thus rendering that advert effective and your money well spent.

Cybersecurity asset

Phishing is one of the most common forms of cyberattacks. Business owners may have not yet realized the importance of domain names, but unfortunately, cybercriminals have. According to new research from Ponemon Institute, the average annual cost of a phishing scam in 2021 is $14.8 million for a 9,600-employee organization or slightly more than $1,500 per employee. If you don’t have a solid domain strategy in place, you are risking your own security and that of your clients.

A financial asset

The issue of classification for intellectual property as expenses or assets is not new. When it comes to domain names, it gets even more complicated. The infamous case of the French Council of State of December 7th, 2016, against ebay.fr determined that a domain name is, in fact an intangible asset if:

Represents a constant source of profits for a business
Has a sufficient durability (is renewed)
Is transferrable

This then means that in accounting terms a domain name can be an intangible asset and so has to be placed on your company balance sheets.

What does that mean? Well, on the not-so-bright side, it means that your web designer or IT manager is likely not the right person to make decisions when it comes to such an important company asset (sorry web designers and IT managers).

On the bright side, it means that you should probably start thinking differently about what sort of investment you can make in a good domain name, taking into account the fact that most intangibles are amortized over a 15-year period. Say for example the absolute best domain name you can get for your brand has a price tag of US$ 300,000. How crazy does that sound as an investment in your brand? What about US$ 25,000 per year? Or US$ 2,083 per month? Check what entrepreneurs share after securing the best names for their brands, and you’ll see that a good domain name is an investment that starts paying back from day one, whether you put it on your balance sheet or not.

What’s next for domain names?

We are living in the hype of NFTs at the moment and sure, many fear it’s all there is – hype. But didn’t we think the same thing about the internet, .com domain names, tech companies in the 90s, blockchain…? All still alive and kicking, creating new opportunities and business models that were not even imaginable before. Nobody can tell for sure how will the internet evolve and how long will it all last. But one thing is factual – domain names are one of the few things that have been there from its inception and are still here and more important than ever.

The move to digitization has accelerated, and the benefits will be permanent. There is no going back.
Carl Carande
Vice Chair, KPMG International

Other resources

We hope the above information will help you in making informed decisions about your brand. If you want to say hi or have any questions about naming, branding, and domain names get in touch, we’re always happy to hear from you.

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