There have been many real life examples of .com domain names being sold for $5 million or more; business.com, diamond.com, hotels.com, sex.com and internet.com to name a few.
While .com’s are the premiere domain names, there have been other notable sales of domains from other top level domains (TLDs) like .net, .org, .info and country-specific TLDs like .de, .co, and .tv. For instance, Casinos.org sold for $400K in 2019, Q.org sold for $500K in 2018, and Golf.tv sold for $600K in 2003.
It costs very little to maintain a domain name, so people that are smart or lucky enough to acquire good domain names inexpensively have in some cases been able to sell them later on at an enormous profit with very little effort. Of course countless others have registered and renewed domain names that have ultimately proven to be worthless.
Selling marquee names is one way to make money, but domain name registrars like GoDaddy, Network Solutions, and Namecheap can make money simply from having customers register and renew random domain names that don’t really have any standalone value, like personsnamerealestateinc.com or flowershopinrandomtownOK.com.
If someone uses a domain name for their business, it doesn’t really matter that they can’t flip the name for a profit, they are probably going to keep renewing it for as long as the business lasts. For the registrar, they get a predictable, recurring revenue stream.
TLDs used to be limited to a few generic ones like .com, .net, .org, .mil, .edu, etc. and country codes like .us, .es, .de, and .ly. It all changed in 2011 when ICANN, the nonprofit organization that does the governing when it comes to domain names, decided to allow a dramatic increase in the number of generic TLDs.
The process was designed like this: applicants paid a $185,000 application fee to apply for a TLD and then a recurring $6250 each quarter. If the TLD had more than 50,000 names, they paid $0.25 per name. In some cases, if two applicants wanted the same TLD, there would be an auction. For instance, Dish Network beat out Google for .dot with a $700,000 bid.
The idea with owning your own TLD is two-fold. You auction off or sell at a premium price the domains with the most value. If your TLD was .travel, domains like LasVegas.travel might be sold at a premium price, as would one word domains like x.travel. You then sell as many domains as possible at a set price, be it $12.99 a year, $24.99 a year, $69.99 a year, etc.
Between people actually buying the URL to use for their business or personal website, and speculators buying the domain thinking (usually mistakenly) that they can flip it down the road for a profit, you hope to build a recurring revenue stream that does not require a lot of effort to maintain.
If you actually drill down on the economics of owning your own TLD, it gets pretty questionable whether you can launch a new one today and turn a profit. When ICANN announced the ability to apply for and own your own TLD, companies raised a lot of money to pursue this opportunity.
A company called Donut raised $100 million and applied for over 300 TLDs. Many of the commercially viable TLDs were snapped up, everything from .vip to .website to .barcelona to .homes to .plumbing.
Over 1000 TLD’s are in existence (click here for the complete list). So whatever TLD you want to start at this point is probably going to have questionable commercial value. Many of the new TLDs have sold very few domains. For instance, .yachts only had sold about 250 domains as of 2019. (On the other hand, there are 11 of the new TLDs that have over 500,000 domain names: .top, .icu, .xyz, .site, .club, .online, .vip, .shop, .work, .live, and .fun.)
The registration and renewal fees do not go completely in your pocket. TLD owners pay a fee of $25,000 per year ($6250 per quarter) to ICANN. If you have over 50,000 transactions during the quarter, you pay an additional $0.25 per domain that was registered or renewed in the quarter. Backend registry services and registry data escrow cost about $50,000 to $75,000 per year and is offered by companies like Afilias and Neustar.
Also, you can have people register their domain names at your own website, but you get a lot more exposure by outsourcing it to bigger registrars like GoDaddy or Domain.com. So there needs to be a margin between what you charge and what they pay. This is negotiated, but if you are depending on them for a lot of the registrations, then plan on paying them 30% or more of the domain price.
If you are making $10 net per domain name, you would need to have about 10,000 domain names sold to break even for that year. Many TLD owners have realized there is no path to profitability with their current pricing structure and low number of domains registered, so they have upped the price for buying or renewing domains from close to $10 to over $100 per year. It will obviously greatly decrease future demand for their TLD, but they hope that enough existing registrants will bite the bullet and keep renewing at the inflated price.
At this point, it probably makes more sense to find a mildly profitable TLD and buy that one, rather than start your own. Even though it would cost more to go this way, you’d still avoid the initial registration fee of $185,000 and wouldn’t be forced to speculate on whether there would be enough demand for your to break even. You’ll still have the bragging rights of owning your own TLD, but without some of the risk.