Is Fractional Domain Ownership the Future?

The very best domain names are expensive. 

Last year, Voice.com sold for $30 million. This was an all-time record for a publicly-announced domain name sale. 

Even excluding outliers like this, domain names regularly sell for hundreds of thousands or millions of dollars.

Two-letter domains sell for close to $1 million. In 2019, TM.com sold for $1.25 million, RX.com sold for $1 million and OL.com went for $900,000.

One-word .COM domains also sell for big bucks. Nursing.com sold for $950,000, Links.com for $800,000, and Mastermind.com for $600,000 last year.

These prices are out-of-reach for most domain investors. Few people can invest hundreds of thousands of dollars in a domain name.

There is a solution, however, that would allow everyday domain investors to own great domains like these. Or rather, to own a part of the domains. This is called fractional domain ownership.

Domains Can Be Like Stocks

Most domain investors own domains by themselves, either as an individual or through their company. What if they owned a pricey domain name along with a bunch of other domain investors? Rather than plunking down $100,000 for example.com, they could split the price with other investors.

There is a basis for this idea in both private and public companies. Companies have equity, and individuals acquire this equity through trades or as part of their compensation, or they can purchase shares in the company on the stock market.

While you’re not wealthy enough to own the entire company Microsoft, you can own one small share in it by buying a share of the stock MSFT on the NASDAQ for about $200.

That one share represents a (very) small fraction of the company that is valued at $1.43 trillion.

Private companies also have equity. Airbnb is not publicly traded on an exchange like the NASDAQ, but individuals and venture capital companies own shares in the company.

The same concept as owning a share in a company can be applied to domains. You can call it fractional ownership, and you can think of it like owning shares in a domain name.

Let’s say Example.com is currently worth $100,000. A hundred domain investors could each own 1% of the domain by paying $1,000 for their fractional ownership (or share) of the domain.

If the domain name later sells for $200,000, each owner’s share would be worth $2,000.

Practical Considerations

Fractional ownership sounds great, so why don’t more people do it? 

Some domain investors already buy domains as partners with other investors. Two or three investors might team up to buy a domain. But it gets more complicated when dozens—or hundreds—of people buy a domain together. 

There are some complexities that need to be figured out before fractional domain ownership goes mainstream. Here are some of the issues that must be worked out before fractional domain ownership scales.

• Securities laws – Shares in private and public companies are regulated by the government. There are specific rules that people who sell equity must follow. Shareholders—the people who own the equity—have investor rights. The company also has to file certain forms with their state and the IRS.

It’s not entirely clear how securities laws would apply to fractional domain ownership. But it’s safe to say that securities regulators will have something to say about it. Regulators might treat fractional ownership of a domain like equity in a company. 

That’s not easy to manage. Private companies file federal and state tax returns and send K-1s to all of their shareholders each year. 

Some localities have restrictions on who can own shares in particular companies. Cross-border ownership of domains would be even more complex.

• Sale decisions – If there are 100 owners of a domain name, who gets to decide when a domain name is sold?

Assume each 1% owner of example.com paid $1,000 for their share of the domain. If it sells for $150,000 after transaction fees, they each get $1,500. If it sells for $300,000, they each get $3,000. Conversely, if the domain sells for less than the original $100,000 price, investors lose money on the transaction.

Some investors might be happy with the $150,000 sale. Others might want to hold out for more money. Few people will be happy if they lose money.

There must be rules put in place for how a sale decision occurs.

One option is to require the approval of a majority of owners. The domain can be sold if owners of 51% or more of the shares approve of the sale.

But this slows down a transaction. Domain transactions sometimes need to be done quickly, and asking so many people to approve a sale slows it down.

One option for speedier transactions is to have a set floor price at which the domain will be sold. Another is to give one person the right to decide on a price on behalf of the owners.

Escrow – Another question is who holds the domain name until it is sold. The domain might be held for years and owners want to make sure it’s in safe hands. This is where an escrow company or trusted third party will come into play. Owners will probably want a neutral third-party to handle ownership of the domain until it’s sold.

Fractional ownership transactions – Fractional ownership gives owners of valuable domain names liquidity. They no longer need a buyer with a big wallet to buy their domain; they can sell it to many investors with smaller bank accounts at the same time. 

This begs the question if those fractional owners can sell their shares in the domain to someone else rather than waiting for a “liquidity event” in which the domain sells.

More people are likely to invest (and at higher valuations) if they have the option to sell their ownership freely. Guidelines for doing so will have to be clearly outlined.

Administrative costs – There will be costs associated with maintaining a domain name that’s owned by multiple investors. While domain renewal costs are trivial, costs for holding a domain in escrow are a bit more. There also needs to be a provision for legal expenses that might arise, such as if the domain name is subject to a cybersquatting dispute. 

The Right Model

Given the complexities of fractional domain ownership, it’s unlikely that people will sell domains to fractional owners on a one-off basis. There needs to be an easy way to create fractional ownership without setting up a company, escrow, terms, etc. for each individual domain. 

This is why we are likely to see fractional ownership platforms enter the market. These platforms will handle the complexities of fractional ownership and charge a management fee.

There are already platforms that handle individual sales of domains. They process payments, facilitate the transfer of domains, and manage contracts. This could be extended to handle fractional ownership. 

The upside to fractional ownership is that domain investors could invest in valuable domains they couldn’t otherwise afford. Domain sellers could find new buyers for their domains because the market would be drastically expanded. 

Fractional ownership will unlock value and liquidity in domains and we are likely to see it become mainstream soon.