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The bidding started at $300,000 and blasted through the seven-figure mark before settling at $1.8 million. No, this wasn't Sotheby's--nor was the object d'art a Picasso. This battle was for the URL Seniors.com.
The action took place last week at the domain name auction, hosted by Moniker.com at the Grand Hyatt hotel in New York. The invitation-only participants, who seemed more suited to a Star Trek convention, would ultimately bid on 218 Web domain names that all together would sell for $10.8 million.
Many clocked six-figure price tags, far exceeding the industry average of $2,000 to $3,500, according to Matt Bentley, chief strategy officer for Sedo.com, a domain brokerage firm. Two broke the $1 million mark: Creditcheck.com fetched $3 million and Seniors.com nabbed $1.8 million.
Growth in online advertising and the shrinking pool of available names are pushing URL price tags to new heights. Three of the top five deals in history happened in the last two years. "You're seeing a perfect storm created by converging factors that are resulting in an increase in domain values," says Bentley.
Sex.com broke the eight-figured barrier in 2005 by nabbing $12 million, according to DN Journal, which tracks the domain name industry. Porn.com came in next, at $9.5 million last month, followed by Business.com ($7.5 million in 1999), Diamond.com ($7.5 million in 2006) and Beer.com (a reported $7 million in 1999).
During the tech boom, top-selling domains were based on brand appeal. Now it's all about searchable keywords that are both generic and descriptive.
A big reason: With online ad spending increasing at a rate of 30% a year, owning domain names has become a business in itself. Entrepreneurs can flip them, like Miami condominiums, or they can sit on them and collect rent.
Say you buy Papercups.com. You may have no intention of selling paper cups, but because the name is so descriptive, chances are it will soar to the top of a Google search stack.
In theory, your Web site could simply list a bunch of URLs leading to other sites that do sell paper cups; every time someone clicks one of those links, you collect a royalty--just as Google does with its AdWords service. Social networks like News Corp.'s MySpace and Facebook operate on this same ad-based principle.
"Today people are buying a lot of domain names as an advertising tool, rather than as a brand name for their Web site," says Bentley.
Despite the rise in URL prices, in many cases you don't have to be Donald Trump to get into this so-called parking game. And while many such sites are not huge moneymakers, they tend to more than cover the initial acquisition cost and annual registration fees of about $10. (One visitor to Moniker's auction said he owns some 2,500 Web addresses.) What's more, nontraditional asset-backed lenders like Domain Capital will even lend money backed by the value of a Web address.
New domains cost between $7 and $15 per year at domain sellers (or registrars) GoDaddy.com and Register.com. These middlemen pay a fixed fee to VeriSign (nasdaq: VRSN - news - people ), which controls the domain industry under the auspices of an international body called the Internet Corporation for Assigned Names and Numbers, which reports to the U.S. Department of Commerce.
With more than 100 million Web addresses already in use, many of the best have already been snatched up. As with real estate, if you want something truly valuable, you have to pay up.