Quick Q&A: Could the value of a premium generic domain name depreciate?
This is a debatable subject. The specific question I want to consider is: When a company accomplishes a dominant leadership position in an industry, how will the generic domain most descriptive of that industry be affected in its value?
Here are three examples to consider:
Books.com – This is a powerful generic domain. Yet, it would be interesting to learn how many actual type-in visitors it generates for Barnes and Nobles. The reason – Amazon.com. Amazon has become synonymous to books for most Americans. So, when people buy books, how much type-in traffic has Amazon taken from Books.com due to a powerful brand?
Auctions.com – You probably said it in your mind before actually reading it – eBay.com. Perhaps their success was greatly influenced by fate/luck, when they tried to register echobay.com as their website’s domain name and it had already been registered. This is why they had to shrink it into the catchy four letter word. Again, when you want to buy or sell in auction format, how likely would it be for you to type-in Auctions.com, rather than eBay.com.
Search.com – Some lawyers are even trying to stop reporters from using the term “googling”, as search giant Google overshadows even the phrase “to search” with the increasingly popular phrase “to google”. How would you think this change has had an impact on the value of Search.com?
If in these three cases you agree that the word actually lost value, rather than appreciated in value as a company grew into a leadership position of the industry, and you own a premium generic name for an industry in which a new company is growing to become a leader of that industry; then you should try to sell the domain name before the company establishes itself as the leader. Or at least for accounting/tax purposes, you should be able to begin a trend of depreciation from your asset as the company’s leadership position solidifies.
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Rafael Sosa's Weblog 
I disagree. (Great blog thought!)
Everything that you have said is true. Something’s missing though…and that’s the other companies.
“then you should try to sell the domain name before the company establishes itself as the leader. ”
That is only thinking of trying to sell to the leader. While this would be the best option, it is hardly the only option. Lets take Google. The value of Search.com would depreciate from Google’s stand point, but may very well appreciate to Yahoo!. In a tight battle, Search.com could yield the difference to Yahoo! (I have no idea about their true data, just an example) Thus, if you own a category, you own credibility (to a degree). That value may be just as valuable to #2 as to #1 (sometimes even more!)
This becomes important to the notion of
“then you should try to sell the domain name before the company establishes itself as the leader. ”
If the price is there, fine. But the implied temporal necessity is not there. There is no rush. Again, #2 will often pay more to become #1 than #1 will pay to protect it. Even if having the category does not automatically make you #1, it could make the difference.
Thanks for your comment Gary.
My first sentence was “This is a debatable subject.”, because I understand there are many subjective aspects of this valuation practice. However, from a purely objective and measurable parameter – traffic, would you agree that type-in traffic to the generic term will decrease as a company establishes a leadership position in an industry? Thus, revenue from this name will most likely continue to decrease.
Another, more subjective aspect to consider is differentiation through branding. Now that there is an established dominant brand in that field, how valuable would it be from a marketing point of view to establish a brand under a generic word? Instead, you buy the generic domain and use it for its traffic to be redirected- not as a brand.
Now lets tie these two together – traffic and brand. Where do we see this happening? Everywhere. Bank of America owns loans.com, but it is used for its traffic as a redirect to their own brand. Pets.com (Petsmart), Weddings.com (TheKnot.com), Money.com (Money.CNN.com). How then, would a buyer justify much of the price? In its simplest expression, we could say (Traffic X Worth of Traffic) + (Some Credibility X Worth of Credibility). If the type-in well is drying up, then the worth of the domain name will be impacted to the down side.