How to account and value a domain name?

Domain Name Valuation

The domain name is an integral intangible asset©

The domain name has this unique particularity to be an intangible asset with four dimensions.

It is simultaneously:

  1. An IT object allowing to access services on the Internet by doing the link between the IP address (a suite of numbers) of a physical object [computer, server, smartphone…] and a literal name (role of the Domain Name Server or DNS);
  2. A communication tool allowing to establish its identity on the Internet and gain a digital territory;
  3. A legal element through a temporary contract with an Internet Registry;
  4. A financial asset, accountable as an intangible asset under certain conditions.

Today an essential key element to any dematerialized data flow exchange, the domain name became overtime a strategic intangible asset of great value regarding associated services (email, websites access).

Accounting principles applicable to domain names

The domain name is not to be considered as a simple technical tool, but as an intangible asset to write in the balance sheet of the companies and collectivities, if it allows to generate a lasting source of profit. In a decision of the French Council of State of December 7th, 2016 (ebay.fr case), the wise persons of the Palais-Royal thus remind that if the use of a domain name:

  • Represents a constant source of profits;
  • Has a sufficient sustainability (particularly if it can be regularly renewed);
  • Is likely to be transferred;

Then it is an intangible asset of the company and must follow the associated accounting and tax rules. As such, the domain names have to be accounted either at their creation cost, or at their acquisition value, or at their current value (market value) for the ones acquired free of charge.

Which financial valuation methods to use?

Inspired by the ISO 10668 standard regarding the monetary valuation of the brands, Nameshield has developed a reliable scientific corpus by financing the CIFRE thesis of Mr. Clement GENTY (2016-2019), covering the subject: Internet governance and global economy: proposal of a valuation model of a domain name’s value as intangible asset. It is in this context that three approaches regarding the monetary valuation of domain names have been studied:

  • A historical costs approach;
  • A market approach (on semantics);
  • A loss approach (replacement cost).

The market approach aims to measure the semantic value of a domain name by reference to the monetary transactions passed. To that end, Nameshield has developed a database of more than 1.4 million transactions passed (domain name, price, year). This approach allows to give a price value by comparable.

The strength of a domain names’ valuation method, scientific and practical

Supported by its regular work in the acquisition and/or sale of domain names for its clients’ companies and collectivities, Nameshield is able to propose an approach of monetary valuation of a domain name or a domain names’ portfolio, as part of the best current scientific practice.

Jean-Manuel Gaget

Author: Jean-Manuel Gaget

Directeur Stratégie et Consulting, Nameshield group - Auditeur de la session nationale « Souveraineté numérique et cybersécurité » de l’IHEDN et de l’INHESJ Cycle 2019-2020

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