How to account and value a domain name?

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.

First published at nameshield blog

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