Good startup branding can be worth paying for
The revelation last week by AI companion startup Friend that it had paid $1.8 million for the www.friend.com domain name sparked a discussion about how much money businesses should be spending on branding. The questions kept coming in, though, as other company founders like Public and Loom shared their own experiences trying to hold down a name. Did Friend overpay for its domain? Will there actually be an impact?
Friend’s CEO and founder, Avi Schiffmann, emailed TechCrunch to say that the purchase has already paid for itself. And considering that purchasing domain names for millions of dollars isn’t exactly unusual—Tesla paid an estimated $10 million over the course of a decade for “tesla.com,” and mortgage startup Better.com paid $1.8 million for its domain in 2015, the year it was founded, there might be a method to the madness. Furthermore, other reports claim that OpenAI spent $11 million for the domain name “ai.com.”
Co-founder of startup marketing firm Fiat Growth and founding general partner of early-stage venture capital firm Fiat Ventures, Alex Harris, told TechCrunch that a company’s ability to expand can be significantly impacted by its choice of name, domain, and branding.
According to Harris, having the appropriate name or domain can make companies easier to identify and recall. He went on to say that shorter names and domains are usually preferable, and that “.com” domains are the best (sorry, “.ai” enterprises).When there is any form of word-of-mouth [promotion], the name is often crucial, according to Harris. The name is simple to say and spell. Some of the topics we discuss are actually rather basic, but many
individuals choose to disregard them.
How frequently you want customers to contact with your firm is one aspect to take into account when deciding on a name, according to Columbia firm School marketing expert Olivier Toubia. Creating something distinct and memorable, a la Google or Twitter, could be a wise move if the product is consumer software or a product that users will use frequently.
And if a company’s product is something that users turn to less often, or only when they need to, it’s better to choose a name that is generic enough to easily come up on search engines.
“If you [are] a product or service that [people] won’t necessarily use very frequently or maybe when they need you, they will Google or search for you,” Toubia said, pointing out how someone may search for a locksmith if they were locked out of their apartment
And in the case of startups that customers don’t interact with on a daily basis —think healthcare companies — most of the big ones like Spring Health and Cityblock Health all have “health” in their name to make it clear what they do, as well as for SEO purposes.
Harris feels getting the name and domain right adds a touch of legitimacy to businesses. A professional-sounding name and domain helps people trust a company if they haven’t heard of it before, be they customers, potential hires or even investors.
“We all get emails from [companies] with a super long domain or weird domain extension, and it de-legitimizes it,” Harris said. “If you have a domain that is desirable, [people] pay attention.”
Harris also feels spending $1.8 million on a domain, as Friend did, isn’t as crazy as it may seem at first. He said that if buying that domain helps the company’s business, which he predicts it will, that purchase will pay for itself over time. And a good domain like that can double as solid IP that can be sold if needed.
Caution.com
Larger companies can probably afford to spend millions on branding, but does it make sense for startups that are still building a product and going to market?
Harris and Toubia both warned that there are things to keep in mind here, of course. In Friend’s case, both said the amount of money spent on buying the domain name is only going to be worth it if it isn’t preventing the startup from actually building a product
The name is important, but you have to sell and develop a product,” Toubia said. “If you already burned 70% of the cash and don’t have a product, investors may not be very happy with that. That may hurt your ability to raise [more money] in the future.”
There are clear advantages to locking in your branding early on, but companies must also make sure they don’t paint themselves into a corner with a name or branding that could make it hard to pivot later, Toubia said. If a company completely changes its business down the line, or chooses a name that is subject to legal action, that early branding could prove costly.
It could also be risky to choose a name that is too similar to another company’s. If the companies are in wildly different sectors and wouldn’t confuse a potential customer, it probably won’t matter. But the stakes change dramatically if a company with a similar name commits fraud or another act that would result in a less-than-ideal association.
Even in less drastic terms, if a name is too similar, it could just cause general confusion, Harris said, like in the case of former New York City mayor Rudy Giuliani’s press conference at the Four Seasons Total Landscaping a few years ago.
Regardless of how Friend’s decision to purchase their costly domain works out, both Harris and Toubia both said the fact that we are talking about their decision to do so shows their strategy might already be working.
“It’s kind of like naming a kid,” Harris said. “You get to the point where you say, I almost don’t care anymore; these five names are fine, just pick one and be done with it. In that moment of frustration, be patient and push through. It is very important. Don’t settle on something because it’s easy, because it’s cheap. Think about the assets available and who you are competing against.
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