Investing principles are timeless, but that doesn’t mean the assets we invest in should be. Much of our economy now depends on the online world, yet we often only invest in the physical infrastructure behind it. What about the digital real estate itself? For active investors, there can be opportunities and room for diversification.
The overlooked assets
Defining these overlooked assets isn’t easy, in part because we have a tendency to believe that if it’s not physical, it doesn’t exist. The problem we’re faced with is that when we hear about digital assets, we think of crypto, and this is a quick way to divide the room. But, ignoring crypto, there are tangible digital properties that have real utility and potential cash flow.
For example, when browsing millions of personal and commercial domain names, it’s clear that there’s a lot of money being paid to have a strong URL. Finding keyword-rich domain names on IONOS in a market or niche that’s about to take off isn’t all that different to other fundamental analysis, or even entrepreneurship, yet without the operational burden of setting up a business in this space. Instead, you can speculate on what prime real estate may grow in demand.
Developed social media accounts can also hold substantial brand value, as well as curated permission-based email lists. Micro SaaS sites, which can be nothing but a homepage, can be growth opportunities, whether they’ve launched yet or not.
The case for digital real estate
The parallels between digital properties and physical real estate are striking. A domain name's memorability and niche relevance are akin to “location, location, location”. Developing a website with content features and search optimization mirrors renovating a physical property; the former doesn’t sound like investing, but neither does redecorating a 3-bed detached home.
Although a bit of a caricature, the purity of this economics was in action on The Million Dollar Homepage. Created by Alex Tew, a landing page with 1 million pixels was sold at $1 each, in which buyers (like businesses) would buy up real estate to place images, like branding, for visibility.
Revenue from advertising and affiliate marketing acts like rental income, and just as property values rise due to market or improvements, digital assets can too. Geographical arbitrage is something that isn’t at your disposal with physical property, but using cheaper, overseas labor is with digital assets.
It may be a new set of skills or knowledge, but the market access is broader, and an unwillingness to learn new knowledge shouldn’t be so proudly announced as it is by many traditional investors.
Affiliate sites shadowing eCommerce trends
It’s common to invest in products that shadow, be it derivatives, indices or investing in certain raw materials that we know will be more in demand when certain products take off, like solar panels or EVs. The same applies to the online world, in which affiliate websites (e.g. a review site for the best solar panels) grow along with the market. Many of these are relatively passive, in that a well-optimised site with good partners and high-ranking content will produce monthly revenue.
Of course, it’s risky, with Google changing their search algorithm often, along with the rise of AI for search queries. But this doesn’t mean that there aren’t opportunities to buy established sites with an intent to sell down the line. And, like a physical property, the more handy you are at renovating, the more value you can bring.
Modernizing your portfolio
This isn’t a case for digital assets investing over traditional products like stocks and bonds, but instead to highlight new opportunities; opportunities that bring asset diversification without getting caught up in crypto, but also apply an appetite for hands-on active investing to a new field which isn’t contained to a handful of high volume, highly efficient markets.
