Drop Shipping for Domain Name Entrepreneurs By ... - DomainSherpa

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Drop Shipping for Domain Name Entrepreneurs By ... - DomainSherpa

DomainSherpa eGuide:

Drop Shipping for Domain Name Entrepreneurs

By Michael Cyger

Version 1.1

Copyright 2012 © DomainSherpa.com. All Rights Reserved.


The Domain Name Authority

Except as permitted under the United States Copyright Act of 1976, no part of this

book may be reproduced, stored in retrieval system, translated or transmitted, in

any form or by any means, electronic, mechanical, photocopying, recording, or

otherwise, without prior permission of the publisher.

This book is published by DomainSherpa.com.

ISBN: 978-1-62407-892-7

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Disclaimer

This book provides information. Use it at your own risk.

Information is not the same as professional advice – the application of information to

an individual’s specific circumstances – by a certified professional advisor, such as

a certified public accountant (CPA) or attorney. This book is not intended to provide

you with any personalized financial, accounting or any other advice. It should not be

used as a substitute for personal advice from an appropriate professional advisor.

Although we try to make our information accurate and useful, you should consult

with a CPA or attorney to interpret and apply this information to your particular

situation.

We are not attorneys and we do not take any responsibility for your financial windfall,

financial ruin or anything else that follows from applying this information.

If you have feedback for how to improve this book, please contact:

DomainSherpa.com

321 High School Rd NE

Suite D3 #281

Bainbridge Island, WA 98110

eguides@domainsherpa.com

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Table of Contents

Overview................................................................................................................. 5

Why Drop Shipping?..................................................................................... 5

How Does Drop Shipping Work?................................................................... 6

Drop Shipping: Retail Versus Wholesale........................................................ 6

How to Create a Drop-Shipping Website.................................................................. 7

1. Identify the Product Niche.......................................................................... 7

2. Identify a Domain Name............................................................................ 8

3. Identify Suppliers for Product Sourcing.................................................... 10

4. Build Product Catalog and Pricing........................................................... 11

5. Select a Product Management Platform.................................................. 12

6. Select a Provider for Site Hosting............................................................. 13

Making the Drop Ship Website SEO-Effective........................................................ 15

Identify Keyword Phrases............................................................................ 15

Each Page, One Keyword Phrase................................................................ 16

Content Customization................................................................................ 16

Link Building................................................................................................ 16

Generating Leads and Sales........................................................................ 17

Maintaining a Blog....................................................................................... 17

Things to Handle on Drop-Shipping Site................................................................ 19

Order Handling............................................................................................ 19

Customer Communication........................................................................... 19

Customer Returns....................................................................................... 20

Return on Investment............................................................................................. 21

The Downside to Drop Shipping............................................................................ 22

The Upside to Drop Shipping................................................................................. 23

Summary............................................................................................................... 24

About DomainSherpa.com.................................................................................... 25

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Overview

Why Drop Shipping?

Retail stores, like Best Buy or Target, are tough businesses to run. They require

time-consuming and capital-intensive activities such as buying products,

maintaining an inventory in the warehouse, displaying them on shelves, training

sales people to speak intelligently about them and dealing with employees; and they

serve only a limited geographic region.

Imagine a situation in which a similar model could be accomplished, but the

business owner would:

• Not have to buy products to display to customers.

• Not have to maintain any inventory.

• Have an easier time finding and training sales people.

• Serve the world population of interested consumers.

• Have significantly higher profit margins.

Drop shipping offers just that, which is why businesses that utilize a drop-shipping

model are of interest to many entrepreneurs.

On April 3, 2012, Inc. magazine published a special report entitled “Wayfair’s

Road to $1 Billion,” in which they detailed how niche websites can sell millions of

products – online only – and drop ship directly to consumers without purchasing

any inventory or stocking any shelves. 1

Wayfair experienced phenomenal growth and success with a drop-shipping model,

selling more than $500 million of goods in 2011 – everything from birdhouses to

nonstick pans to furniture.

1 Wehrum, Kasey, “Special Report: Wayfair’s Road to $1 Billion,” Inc.,

inc.com/magazine/201204/kasey-wehrum/the-road-to-1-billion-growth-special-report.html.

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How Does Drop Shipping Work?

Whether an ecommerce website owns and ships their own products or drop ships

products from a supplier is not obvious to the customer. The customer opens the

website, reviews the product descriptions, selects items for purchase and then

checks out on the same site.

This drop shipping-powered website, however, is a retailer that carries no stock; it

will send the sales order, customer information and payment to another company

where the product(s) will be shipped directly to the customer under the brand of the

website where the purchase was made.

This third-party product supplier is invisible to the customer, as the product(s) will

arrive with the website branding on the invoice and sometimes include branding

on the packaging. This impression is essential to the interest of the website retailer;

otherwise, the customer may find a way to bypass the retailer and order directly

from the supplier.

Drop Shipping: Retail Versus Wholesale

A drop shipping-powered website can cater to consumers, retailers or both.

Consumers pay retail prices. Retailers, however, expect to purchase products at

wholesale prices, so a drop-shipping website is likely to make higher profit margins

selling directly to consumers. Selling to retailers, on the other hand, provides

the possibility of making up for lower margins with sales of greater quantity and

frequency as retail customers become repeat customers.

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How to Create a

Drop-Shipping Website

There are six steps to creating a drop-shipping website.

1. Identify the Product Niche

The process of getting into a business that utilizes drop-shipping services usually

starts with identifying a product niche that sells a large volume of products at a high

profit margin with little competition.

Some of the best-selling industries include modern furniture, electronics, kids toys,

pet-related products, and clothing.

As a general rule, branded and well-known products offer low profit margins in

drop shipping and vice-versa. Research carried out by DomainSherpa.com has

found that wholesale drop-shipping sites dealing in sunglasses, for example, can

expect a profit margin as high as 70 percent, while the food sector offers around

a 25-percent profit margin. The art and home decor sector is another good area

for drop-shipping websites, because there is no market-dictated upper limit to the

asking price.

In his ebook Profitable eCommerce, successful ecommerce entrepreneur Andrew

Youderian describes in detail:

• Niche attributes that increase the chance of success

• Finding and evaluating wholesale suppliers

• Estimating market demand and profitability

• Performing research on competitors

• A 24-point worksheet for “grading” niches

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This is a worthwhile read for further identifying profitable niches; request a free copy

at www.ecommercefuel.com/profitable-ecommerce-ebook/.

2. Identify a Domain Name

There is a good reason why the cost of retail space in the center of Times Square

is so expensive ($2,100 per square foot, according to a report by commercial real

estate broker Cushman & Wakefield) – an estimated 1.6 million people pass through

there each day. 2 But how many of those people want birdhouses or nonstick pans?

Clearly not all businesses will succeed in such a high-traffic area.

Many businesses, such as a birdhouse seller, will benefit from receiving type-in and

search engine traffic online. Such a business can trade the prime physical location

of Times Square for a virtual location capitalizing on a generic keyword or phrase

that represents the products being sold.

The second step in creating a drop-shipping website is to narrow the domain name

options to suit the chosen product niche. The domain name is the Internet address

of the company’s website in plain English, such as SquirrelProofBirdhouses.com

– the URL that potential customers will access on their web browsers to reach the

company or will find when they perform a search on search engines like Google,

Bing or Yahoo.

It is important to find a site name that conveys the product or brand being offered.

• On the one hand, an easily branded, catchy and unique name, such as

Google, Twitter or Amazon, can be memorable for repeat customers, but will

require a greater marketing budget to rank on search engines and create the

desirable top-of-mind experience.

• On the other hand, a generic name – such as “birdhouses,” “nonstick” or

2 Cushman & Wakefield, “Marketbeat Retail Snapshot: Manhattan, Q4 2011,”

www.cushwake.com/cwmbs4q11/PDF/retail_manhattan_4q11.pdf.

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“oil change” – can be a problem because it is generic and less memorable;

coupling it with great content may allow it to rise in the organic (non-paid)

search results on search engines.

It should be noted that the domain name is one of the key factors search engines

use for computing rankings. 3 Domain names comprised of relevant keywords or

phrases of two to four words, such as SquirrelProofBirdFeeders.com, are often

easier to rank in search results for that specific keyword phrase than a more popular

phrase like BirdFeeders.com.

To rank more easily, domain names should be as specific as possible – not

encompassing an entire industry. Exact match domain names get even better

ranking results, but their search volumes are lower than generic keyword phrases

(e.g., ModernFurniture.com versus Furniture.com, or SilverWeddingDresses.com

versus WeddingDresses.com). They key is to not select a niche that is too specific

that it limits your traffic to a trickle of visitors.

A few additional suggestions for how to select a domain name for your business

include the following:

• It should be a relatively short name, preferably 10 characters or less, to make

it easy to remember and to reduce the probability of typographical errors by

the user.

• The maturity (i.e., length of time since the original registration date) of a

domain name factors into search engine ranking as well. Newly registered

domains (as opposed to a domain name registered in, say, 1996) are

associated with a lack of reliability and stability by search engines until the

owner proves otherwise by creating a full website, operating it consistently,

and adding more content over time. With that in mind, it can be prudent to

purchase an existing domain name, rather than register a new one.

• An aged domain name that is short and balances an identity that may be

3 Cyger, Michael, “Domain Names and Search Engine Optimization – With Danny Sullivan,” DomainSherpa.com,

domainsherpa.com/danny-sullivan-searchengineland-interview/.

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branded with keyword-richness tends to do well for a drop shipping-based

website.

Domain names can be hand registered through registrars (e.g., GoDaddy.com or

Enom.com), bought at auctions (e.g., BizBuySell.com, Flippa.com or eBay.com),

or directly from current owners by getting their contact information using a WhoIs

service. 4 Many domain name marketplaces exist, such as BuyDomains.com,

DomainNameSales.com and HugeDomains.com.

3. Identify Suppliers for Product Sourcing

Entire trade shows exist to allow suppliers to display their products. Most product

suppliers are passionate about their products – not marketing or selling. That is

where the online merchant comes into the picture.

At trade shows, entrepreneurs can meet suppliers in person, ask questions about

their products and business processes, and even negotiate pricing. Las Vegas trade

shows, including the Consumers Electronics Show, have the top suppliers; the large

sums of money suppliers invest to set up booths prove their seriousness. 5,6

Finding suppliers online is an option as well. WorldwideBrands.com, for example,

offers a searchable database of wholesalers and drop shippers, as well as

educational content. Additional sites to visit for potential suppliers include Doba.

com, SaleHoo.com and WholesaleHub.com.

Differentiating good and reliable suppliers from the rest is important. Some key

issues to be aware of include:

4 Mobashar, Naeem, “How to Determine Who Owns a Domain Name,” DomainSherpa.com,

domainsherpa.com/how-to-determine-who-owns-a-domain-name/.

5 Las Vegas Tourism website, lasvegastourism.com/las_vegas_trade_shows.htm.

6 CES website, cesweb.org.

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1. Ensuring adequate supply: It will be a waste of investment if the chosen

supplier runs out of inventory after the drop-shipping site is ready for

business.

2. Sale-ready products: The product line offered by the supplier should be in

sale-ready packaging and ready for the website’s orders.

3. Contingency planning: What would happen to a drop-shipping website if a

supplier went out of business? Consider representing the products of multiple

suppliers on the website.

Once suppliers of interest have been identified, ask for their wholesale agreements

and review them with legal counsel. In addition, due diligence should include

checking references, searching the Internet for complaints and checking the Better

Business Bureau (or similar) for potential conflicts.

A more thorough due diligence checklist for domains, websites and services can

be found here: http://www.domainsherpa.com/due-diligence-domains-websitesservices/.

Qualified legal counsel can also help with a full list of due diligence

required during supplier evaluation.

4. Build Product Catalog and Pricing

Using the research results from steps 1 through 3, the entrepreneur should select

20 to 30 brands from the chosen supplier’s inventory.

There are two approaches to loading the products into the new drop shipping

website.

1. Obtain product information through a data feed, using XML or other similar

technology.

2. Have the supplier provide the product file on a disk or at an online location,

from where it can be uploaded to the destination website.

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When setting prices for the products, the entrepreneur may have to comply with the

minimum advertised pricing (MAP) set for retailers in that particular industry. This

is maintained to safeguard the business and control competition. Some sectors

like furniture are stricter about MAP than others; suppliers can terminate a dropshipping

agreement if this pricing rule is broken.

For order placements, secure system connectivity can be established between

the websites of the drop-shipping supplier and the reseller using application

programming interface, but that is likely to add development complexity, time

and cost. An easier and cheaper option is to set up communication and order

placements via email until sales increase to such a point that further technology

investment is warranted.

Why select the products before setting up the website? Because doing so will allow

the website entrepreneur to understand more about the products, to determine

what kind of information is needed to present to the customer (e.g., videos, audio,

pictures, 3D views, zooms, etc.), and then to select the best technology to support

the customers and products.

5. Select a Product Management Platform

The drop-shipping website needs a product management system to become

operable for business; this is much like a content management system (CMS) for

blogs or publishing websites, but it is built specifically for products. Hence, CMS

systems like WordPress, Drupal or Joomla – which cater primarily to publishers of

articles and blogs – do not meet all the business needs of retailers.

Two paid ecommerce systems include Volusion.com and OpenCart.com. Both

provide product management platforms for a monthly fee.

MagentoCommerce.com, on the other hand, is open source and offers free

templates (also known as themes). This is the most popular choice of ecommerce

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systems, with good features, sturdy design and no investment besides

customizations you may desire.

In addition, developed templates can be purchased from multiple marketplaces,

including TemplateMonster.com, RocketTheme.com, EMThemes.com or

ThemeForest.com.

A survey performed by Magento developer Tom Robertshaw in October 2012 found

35,218 ecommerce websites in the Alexa Top 1 million. 7 Of those reviewed, the

largest percentage of websites operated with Magento.

6. Select a Provider for Site Hosting

With a product management system selected and products file at the ready, the

last step is to set up and customize the drop-shipping website – and then begin

receiving customer orders.

7 Robertshaw, Tom, “October 2012 eCommerce Survey,” TomRobertshaw.com,

tomrobertshaw.net/2012/11/october-2012-ecommerce-survey/.

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Some hosting providers that specialize in the ecommerce software specified

previously include MagentoCommerce.com, MageMojo.com and HostGator.com.

Once a hosting provider has been selected, install your selected product

management system software – which may be as easy as pressing a button to run

one of the host’s pre-written installation scripts.

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Making the Drop Ship

Website SEO-Effective

The website may be up and running with products loaded and viewable, but traffic

to the website will not grow unless customers start finding it.

For customers to find the website requires one or both of the following:

• Paid advertisements on the major search engines (e.g., Google, Bing, Yahoo),

often referred to as search engine marketing

• Search engine optimization (SEO) of the website

Achieving SEO for a drop shipping-based site is described in the following sections.

Identify Keyword Phrases

Identifying the appropriate keyword phrases is essential to effective SEO.

Competitor websites are often the best source of good keyword phrases for the

selected niche.

Data companies like ComScore.com use third-party tools to maintain the sale

figures and keyword phrase statistics of commercial websites. SEMrush.com is

another such database, but with less transparency.

MixRank.com, SpyFu.com and WhatRunsWhere.com can show the ads that other

companies are running on Google, Yahoo and other sites, including archived data

such as keywords used by companies to display their products/services. It is

always beneficial to be aware of the SEO techniques being used by competitors for

benchmarking purposes.

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Each Page, One Keyword Phrase

Once the appropriate keywords are identified, the website’s homepage, and each

and every webpage that the product catalog spans, must be optimized for search

engines by using keyword-rich titles, metadata, pictures and other elements. All topranking

keyword phrases in the chosen niche must be included somewhere in the

website’s content.

Note that if an entrepreneur has more than one drop shipping-powered website,

every domain name (every site) should have a unique IP address. If multiple dropshipping

sites are put on the same IP, there is a risk that Google will make an

assumption that they are somehow related. If this happens, all of the sites may be

reduced in value.

Content Customization

Besides each page being search engine optimized, the content has to stand out

from the competition; it has to be personalized. The product descriptions and stockkeeping

units are taken from the supplier and uploaded onto the drop-shipping site.

However, it is worthwhile to spend time on content customization to make these

descriptions appear different from the supplier’s website.

Informative and innovative content will retain the interest of readers. This includes

text data as well as various multimedia (e.g., videos, audio, pictures, 3D views,

zooms, etc.). Unique content will not only attract customers, but will also appeal to

Google’s ranking algorithm as the company tracks interactions on a web page.

Link Building

Link building is another way of getting into the top results of search engines; in fact,

20 well-placed links can land a website on the first page of search results. These

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links have to be placed on powerful websites with reliable and reputable owners and

that are read by a lot of people. The best examples are government (.gov) sites and

educational (.edu) sites, but being mentioned by high authority sites, such as The

New York Times, Mashable or TechCrunch, can also help.

It helps to know people in high places, so that they can get the drop-shipping link

included on their sites. The strategy of link building requires developing a list of

influential contacts through effective networking.

Tracking and monitoring site performance will show the impact these strategies

are having on traffic and on sales. What works can be repeated; what does not

is discarded. Over time, the entrepreneur can expand the product catalog and

increase the number of drop-shipping websites in the portfolio.

Generating Leads and Sales

It takes time for any new commercial website to generate traffic and convert that

traffic into sales. The entrepreneur has to wait weeks, months or years for the return

on investment depending on the competitiveness of the chosen keyword phrases,

marketing, traffic and investment.

Meanwhile, there are many productive things that can be done to help the business,

although these may have smaller benefits and are less cost effective than SEO. A

few examples are marketing on Craigslist and through pay-per-click advertising on

Google AdWords or BingAds; social media marketing through Facebook, Twitter

and Pinterest is growing rapidly.

Maintaining a Blog

Blog posts are another way to build rapport with customers and create personal

bonds. By soliciting comments from their customers, websites are letting customers

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know that their opinions count, which motivates repeat business. A blog must be

added as a separate page on the drop-shipping website itself.

Blog posts, like other social media content, have the possibility of “going viral”;

web users share innovative, unique content with their friends, friends of friends and

people further down the network chain. Besides increasing traffic, blogs also help

the drop-shipping website to show up on more searches, thereby boosting SEO.

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Things to Handle on

Drop-Shipping Site

Once the drop-shipping website is up and running, there are a few areas that will be

necessary to focus on long-term.

Order Handling

The versatile features of Magento and other website ecommerce platforms offer

high levels of automation. After a customer’s order is placed, invoicing and charging

are taken care of immediately. Composing and sending an email to the supplier is a

relatively simple task; so is logging into the supplier’s portal to place the order.

On average, each order will take approximately five minutes to place with the

supplier. A start-up drop-shipping site with a fast-moving product niche can easily

receive 10 to 20 orders daily within the first six months with proper marketing and

promotion.

Customer Communication

Ideally, the site will have detailed product descriptions, including reviews from

existing customers. Occasionally, people have a query that is not answered by the

content, and they send a query via the email address listed on the contact page

of the drop-shipping website. Some customers call to check the legitimacy of the

company.

The volume of such incoming queries and calls is low, and a single person can

easily handle the job, especially in the early days of the business.

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Customer Returns

There are no industry-wide standard return policies, nor should the drop-shipping

site copy the supplier’s policy. The terms and conditions of the return policy have to

be clearly stated on the website, aiming for customer satisfaction while keeping the

business objectives in mind. Consult an attorney for advice.

Suppliers are sometimes quite complying about product exchanges and refunds –

but be sure to understand the supplier’s policy before signing an agreement with

them.

The drop shipper may decide to give customers (the resellers) a longer trial period

to gain higher retention, but the website reseller runs the risk of being stuck with the

unwanted product if its return terms differ from that of the supplier.

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Return on Investment

Besides the investment to set up an ecommerce platform, design the site, and

populate and customize the content, the ongoing overhead costs in a drop

shipping-powered website are site hosting, order handling and marketing. One staff

person will be able to accept orders for four to five drop-shipping sites, place them

with suppliers, and communicate with customers.

Wayfair (mentioned at the beginning of this ebook), one of the giants in the dropshipping

business with about 250 niche sites, makes an average of $2 million per

site annually.

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The Downside to

Drop Shipping

Competition: Because of the many opportunities for running a drop-shipping

website, their popularity has shot up and with it, the competition. It is challenging to

find unique niches with low competition, high search volume and decent average

sales prices.

Profits: The average profit margins of drop shipping can be high compared to the

investment, but are lower than the profit margins enjoyed by physical retailers. In

the latter case, however, stocking and distribution of products become the retailer’s

responsibility. Web-based businesses using drop shippers trade higher margins for

lower overhead and subsequently lower financial risk.

Every business is different, so there is no easy way to determine the average gross

profit (the markup added to the wholesale purchase price of a product) on any given

product will be across an industry. Retail grocery stores operate with a gross profit

margin of around 25 percent; small jewelry stores operate at a gross profit margin

level of around 50 percent.

Control: The drop-shipping site is not in control of the distribution and delivery, but

is instead at the mercy of the supplier. It is, however, still answerable to customers.

As such, the entrepreneur must ensure suppliers are prompt and operate at high

service level standards.

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The Upside to

Drop Shipping

Having said this, people with experience in both retailing and drop shipping prefer

the latter. Why?

Cash flow: Cash flow is better because the customer pays the drop-shipping

website upfront and there is no distribution overhead.

Product returns: If products are described in sufficient detail, a drop-shipping

website should have a lower return rate than traditional stores. Part of this may stem

from customers’ not taking the trouble to return the product. When product returns

happen, they can always be sold locally or through sites like eBay.com.

Less risk: Operating a drop-sipping website is still less risky than buying bulk

goods at a wholesale rate and holding them in storage until they are sold. In

addition, it eliminates the worry of products becoming old or outdated.

Flexibility: The drop-shipping business can be run from a small office or from

home in any part of the world; the entrepreneur can liaise with suppliers and

customers remotely.

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Summary

According to WorldwideBrands.com, there are thousands of certified dropshipping

suppliers in the U.S., providing more than 8.2 million products to 100,000

entrepreneurs.

Although the drop-shipping space is growing by leaps and bounds, there is still

plenty of opportunity in the right industries and niches. New products are developed

every day. Spend sufficient time early to identify specific niches that remain

untapped and to discover markets that have capacity for a competitor.

Start small. One successful drop-shipping site can lead to a few more, eventually

building up a network of niche sites that link together as a single drop-shipping

portfolio, as was the case with Wayfair.

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About DomainSherpa.com

The DomainSherpa mission is to provide unbiased, authoritative

information to help you discover, acquire, manage, monetize and sell

domain names.

Whether you buy/sell domains full-time, manage domain name assets for your

organization, or are an entrepreneur interested in purchasing a domain name for a

new venture, DomainSherpa is your go-to source for domain name information.

The domain name industry is constantly changing with new domain top level

domains, legal rulings, social network offerings, new technology and service

providers, and sales opportunities. DomainSherpa helps domainers, organizations

and entrepreneurs keep pace with and capitalize on the latest information and

domain name trends.

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