The domain name cruises.co.uk has been sold for £560,000 - the most money ever paid for a .co.uk domain name. It was bought by Victoria Travel Service Ltd who already own cruise.co.uk, the UK’s leading online supplier of cruise holidays.

Over half a million pounds for a domain name? Madness or genius?

For my money genius. Without a shadow of a doubt.

Here’s a few facts I’ve gleaned from the internet regarding cruises.

According to the Passenger Shipping Association, 1.2 million Britons took an ocean cruise in 2006. And that’s just ocean cruises. Typical cost of a cruise was £1,300 a person. What’s more it’s a growing market.

If you set up a website to promote cruises you would earn a commission on each salewhich will vary depending on the company and the volume of business you can deliver. A 10-15% commission isn’t unusual in this business, although agents usually work on 5% with the remainder being given to customers in the shape of discounts.

So let’s go with 5%.

5% of £1,300 is £65.

Sell 1,000 cruise places and you’ve got yourself £65,000 in commission.

What are the chances of a website called cruises.co.uk selling 20 cruise places a week, 1,000 cruise places a year? Very high I would say and you wouldn’t have to spend a penny on advertising. You’ve got type-in traffic and it’s already sitting pretty at the top of Google UK for the search word cruises. What’s more the very fact that someone paid so much for a domain name has bought the kind of media publicity (and countless inbound links) that money alone can’t buy.

At £65,000 a year, it would take eight to nine years to pay back the £560,000 outlay on the name. After that any money it makes is pure profit. AND you have a very valuable asset, the domain name itself.

To be honest, I would be surprised if it did take eight to nine years to pay for itself. My money would be on five years tops.

I’ve just written an article about the sale of ireport.com over at the new look Internet Entrepreneurs website. CNN paid US$750,000 for it and the seller, Rick Schwartz, reckons they got it cheap. And he’s not wrong.

Quality domain names have real value. And the real madness is how slow big business in particular has been in waking up to that fact.