Beware the new gTLD cuckoos

Kevin Murphy, June 27, 2011, 14:26:15 (UTC), Domain Registries

Let’s say that for some reason you’re a big fan of horses.

Ever since ICANN announced it was going to do new top-level domains, in 2008, you’ve been desperate to apply for .horse.

This TLD could not fail, you think to yourself. Everyone likes horses, right? You could have 500,000 registrations in year one, make yourself rich. Maybe buy yourself a new horse.

For the last three years you’ve attended every ICANN meeting, you’ve lobbied for the changes you want to see in the Applicant Guidebook, you’ve spent tens of thousands on hotels and airfare.

You’ve painstakingly built your “.horse” brand, raising money and throwing it into marketing and community building, creating demand among your fellow horse lovers.

The horse community knows about .horse, and they can’t wait for it.

Fast-forward to April 12, 2012.

ICANN has just published the list of first-round gTLD applicants. Your lovingly created .horse bid is in the system, ready for processing.

But wait, what’s that?

Somebody else – some douchebag businessman who doesn’t even like horses – has also applied for .horse, and his bank account is bigger than yours by a long way.

How’s that .horse idea looking now? Did you just spend three years building up somebody else’s brand? Do you think your community will care? Or notice? The other guy is called .horse too, remember.

Oops.

This scenario is very likely to become a reality.

Probably not for .horse, but for many of the new gTLD applicants that we’ve become aware of over the last few years.

If you look at any high-profile application, .gay or .music for examples, we already see multiple applicants, one of which has usually done more to promote the TLD than the others.

Look at Sophia Bekele’s .africa application, which appears to be running into this problem already, despite all of her painstaking outreach.

There will probably be other applicants for these strings that we will know nothing about until April.

You don’t score any points in the Applicant Guidebook for having a loyal fan base, spending oodles of cash on marketing or simply being first to put out a press release.

If you find yourself in a contested string situation, the only way out under ICANN rules is an auction. The applicant with the deepest pockets wins.

Because I’m desperate to one day coin a term and have it stick, I’m going to call these usurpers “cuckoos”. Because, you know… that thing that cuckoos do with their young.

There’s a cuckoo business model, too.

While ICANN has only endorsed auctions as the method of settling contests over non-community strings, that’s there more as a deterrent than as a solution.

ICANN wants competing applicants to come to some kind of agreement between themselves before it reaches that stage and auctions are expected to be rather rare.

What we’re likely to see is a bunch of applicants withdrawing their applications after being paid off, in cash, equity, or some other consideration, by more serious rivals for the same string.

Nobody wants to risk spending millions in an auction if they can make the problem go away earlier with thousands.

Fortunately for the cuckoos, ICANN offers a substantial refund, $130,000, for applicants that drop out before their Initial Evaluation is completed.

This puts the ICANN fee for getting into pay-off talks with a “proper” applicant at a quite reasonable $55,000. If you can score a couple of points of equity in a new registry, it could be a bargain.

Of course, you’d have to hope that your rival does not call your bluff and try to force you to auction. If that happens, it would probably be wisest to admit defeat and cut your losses.

It’s high-risk, sure, but it’s potentially high reward too, and I’m certain it will happen, even if it doesn’t look like it’s happening.

It’s going to be a poker game, and no mistake.

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Comments (13)

  1. JS says:

    Can’t .Africa elect to be treated as a community string, and then try to win the TLD by gathering the most community support ?

    Can’t you do the same thing with dot music if you’re backed by record labels ?

    • Kevin Murphy says:

      Geographical strings need the support of the relevant governments. To get .africa, you’d need 60% of African governments (or, more likely, the African Union) to support you.

      The Community Priority Evaluation is so stringent to be of no use to a .music applicant.

  2. JC says:

    So there is no hope, other than buy-off, bluff or auction, of contesting a competitor’s attempt to own a gTLD that is essentially the name of a defined market space or product category? Say… .netbook, .proteomics, .apps, .hybrids, .oscilliscopes, .music, etc.

    • Kevin Murphy says:

      There are plenty of ways to object to an application, to stop somebody else getting it. If you have trademark rights, for example, you can try your luck with an objection, but that’s not really held up as a way to resolve contention sets.

      • JC says:

        I understand the ability to object on trademark grounds, but the ability to object on competitive grounds is very unclear.

        If Toyota pursued .hybrid, what grounds to object would Ford have? Is the only way to prevent Toyota from getting .hybrid is for Ford to attempt to buy it themselves?

        • Kevin Murphy says:

          There’s the Community Objection.

          Ford itself would not be able to use it, but some kind of trade association for hybrid makers might have a shot.

          This is what you’ve got to prove:

          - The community invoked by the objector is a clearly delineated community; and
          - Community opposition to the application is substantial; and
          - There is a strong association between the community invoked and the applied-for gTLD string; and
          - The application creates a likelihood of material detriment to the rights or legitimate interests of a significant portion of the community to which the string may be explicitly or implicitly targeted.

  3. JM says:

    In order to qualify as a cpTLD one really needs to develop a registration policies, rationale, and governance model that has broad buy-in that can be evidenced to ICANN.

    Doing this privately is likely to compromise any such effort, necessitating a public face prior to application.

    This could create the risk of ‘cuckoo’ applicants, but that’s really only going to apply to bids that are not firmly committed to the cpTLD qualification, including the extended evaluation, dispute resolution and intensive pre-application work required as part of the qualification.

    ICANN has sensibly created a model that strongly discourages bluffing a cpTLD. Indeed, if no one else applies, ICANN automatically designates you a cpTLD if you denoted your application as such.

    If you haven’t engaged a community but are claiming to in your application, you could probably expect the community in question to engage with ICANN via your registry contract pretty directly.

    The only solution to ‘cuckoo-risk’ is really, don’t bluff.

    • JC says:

      In the .hybrid example, it also seems to me that Ford would not have an incentive to even apply for .hybrid on two grounds:

      1) If they applied for .hybrid as a “standard” application, Ford would need to open up domain registrations to anyone, including competitors. In essence, .hybrid is a new .com, .org. Does Ford really want to be an operating a publicly available registry for .hybrid? (Maybe if they can’t sell cars, they can make up the losses by selling domains?)

      2) For a community application, Ford could restrict who it would allow to have domains under .hybrid, but the success of Ford getting .hybrid as a community gTLD is limited because they don’t represent the hybrid community as a whole. In looking at the requirements for community applications:

      “An applicant for a community-based gTLD is
      expected to:
      1. Demonstrate an ongoing relationship with a clearly
      delineated community.”

      Ford does have a hybrid customers, but do they really “represent” the hybrid community as a whole? Do they and will/can they represent other hybrid car makers?

      “2. Have applied for a gTLD string strongly and specifically
      related to the community named in the application.”

      .hyrbrid is applicable to the hybrid community. So ok here? This is as opposed to Ford attempting by buy .axles for the hybrid community.

      “3. Have proposed dedicated registration and use policies
      for registrants in its proposed gTLD, including
      appropriate security verification procedures,
      commensurate with the community-based purpose it
      has named.”

      Assume Ford would set up the registry for the specific benefit and use of the hybrid community. Any stumbling blocks for them?

      “4. Have its application endorsed in writing by one or more
      established institutions representing the community it
      has named. ”

      Big problem here? Isn’t this the real killer? What “established institutions” in the “community,” besides Ford itself would actively endorse Ford to control .hybrid? If Ford went to some hybrid car manufacturers association for endorsement, how eager would the association be to be grant it, or wouldn’t they alert their membership (e.g. Toyota, Honda, etc.)

      Am I correct then that, given the above application analysis and JM’s comments, an entity who does not represent the community in question has both a disincentive to apply and a low likelihood of success for a non-brand gTLD? (i.e.) Won’t the battle for industry- or market-based gTLDs really be among those who feel they represent their, “community.” E.g. .parks …does it go to the US Department of the Interior, Canada’s nat’l parks department, a state parks department or some association?

      • Mike says:

        What is forcing Ford to open .hybrid to any registrant? In this example, Ford can set their own registration policies and sell domain names to whomever they designate meets those policies.

  4. Tom G says:

    Industry or market based gTLDs battles will ultimately be determined by auction. The threshold for community evaluation is very high, few will qualify and most of those will be geos and very well defined cultures.

    .hybrid doesn’t even come close, highest bidder wins.
    Or, they make a deal ;)

  5. I am trying to wrap my head around the example of .horse being realistic.

    Even a crazy businessman with disruptive model like you describe would not toss that much capital investment into something where there was not a clear ROI if the other applicant withdrew.

    Many/most of the really niche TLD applications are going to be community based, and the community application wins out over a generic one.

    That would lead me to conclude that someone doing risk capital to get bought out would not go to the effort of getting community support to really qualify for a position that would be disruptive.

    AND community conflict strings may have the opportunity to join up.

    Not saying you are wrong about there being some disruptive applications, just saying the community examples have a reasonable shelter built into them to dis-incentive such behavior.

    • Kevin Murphy says:

      I was of course using .horse as a deliberately unrealistic example, largely because I’ve heard so many people mocking it recently.

  6. enoss says:

    the important point is not that some individual allocations will not be fair, but that auctions are “more fair”.

    the namespace is a public good. auctions ensure that the process captures the greatest amount of the value (excess economic rent; http://en.wikipedia.org/wiki/Economic_rent) for the public good.

    auctions clearly do that.

    of course we then must move to issue of how ICANN deals with this surplus but that MUST be separated from the allocation process itself.

    the other issue is that “beauty contests” (non-economic allocations) are likely to create as many “inequitable” allocations as auctions.

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