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Another reason why Go Daddy might not become a registry

Kevin Murphy, November 14, 2010, Domain Registrars

Domain name registries and registrars will soon be able to own each other, but there are plenty of good reasons why many of them, including the largest, may not.

George Kirikos and Mike Berkens are asking very interesting questions today, based on earlier investigative reporting by DomainNameWire, about whether Go Daddy would or should be barred from owning a registry on cybersquatting grounds.

But that’s not the only reason why Go Daddy may have problems applying for a new top-level domain.

I reported back in March, when only my mother was reading this blog, that Go Daddy may have gotten too big to be allowed into the registry market.

If you think Go Daddy wants to apply to ICANN to manage a new TLD registry or two, ask yourself: why did Go Daddy spend most of the year opposing vertical integration?

I have no inside knowledge into this, but I have a theory.

In 2008, CRA International produced an economic study for ICANN that, broadly speaking, recommended the relaxation of the rules separating registries and registrars.

In December that year, less than two years ago, Go Daddy filed its very much pro-VI comments on the study:

Go Daddy has and continues to be an advocate for eliminating the existing limits on registry/registrar cross-ownership.

The arguments that have been presented in favor of maintaining the status quo simply do not hold water. Current and past examples of cross-ownership already serve as test cases that demonstrate cross-ownership can and does work, and it can be successfully monitored.

Over the course of the next 12 months, the company’s official position on VI mellowed, and by this year it had made a 180-degree turn on the issue.

Its comments to the VI working group, filed in April 2010, say:

Go Daddy’s position on the vertical integration (VI) issue has changed over time. When VI discussions first began our position was very much to the left (if left is full, unqualified VI), but it has moved steadily to the right (if right is maintaining the so-called status quo). At this point, we are nearly fully on the right.

The company cited concerns about security, stability and consumer protection as the reasons for its shift. While I’ve no doubt that’s part of the story, I doubt it paints a full picture.

The decision may also have something to do with another economic study, produced for ICANN in February this year, this time by economics experts Steven Salop and Joshua Wright. It was published in March.

This study, crucially I think, suggested that where cross-ownership was to take place and the larger of the two companies had market power, that the deal should be referred to government competition regulators. Salop & Wright said:

We recommend that ICANN choose a market share threshold in the 40-60% range (the market share measured would be that of the acquiring company). The lower end is the market share at which U.S. competition authorities begin to be concerned about market power.

Guess which is the only registrar that falls into this market share window?

In January this year, Go Daddy put out a press release, when it registered its 40 millionth domain, which claimed:

Go Daddy now holds a near 50 percent market share of all active new domains registered in the world and is more than three times the size of its closest competitor.

Correlation does not equal causation, of course, so there’s no reason the second economic study and Go Daddy’s policy U-turn are necessarily linked, but I’d be surprised if the market power issue did not play a role.

The newly published Applicant Guidebook appears to have taken on board a key Salop & Wright recommendation, one that may be relevant:

ICANN-accredited registrars are eligible to apply for a gTLD… ICANN reserves the right to refer any application to the appropriate competition authority relative to any cross-ownership issues.

It seems to me that Go Daddy may be one of the few companies such a provision applies to. The company may find it has a harder time applying to become a registry than its competitors.

In the interests of sanity, I should point of that the AGB has been out for less than 48 hours, and that anything written about its possible consequences at this point is pure speculation.

DirectNIC chief tries to dismiss cybersquatting suit

Kevin Murphy, November 11, 2010, Domain Registrars

The CEO of DirectNIC is trying to wriggle out of a cybersquatting lawsuit filed by Verizon, seemingly on the grounds that the telco has been unable to track him down.

Sigmund Solares heads up the Grand Cayman-based registrar and lives in Florida, but since suing DirectNIC back in March, Verizon has not been able to find him to serve him notice.

Now, his lawyers are arguing on a technicality that the suit against him should be dismissed (pdf).

Verizon claims that DirectNIC and its directors, via a bunch of shell companies, cybersquatted “nearly every single famous trademark in existence”, including some of Verizon’s.

It filed an amended complaint (pdf) a month ago. Due to its inability to track down Solares, it served the Florida Secretary of State instead, which it’s allowed to do if the defendant evades service.

Verizon has filed a number of declarations from process servers who were unable to serve him, despite staking out his Tampa home on at least 10 occasions over the space of several months.

Solares’ lawyers now want the complaint against him dismissed on the grounds that he’s not been served, and that he was not evading service, he was just away on business and vacation:

no where in the Plaintiffs’ affidavits do the Plaintiffs allege any actions whatsoever on the part of Mr. Solares. The Plaintiffs’ complaint and affidavits merely recount their efforts to serve Mr. Solares. Such allegations cannot clearly show that Mr. Solares is evading process because they allege no actions on his part at all. Plaintiffs’ assertions only show Mr. Solares’ absence from Tampa during the periods when the Plaintiffs attempted to effect service of process.

In response, Solares has filed a fairly detailed account (pdf) of his whereabouts between March and September, which included trips to Milan, Miami, Aruba, Ireland and Boston.

Some of the dates and locations coincide with big domainer conferences.

Verizon’s complaint attacks DirectNIC on essentially two fronts.

It claims that DirectNIC’s practice of parking expiring domains – including those that infringe trademarks – constitutes cybersquatting. This is of course a fairly common industry practice.

It also claims that DirectNIC itself cybersquatted on thousands of domains via a number of shell companies, including NOLDC, Spiral Matrix, Kenyatech, Kentech, Speedy Web, Unused Domains, and Belize Domain WHOIS Service.

There’s a fair bit of circumstantial evidence connecting the firms, and UDRP panelists have previously inferred that they shared ownership, but I don’t think it’s ever been definitively proved.

I reported on this evidence in a bit more depth here.

It’s possible that more evidence could emerge during discovery, but the suit cannot proceed to that stage while the court is still figuring out whether Solares has been served or not.

Dell previously sued DirectNIC on the same grounds. Solares signed an affadavit denying he had anything to do with Kenyatech. That suit was settled.

WordPress.com becomes a domain name registrar

Kevin Murphy, October 19, 2010, Domain Registrars

Automattic, the company behind the WordPress.com blogging service, appears to have been granted an ICANN registrar accreditation, which would allow it to start selling domain names direct to its users.

The development seems to put a question mark next to the company’s reseller relationship with Go Daddy subsidiaries Wild West Domains and Domains By Proxy.

Currently, WordPress.com allows users to buy domain names and map them to their wordpress.com blog directly through their blog’s interface. The company charges $17 a year, with optional privacy.

It’s my understanding that the company currently acts as a Wild West Domains reseller, with the privacy protection service offered by Domains By Proxy. Both are Go Daddy companies.

Recently, WordPress.com started offering an Offsite Redirect service, enabling users to bounce visitors to example.wordpress.com to example.com after they’ve switched hosts.

Go Daddy used this as an opportunity to encourage WordPress.com users to migrate to its own hosting service in this blog post.

Automattic showed up on ICANN’s list of accredited registrars IDs yesterday, suggesting that it will not be long before it is also on the official list of accredited registrars.

Go Daddy files for business community patents

Kevin Murphy, October 14, 2010, Domain Registrars

Go Daddy has applied for three US patents covering an “Online Business Community” that looks a bit like a social network for small businesses.

The patents describe a web site that enables companies and potential customers to interact through forums, community groups and ratings systems, as well as advertising, buying and selling.

In the applications, Go Daddy says it had noticed that:

presently-existing methods of conducting online business, however, do not permit businesses and potential customers alike to interact in one place to share business-related resources; advertise, buy, and sell goods and services; interact; hold discussions; and network.

The patents, if granted, would cover such a service.

While most or all of the features outlined in the applications can be found individually in other Go Daddy products, I don’t think the company currently has a service that combines them all in the way described by the patents. Go Daddy Marketplace probably comes closest.

The applications appear to cover the creation of ad hoc business communities, for example, as well as the formation of “partnerships” between members such as suppliers and customers.

They also appear to account for communication between members using technologies such as instant messaging or voice over IP, and for members to rate each other for trustworthiness.

The three applications, 20100262686, 20100262629 and 20100262502, were filed in June and published today.

Demand Media to invest up to $75m in content

Kevin Murphy, October 12, 2010, Domain Registrars

Demand Media plans to invest between $50 million and $75 million in content in 2011, according to the company’s latest IPO filing.

The company, which owns number two registrar eNom, has also disclosed that it plans to list itself on the New York Stock Exchange under the ticker symbol DMD.

Under “Use of Proceeds” in its latest amended S-1 registration form (huge HTML file), filed today with the Securities and Exchange Commission, Demand says:

We currently anticipate that our aggregate investments in content during the year ending December 31, 2011 will range from $50 million to $75 million.

Demand Media’s main business is the advertising it sells against the thousands of freelance articles it publishes every day. It had about $102 million in current assets on its balance sheet on June 30 this year.

Previous text talking about about using the proceeds of the IPO to “acquire or invest in complementary technologies, solutions or businesses” has been dropped.

The amended S-1 spends quite a lot of time talking about a reverse stock split that it is carrying out prior to its public offering.