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Rival wants the truth about the Afilias-Donuts deal amid “collusion” claims

Kevin Murphy, February 17, 2021, Domain Registries

Portfolio gTLD investor Domain Venture Partners wants ICANN to fully explain its decision to approve Donuts’ acquisition of Afilias, claiming the deal gives the combined company an unfair advantage in the long-running battle for the .hotel gTLD.

DVP has filed a formal Request for Reconsideration with ICANN, tearing it a new one for seemingly going out of its way to avoid its transparency obligations when it came to the December approval of the acquisition.

ICANN’s board of directors had been scheduled to discuss the mega-deal at a special meeting December 17, but instead it carried out these talks off-the-books, in such a way as to avoid bylaws rules requiring it to publish a rationale and meeting minutes.

As I noted recently, it was the second time in 2020 (after the Ethos-PIR deal) the board resorted to this tactic to avoid publicly stating why it was approving or rejecting a large M&A transaction.

DVP notes the contrast with the Ethos-PIR proposal, which endured months of public scrutiny and feedback, adding in its RfR:

Why did the ICANN Board have a Special Meeting on this topic? Why did they not publish or otherwise identify a single background fact or point of discussion from the Special Meeting? Why did they not identify a single source of evidence or advice relied upon in coming to the decision? Why have they refused to provide even the slightest hint as to anything they considered or any reason why they came to their decision? How did they vote, was there any dissent? Nobody knows, because ICANN has kept all that secret.

The company argues that all this secrecy leaves itself and other registries at a loss to predict what might happen should they be involved in future acquisitions, particularly given the allegedly anti-bylaws “discriminatory” treatment between PIR on the one hand and Afilias on the other.

DVP stops short of asking for ICANN to overturn its decision to permit the acquisition — it would be moot anyway, as the deal has already closed — but it does demand that ICANN:

Provide complete, published rationale for the Resolution of Dec. 17, 2020 to essentially approve the Afilias acquisition of Donuts, including identification of all materials relied upon by the Board and/or Staff in evaluating the transaction, publication of all communications between Board, Staff and/or outside advisors relating to the transaction, and publication of all communications regarding the transaction between ICANN on the one hand, and Afilias, Donuts and/or Ethos Capital on the other hand.

Develop, implement, publish and report results of a clear policy as to what registry combination transactions will be approved or rejected, including clearly defined criteria to be assessed — and clearly defined process to assess that criteria – as to each and every future proposed transaction.

It’s interesting that nobody has filed a Documentary Information Disclosure Policy request for this information yet.

But it’s not all just about transparency for DVP. Its big concern appears to be its application for .hotel, which is in one of the few new gTLD contention sets still not resolved almost a decade after the 2012 application round.

DVP is the Gibraltar investment vehicle that controls the 16 new gTLDs that were formerly managed by Famous Four Media and are now managed by GRS Domains (which I believe is owned by PricewaterhouseCoopers). Dot Hotel Limited is one of its application shells.

Donuts is now in possession of two competing .hotel applications — its own, which is for an open, unrestricted space gTLD, and the Afilias-owned HTLD application, which is for a restricted Community-based space.

Back in 2014, HTLD won a Community Evaluation Process, which should have enabled it to skip a potentially expensive auction with its rival bidders and go straight to contracting and delegation.

But its competing applicants, including DVP and Donuts, challenged the CPE’s legitimacy with an Independent Review Process appeal.

To cut a long story short, they lost the IRP but carried on delaying the contention set and came back with a second IRP (this one not including Donuts as a complainant), which involves claims of “hacking”, one year ago.

The contention set is currently frozen, but DVP thinks Donuts owning two applications is a problem:

Donuts now owns or controls both that Community Application, and another pending standard application in the contention set for .hotel. There is no provision in the Applicant Guidebook for applicants to own more than one application for the same gTLD string. It certainly indicates collusion among applicants within a contention set, since two of them are owned by the same master.

DVP is concerned that Donuts may have no intention of honoring those Community commitments, and instead intends to operate an open registry.

DVP wants ICaNN to publish a rationale for why it’s allowing Donuts to own two applications for the same TLD.

It also wants ICANN to either force Donuts to cancel its HTLD application — which would likely lead to a .hotel auction among the remaining applicants, with the winning bid flowing to either ICANN or the losing applicants — or force it to stick to its Community designation commitments after launch, which isn’t really Donuts’ usual business model.

RfRs are usually resolved by ICANN’s lawyers Board Accountability Mechanisms Committee in a matter of weeks, and are rarely successful.

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Coronavirus has made ICANN $11 million richer than predicted so far this year

Kevin Murphy, February 16, 2021, Domain Policy

ICANN made a lot more money and spent a lot less money in the second half of 2020, compared to the predictions made in its current budget.

Funding for the six months from July 1 to December 31 (the first half of ICANN’s fiscal 2021) came in $6 million higher than expected, at $69 million, according to data released by ICANN tonight.

Over the same period, its outgoings came in at $55 million, which was $5 million less than its approved budget had anticipated, leading to a net gain of $11 million.

The reason for the variance appear to be mostly related to the unanticipated positive impacts of the coronavirus pandemic.

Last April, when the FY21 budget was being drafted, ICANN thought the economic impact of the disease would prove a serious blow to the industry that funds it.

But the opposite turned out to be true. ICANN failed to predict that the government-enforced lockdown of large parts of the high street in many countries would see a rush by small bricks-and-mortar businesses to the interwebs.

This boosted domain growth for many companies and led to an increase in ICANN transaction taxes fees, which are paid whenever a domain is registered, renewed or transferred.

ICANN’s revenue was up across all three main segments in H1 FY21, when compared to its budget expectations.

Registry transaction fees were $2 million over budget at $27 million, and registrar transaction fees were also over by $2 million at $18 million. Registry and registrar fixed fees were also up by $1 million each, suggesting fewer companies terminated their contracts than expected.

“Funding higher than Budget driven by higher than planned transaction fees”, an ICANN slide deck (pdf) states.

On the expenses side, ICANN of course spent less cash on its meetings because it wasn’t subsidizing international flights and expensive hotels for 500-odd staff and community members.

“Lower Travel & Meetings due to travel restrictions from the COVID-19 pandemic”, the slide deck states.

Travel expenses, rounded, accounted for 0% or $0 of its H1 expenditure.

When the budget was passed in June last year, ICANN still thought it was possible that the October meeting would go ahead in-person in Hamburg, so it put aside $4.2 million to pay for it.

As it turned out, the Org ended up spending $100,000 on Zoom and other audiovisual services and another $400,000 on translation and interpretation services. And that was all.

The $2.2 million it expected to pay sending staff and community members to Hamburg came in at $0.

ICANN’s adopted budget for FY21 also anticipated the March 2021 meeting would go ahead in Cancun, Mexico, but that’s already been rescheduled for Zoom, which will save it a few million more bucks this year.

The Org hasn’t yet officially relocated its planned June 2021 in-person meeting from The Hague to Zoom, but I’m fairly confident it’s going to have to.

Its $12.2 million travel budget for FY21 is probably going to come in much closer to $2 million.

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Lockdown bump sees GoDaddy double customer gains in 2020

Kevin Murphy, February 16, 2021, Domain Registrars

GoDaddy almost doubled its rate of customer acquisition in 2020, compared to 2019, as pandemic-related lockdown measures pushed more small businesses online.

The company last week reported that it added 1.4 million customers last year, a 7% year-on-year growth but almost double the number it added the previous year.

It ended the year with 20.6 million customers, up from 19.3 million 12 months prior.

Recognizing that coronavirus restrictions in various parts of the world were increasing demand for domains, hosting and related services, the market-leading registrar upped its marketing spend to make sure it captured as many customers as possible.

It spent $438.5 million on marketing last year, up from $345.6 million in 2019.

Its full-year revenue from domains grew from $1.35 billion to $1,51 billion. Including its other segments, company revenue was up to $3.31 billion from $2.98 billion, an 11% increase.

Domains revenue for the fourth quarter was $402.2 million, up 14.2% on Q4 2019. Total revenue for the quarter was $873.9 million, up 12.0%.

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Brit .eu owners get another three-month stay of execution

Kevin Murphy, February 16, 2021, Domain Registries

EURid, the .eu registry, has given UK-based registrants another three months to reclaim their suspended .eu domains.

The transition period governing Brexit ended with 2020, and with it UK citizens’ right to own a .eu domain. The registry suspended 80,000 names as a result.

These domains were due to be deleted at the end of March and released for re-registration by eligible registrants next year.

But EURid has now extended that deadline to the end of June.

Anecdotally, the New Year purge caused a flood of customer support inquiries at registrars, as registrants who somehow missed EURid’s repeated warnings tried to figure out why their domains no longer resolved.

Registrants can keep a hold of their domains if they move them to a registrant with an EU address, or if they declare themselves an EU citizen living in the UK.

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Verisign upgrades its cash-printing machine but warns post-pandemic “could go either way”

Kevin Murphy, February 16, 2021, Domain Registries

Verisign has named the date for its long-anticipated .com prices increases, as it reported another healthy quarter and year of growth.

The company announced that the annual wholesale fee for a .com domain is going up from $7.85 to $8.39, effective September 1. That’s in line with the 7% annual cap reinstated by the Trump administration and rubber-stamped by ICANN.

It’s the first .com price increase since 2012, when reg fee was frozen by the Obama administration’s Department of Commerce under its longstanding contract with the company.

The $0.54 price increase would mean an extra $82.5 million for Verisign’s top line, assuming the .com base remains static at today’s level of 152,883,064 domains. The reality is very probably that registrations will continue to grow, however.

Verisign is allowed to increase prices by 7% three more times under its current ICANN contract. It was allowed to take the Trump bump last year but deferred due to the coronavirus pandemic.

Registrants are able to lock-in their current renewal rates for up to 10 years before the price rise kicks in, assuming registrar fees don’t increase in the meantime.

.com is of course a fabulously successful business, and it received a pandemic-related boost last year, due to a increase in small businesses moving online due to lockdown rules, which was reflected in Verisign’s fourth-quarter and full-year results.

Verisign reported fourth-quarter net income up from $148 million to $157 million, on revenue that was up 3.1% to $320 million.

For the full year, net income was up from $612 million million to $815 million, on revenue that was up 2.7% at $1.23 billion.

Operating margin is always an metric where Verisign shines — I often get phone calls from analysts baffled as to why ICANN allows such blatant profit-taking — but it was down a tad to 65.2%, from 65.5% in 2019.

That’s probably not enough to dislodge its crown as the company with the highest operating margin of the S&P 500.

Speaking to analysts and investors last week, Verisign said it’s projecting 2021 operating margin down again, to be between 64% and 65%, because of increased investment in its infrastructure and the $4 million annual bung it’s agreed to pay ICANN.

While Verisign is only going to see one quarter of higher prices this year, it seems the majority of its increased revenue will trickle down to the bottom line.

The company expects its domain growth to be between 2.5% and 4.5% in 2021. Execs noted continuing pandemic-related uncertainty. CFO George Kilguss said:

when the pandemic subsides and things start opening it up, I think it could probably go either way either it could accelerate or it could slow a little bit. We’re just not sure how the market would react just as we were somewhat uncertain when this whole pandemic started

In other words, while coronavirus proved an unexpected boon, post-pandemic economic recovery may not necessarily be a good thing for the industry.

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Nominet declares member coup “invalid”

Kevin Murphy, February 16, 2021, Domain Registries

Nominet has stared fighting back against a plot by some of its members to kick out the CEO, chair and three other directors, declaring part of the plan “invalid”.

The PublicBenefit.uk campaign, which currently has the backing of over 17% of members’ voting rights, wants to replace these five directors with two of its own choosing: former BBC Trust chair Sir Michael Lyons and former RIPE NCC managing director Axel Pawlik.

Nominet confirmed yesterday that it will shortly call the demanded Extraordinary General Meeting, as required by its bylaws, and that the resolution calling for the board cull will be voted on.

But it said it cannot allow the second resolution, which would bring in the two new directors, to go ahead. Chair Mark Wood wrote that such a move would be illegal under Nominet’s own rules on director selection:

we have unequivocal advice that the second resolution, seeking to designate Sir Michael Lyons and Axel Pawlik as Directors is invalid and cannot be put before members. We have reviewed this carefully with our legal advisors, and independent counsel, who have all advised us that this is the case. This is because Members may appoint directors only through the elections process specified by our constitution, articles and bylaws, and the maximum number of member-elected Board seats are already filled.

Wood goes on to say that to remove so many key directors and leave their seats empty would be a further destabilizing factor on the company, which runs the .uk registry.

The risk of leaving Nominet rudderless has been a key theme of the company’s response to PublicBenefit.uk since its petition first emerged last month. Nominet wants the EGM request withdrawn.

The campaign, which is fronted by Simon Blackler of Krystal Hosting, tweeted in response:

We sought legal advice before we started and believe both resolutions are valid.

If you’re truly worried about stability resign and appoint the Directors the members want?

The campaign wants a clean slate on the board in order to have Nominet reduce its wholesale prices, rein in its efforts at product diversification, and start returning more of its profits to public benefit causes.

Wood last week committed to pay £4 million to such causes in the first half of this year, double its 2020 contribution and a return to 2016 levels.

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Public comments open on new Whois policies

Kevin Murphy, February 11, 2021, Domain Policy

It’s your last chance to comment on ICANN’s proposed revisions to Whois policy.

ICANN has opened up public comments on what it opaquely calls EPDP Phase 2 Policy Recommendations for Board Consideration.

Why it just can’t use the term “Whois access”, or announce its public comment periods in layman’s terms is beyond me. Doesn’t it want public comments? Still, translating this nonsense into English keeps me in work, so I guess I won’t complain too hard.

The main feature of the proposed policy is a multi-tiered, somewhat centralized system for requesting access to Whois data about private registrants that has been redacted since the EU’s General Data Protection Regulation came into effect in May 2018.

It’s called SSAD, for System for Standardized Access and Disclosure, which was pieced together by a working group of community volunteers over a year.

Domain companies are generally okay with the compromise it represents, but intellectual property interests and others who would actually use the system think it’s a useless waste of money.

It’s expected to cost $9 million to build and $9 million a year to run.

There’s so much uncertainty about the system that in parallel with the public comments ICANN is also consulting with the GNSO Council, which approved the proposals in September, to figure out whether it’s even workable, and with the European Commission to figure out if it’s even legal.

After the public comment period closes on March 30, the comments will be compiled by ICANN staff and burned on a big fire sent to the ICANN board for final approval.

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ICANN CEO gets 5% pay rise

Kevin Murphy, February 11, 2021, Domain Policy

ICANN’s board of directors has awarded CEO Göran Marby a 5% pay rise after a review found that he’s being paid less than half of his peers at other companies.

Based on Marby’s last-reported base salary of $673,461, the increase amounts to a bump of $33,673.

He’s also still eligible for a 30% annual bonus, which he usually gets a piece of.

The board justified the move by stating that a third-party review found Marby’s salary was below 50% of CEOs at other non-profits, general industry and high-tech companies. Using for-profit companies in the mix sometimes proves controversial.

The board said that he’s only received one pay raise before in the five years he’s been on the job — a 3% increase in 2019.

His new pay comes into effect in July.

ICANN says its “compensation philosophy is to pay base salaries within a range of the 50th to 75th percentile of the market for a particular position.”

It says that even with the new raise, Marby’s pay still comes in outside of the lower end of that window.

Marby’s contract was recently extended by two years to 2024, over the objections of two directors.

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Security firm sues Facebook to overturn UDRP loss of “good faith” typo domains

Kevin Murphy, February 11, 2021, Domain Services

Security company Proofpoint has sued Facebook in order to keep hold of several typo domains that are deliberately intended to look like its Facebook and Instagram brands.

Proofpoint wants an Arizona court to declare that facbook-login.com, facbook-login.net, instagrarn.ai, instagrarn.net and instagrarn.org are not cases of cybersquatting because they were not registered in bad faith.

Proofpoint — a $7 billion company that certainly does not phish — uses the domains in anti-phishing employee training services, as it describes in its complaint:

Proofpoint uses intentionally domain names that look like typo-squatted versions of recognizable domain names, such as , and the other Domain Names at issue in these proceedings.

By using domain names similar to those of well-known companies, Proofpoint is able to execute a more effective training program because the workforce is more likely to learn to distinguish typo-squatted domains, which are commonly abused by bad actors to trick workers, from legitimate domain names.

Employees who click the bogus links are taken to harmless web pages describing how they were duped.

The court case comes shortly after Facebook prevailed in a UDRP case filed with WIPO.

In that case, the panelist decided that Proofpoint had no legitimate interest in the domains because they led to web sites that linked to Proofpoint’s web site, where commercial services are offered.

He therefore found that the names had been registered in bad faith, because visitors could assume that Facebook or Instagram in some way endorsed these services.

Proofpoint wants the court to reverse that decision and allow it to keep the names. Here’s the complaint (pdf).

It strikes me as at the very least bad form for Facebook to go after these domains, given that Proofpoint is tackling the Facebook phishing problem at source — user idiocy — rather than the reactive, interminable UDRP whack-a-mole Facebook seems to be engaging in.

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Registrar giant created as Web.com merged with Endurance

Kevin Murphy, February 11, 2021, Domain Registrars

Clearlake Capital Group, which has taken Endurance International private and recently took a big stake in Web.com, has merged the two registrar stables to create a new company it’s calling Newfold Digital.

By my reckoning, Newfold has probably become the second-largest registrar group by domains under management, with around 16.5 million gTLD names across just its best-known half-dozen brands, leapfrogging Namecheap and Tucows in the registrar league table.

That number’s probably a big understatement. It doesn’t capture ccTLDs and does not take into account that the company now has hundreds of active ICANN accredited registrars, largely due to Web.com’s drop-catching business.

Its best-known registrar brands are Register.com, Network Solutions, Domain.com, BuyDomains, BigRock, PublicDomainRegistry and CrazyDomains. Its BlueHost and HostGator brands are both pretty big deals in web hosting.

Clearlake says Newfold has 6.7 million customers worldwide.

The privatization of Endurance, which sees it delisted from the Nasdaq stock exchange, was announced in November and cost Clearlake $3 billion. The value of its Web.com stake, which it acquired last month, was not disclosed.

Siris Capital, which bought Web.com in 2018, continues to have a stake.

Newfold will be led by two Web.com execs — CEO Sharon Rowlands and CFO Christina Clohecy.

The deal follows Web.com’s unsuccessful attempt to buy Webcentral last year.

There’s no word on (presumably inevitable) layoffs as the two companies come together.

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