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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.

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Go Daddy’s .co promo is a test

Kevin Murphy, November 14, 2010, Domain Registries

Go Daddy is was “testing” the .co top-level domain as its default extension, .CO Internet has revealed.

It’s been widely reported over the weekend that .co is now the first TLD in the drop-down menu on Go Daddy’s front page, but it looks like the news might not be as shocking as originally thought.

.CO Internet chief executive Juan Diego Calle has just blogged:

The GoDaddy test is exciting. Permanent? Not yet. While we have a great and expanding relationship with GoDaddy, we do not expect .CO to remain as the default TLD on a permanent basis. In fact this is only a test to measure conversions, customer feedback, and much more.

Still, onwards and upwards. It’s certainly good news for the marketing of the Colombian TLD.

Personally, I’d be interested not only in data on conversions but also on refunds. There’s bound to be the odd customer who blindly registers a nice-looking domain thinking it’s a .com, right?

UPDATE: Go Daddy is now showing me (and others) .com as the default TLD once more. I guess the data is in.

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Could vertical integration kill registrar parking?

Kevin Murphy, November 14, 2010, Domain Registries

Will ICANN’s decision to allow registrars and registries to own each other help reduce the practice of registrars parking unused or expiring domain names?

A reading of the new top-level domain Applicant Guidebook in light of the recent “vertical integration” ruling it incorporates certainly raises this kind of question.

The AGB includes a policy called the Trademark Post-Delegation Dispute Resolution Procedure, or PDDRP, which allows trademark owners to seek remedies against cybersquatting registries.

The policy is quite clear that registries cannot be held accountable for cybersquatting by third parties in their TLD, unless they have, for example, actively encouraged the squatters.

But another example of infringement is given thus:

where a registry operator has a pattern or practice of acting as the registrant or beneficial user of infringing registrations, to monetize and profit in bad faith.

Now, this wouldn’t be a cause for concern in the current vertically separated market.

Most registries are only generally able to register domain names in their own TLD by going through an accredited registrar. Proving bad faith intent in that situation would be trivial.

But what of an integrated registry/registrar that also automatically parks recently registered or expiring domains in order to profit from pay-per-click advertising?

This is common practice nowadays. It’s been used to prove a registrant’s bad faith during many recent UDRP proceedings and one registrar is even being sued by Verizon for doing it.

Would a registrar parking an expired, trademark-infringing domain constitute it acting as a “beneficial user” of the domain “to monetize and profit in bad faith”?

Text added to the PDDRP section of the AGB in its most recent revision strongly suggests that “the registrar did it” would not be a defence for a vertically integrated company:

For purposes of these standards, “registry operator” shall include entities directly or indirectly controlling, controlled by or under common control with a registry operator

The PDDRP allows complainants to seek remedies such as injunctions, as well as the suspension of new registrations in a TLD and, exceptionally, the full revocation of their registry contract.

With that in mind, would an integrated registry/registrar want to risk any practice that puts their TLD at risk?

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What does ICANN say about terrorism?

Kevin Murphy, November 14, 2010, Domain Registries

While it’s true that ICANN has excised specific references to terrorism from its new top-level domain Applicant Guidebook, don’t expect any such groups to be awarded TLDs.

As I reported in September, the AGB no longer contains the explicit mention of “terrorism”, which had caused complaints to be filed by a few members of the community.

But it does contain text that makes it abundantly clear that any group or nation the US considers a supporter of terrorism will have an extremely hard time finding approval.

Under a new section entitled “Legal Compliance”, ICANN notes that it “must comply with all U.S. Laws, rules, and regulations” including the sanctions program overseen by the US Office of Foreign Assets Control.

OFAC administers a List of Specially Designated Nationals and Blocked Persons. If you’re on the SDN list, American companies cannot do business with you without a license.

While ICANN has applied for exemption licenses in the past, in order to be able to deal with organizations in US-unfriendly nations (on ccTLD matters, presumably), the AGB now states:

ICANN generally will not seek a license to provide goods or services to an individual or entity on the SDN List. In the past, when ICANN has been requested to provide services to individuals or entities that are not SDNs, but are residents of sanctioned countries, ICANN has sought and been granted licenses as required. In any given case, however, OFAC could decide not to issue a requested license.

If you’ve never seen this list before, it can be downloaded here. It’s currently 475 pages long, and while it’s certainly a globally inclusive document, parts of it do read like the Baghdad phone book.

(Interestingly, many of the listed a.k.a’s are actually domain names)

Anybody who wanted ICANN to replace the amorphous term “terrorism” with something a little more specific have had their wishes granted.

No more hypothetical debate is required about whether Hamas, for example, is a terrorist group or a movement of freedom fighters. It’s in the book, so it’s probably not getting a TLD.

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ICANN’s new TLD rulebook is out

Kevin Murphy, November 13, 2010, Domain Registries

ICANN posted its proposed final Applicant Guidebook for new top-level domains a couple hours ago.

The document is now subject to public comment until noon UTC, December 10, just before the ICANN board convenes in Cartagena.

As I speculated earlier in the week, ICANN has reduced the length of the feedback window from 30 days in order to hit its launch deadlines.

Here’s a review of some changes, based on a quick scan of the 360-page redlined document (pdf).

One change that will certainly be of interest of applicants:

If the volume of applications received significantly exceeds 500, applications will be processed in batches and the 5-month timeline will not be met. The first batch will be limited to 500 applications and subsequent batches will be limited to 400 to account for capacity limitations due to managing extended evaluation, string contention, and other processes associated with each previous batch.

A process external to the application submission process will be employed to establish evaluation priority. This process will be based on an online ticketing system or other objective criteria.

Does this mean “get your applications in early” is a winning strategy? I’ll try to find out.

One of the most sensitive outstanding issues, the right of governments to object to TLDs on “morality and public order” grounds, is now called a “Limited Public Interest Objection”:

Governments may provide a notification using the public comment forum to communicate concerns relating to national laws. However, a government’s notification of concern will not in itself be deemed to be a formal objection. A notification by a government does not constitute grounds for rejection of a gTLD application.

The AGB now specifies that such objections must be based on principles of international law, as codified in various international agreements. The string, and the proposed usage, will be subject to these objections.

The section on applicant background checks has also been overhauled. It now makes reference to child sex offenses, and focuses more on intellectual property infringements, but eschews references to terrorism.

However, if any group considered Evil by the United States applies for a TLD, they may be out of luck. The new AGB points out that ICANN has to abide by sanctions imposed by the US Office of Foreign Assets Control.

There are a couple of little oddities in the AGB too. For example, strings relating to the contested geographic term “Macedonia” are singled out as verboten.

Intergovernmental organizations that meet the criteria to register a .int are now also granted special objection privileges.

Contested geographical terms will no longer be subject to the auction process — applicants will have to fight it out between themselves.

The vertical integration issue, resolved by the ICANN board last week, also makes an appearance. Registrars are now able to apply for new TLDs, but ICANN reserves the right to refer such applications to governmental competition authorities.

More later.

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