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Cruz-Duffy bill would put brakes on IANA transition

Kevin Murphy, June 9, 2016, Domain Policy

America’s continuing unique oversight role in the DNS root management system, fuck yeah!

That’s basically the takeaway from a new bit of proposed US legislation, put forward by Sen. Ted Cruz and Rep. Sean Duffy in both houses of Congress yesterday.

The two Republican Congressmen have proposed the inappropriately named Protecting Internet Freedom Act, which is specifically designed to scupper the IANA transition at the eleventh hour.

PIFA would prevent the National Telecommunications and Information Administration from backing away from its role in the DNS root management triumvirate.

It’s supported, ironically, by a bunch of small-government right-wing think tanks and lobby groups.

If the bill is enacted, NTIA would need a further act of Congress in order to cancel or allow to expire its current IANA functions contract with ICANN

The bill (pdf) reads:

The Assistant Secretary of Commerce for Communications and Information may not allow the responsibility of the National Telecommunications and Information Administration with respect to the Internet domain name system functions, including responsibility with respect to the authoritative root zone file and the performance of the Internet Assigned Numbers Authority functions, to terminate, lapse, expire, be cancelled, or otherwise cease to be in effect unless a Federal statute enacted after the date of enactment of this Act expressly grants the Assistant Secretary such authority.

The bill also seeks to ensure that the US government has “sole ownership” of the .gov and .mil TLDs “in perpetuity”.

These ownership rights are not and have never been in question; the inclusion of this language in the bill looks like a cheap attempt to stir up Congresspeople’s basest jingoistic tendencies.

A Cruz press release said the IANA transition “will allow over 160 foreign governments to have increased influence over the management and operation of the Internet.”

Duffy added:

President Obama wants to hand over the keys to the Internet to countries like China and Russia. This is reckless and absurd. The governments of these countries do not value free speech. In fact, they censor the Internet and routinely repress and punish political dissidents. They cannot be trusted with something as fundamental to free speech as a free and open Internet.

It’s unfiltered scaremongering.

No country — not China, Russia, the US nor any other government — gets increased powers under the IANA transition proposal, which was painstakingly crafted by, and is now supported by, pretty much all community stakeholders over two years.

In fact, governmental power is significantly curtailed under the proposal.

Post-transition, the Governmental Advisory Committee’s current voting practice, which essentially requires unanimity, would be enshrined in ICANN’s bylaws.

If the GAC came to ICANN with advice that did not have consensus — that is, some governments formally objected to it — ICANN would be able to reject it much more easily than it can today.

The one area where the GAC does get a new role is in the so-called “Empowered Community”, a new concept that will enter the ICANN bylaws post-transition.

The Empowered Community would be a non-profit legal entity formed by the ICANN community in the exceptional event that the ICANN board goes rogue and starts doing really egregious stuff that nobody wants — for example, introducing Draconian policy regulating freedom of speech.

The EC would have the power to kick out the ICANN board members of its choice, reject the ICANN budget, throw out proposed bylaws amendments and so on. As far as ICANN is concerned, the EC would be God.

Its members, or “Decisional Participants” would be the GNSO, the ccNSO, the ALAC, the ASO and the GAC.

The fact that the GAC has a seat at the EC table is the straw that Cruz, Duffy and co grasp at when they talk about governments getting increased power in a post-transition ICANN.

But the GAC’s voice is equal to those of the other four participants, and the GAC is not allowed a vote on matters stemming from ICANN’s implementation of consensus GAC advice.

In other words, the only way Cruz’s boogeymen governments would ever get to push through a censorship policy would be if that policy was also supported by all the other governments or by the majority of the diverse, multi-stakeholder ICANN community.

The arguments of Cruz and Duffy are red herrings, in other words.

Not only that, but the US record on attempted censorship of the DNS root is hardly exemplary.

While it’s generally been quietly hands-off for the majority of the time ICANN has had its hand on the rudder, there was a notable exception.

The Bush-era NTIA, following a letter-writing campaign by the religious right — Bible-thumping Cruz’s base — exerted pressure on ICANN to reject the proposed porn-only .xxx gTLD.

So who’s the real threat here, Red China or Ted Cruz, the man who tried to ban the sale of dildos in Texas?

The Protecting Internet Freedom Act is obviously still just a bill, but Republicans still control both houses of Congress so it’s not impossible that the tens of thousands of hours the ICANN community has put into the IANA transition could be sacrificed on the altar of embarrassing the President, who is probably Kenyan anyway.

China conference leads to 49% .vip spike

The Global Domain Industry Conference, held in China over the weekend, has led to a huge boost in .vip domain sales.

Registry Minds + Machines told the markets this morning that the recently launched gTLD hit 404,892 as of 1600 UTC yesterday, up 49% from Friday.

CEO Toby Hall confirmed to DI that China is very much behind the spike, and that the conference helped raise the profile of .vip.

Billings and orders have now hit $5.5 million, up from $3.2 million on May 22, M+M said. That number includes sunrise and premium sales.

At GDS, M+M sold eight .vip domains auction for a total of $232,000 before auction commissions, which very likely inspired the spike in base-fee registrations.

Photos of GDS published on social media yesterday show a packed auditorium, with hundreds of attendees.

While M+M makes much of the fact that it has not used a “freenium” strategy for .vip — which it says may lead to better renewal rates than competitors — retail prices are still pretty damn cheap.

At West.cn, its leading Chinese registrar, a .vip can be had today for about $3. It’s closer to $10 at GoDaddy.

Today’s batch of zone files have not yet been published by ICANN for verification, but yesterday there were 245,872 names in .vip.

Verisign has great quarter but sees China growth slowing

Kevin Murphy, April 29, 2016, Domain Registries

Verisign beat its sales expectations in the first quarter of the year, but leadership said rapid growth from Chinese registrants will now “normalize”.

The .com/.net registry last night reported net income up 21% at $107 million, on revenue that was up 9.1% to $282 million.

That’s based primarily on it selling 2.65 million net new .com/.net names during the quarter, at 7.1% increase on the Q1 2014 level baseline. It said it sold 10 million new names in the quarter, up from 8.7 million a year ago.

For comparison, Q1 2015 saw 1.51 million net adds across the two TLDs. Three months ago, the company had predicted net adds to be 1.5 to 2 million names.

It had 142.5 million names at the end of the quarter, 126.6 million of which were .com.

CEO James Bidzos told analysts: “We again saw activity coming from registrars in China that exceeded our expectations.”

However, he added: “At this point, we expect activity from registrars in China to normalize as we continue through the second quarter.”

When pressed, CFO George KIlguss elaborated (according to the SeekingAlpha earnings call transcript):

as we look at the trends, we’ve seen the demand that happened in the second half of the first quarter kind of ebb and flow. So we saw it come. It was pretty strong for a few weeks and then it came back to more than normalized path. So we don’t have a perfect crystal ball, but based on the trends that we’ve seen that we’ve been tracking, it seems to be back on the normalized path for that particular region, at least as what we’ve seen historically.

Verisign is currently negotiating for the renewal of its .com contract with ICANN, which may or may not enable it to raise its government-frozen registry prices in future.

M+M turns $22m profit into $10m loss

Kevin Murphy, April 27, 2016, Domain Registries

Minds + Machines today reported a 2015 loss of $10 million and further outlined its “transformative” restructuring and China strategy.

It’s the second full year of operating results M+M has posted since its first new gTLDs went live, and they’re not encouraging.

Revenue for accounting purposes was $6.3 million, but the cost of sales was $6.2 million, leaving gross profit of just $101,000.

Factoring in $12.1 million of operating expenses, a $7.9 million gain from losing new gTLD auctions, and other expenses, the total loss before tax was $10 million.

That’s compared to the $22 million profit M+M reported for 2014, a number entirely reliant on $33.7 million of auction loss payments.

The company also reported its “billings”, a line item that does not use the accounting method of deferring revenue across the life of a domain and is therefore more in line with incoming cash.

Billings for 2015 were $7.9 million, compared to $5 million in 2014. Gross profit under that measure was $1.7 million, but the $12 million of operating costs still made the company very unprofitable.

Ignoring the auction benefits in 2015, which will not last forever, it’s pretty clear that M+M was a company spending much more operating new gTLDs than it was making from them.

COO/CFO Michael Salazar said in a statement:

However, billings of $7.9 million for the year were simply not of a sufficient scale to cover the associated cost of sales ($6.2 million) and operating expenses ($12.2 million), which combined reached $18.4 million for 2015. Similarly, the $0.6 million savings achieved in the period by the decisions mid-year to stream-line the existing operational set-up were not of a magnitude to have any material impact in the year under review. That said, forfeited cost of sales and operational expenses as a result of the 2015 cost-cutting decisions will amount to $2.7 million in 2016

It’s perhaps little wonder that activist shareholders, apparently not prepared to play the long game, threw out half of the board and key senior executives during the period.

Former PR man Toby Hall took over as CEO in February, replacing co-founder Anthony Van Couvering, and announced earlier this month that M+M is dumping its registrar and back-end registry businesses.

Its registrar customers have been sold to Uniregistry, and it will outsource its registry back-end to Nominet, to save costs.

Salazar said that the two deals will lead to $2 million in savings, but won’t be complete before the fourth quarter. It seems unlikely they’ll have a great impact on 2016 numbers.

Headcount has been reduced from a peak of 61 to 43 at the end of the year, and is expected to drop further to 25. Salazar said this will save it $4.7 million a year.

Even with these cost reductions, M+M will still need to essentially double its revenue in order to hit operating profitability, it seems.

The company is pinning some of its growth hopes on .vip, which it expects to do well in China. It launches May 18.

Hall said in a statement that M+M would not follow the lead of competitors (Famous Four Media springs to mind) by offering first-year registrations for free to build market share. He said:

Based on the enquiries received during Sunrise and feedback gained through our two recent marketing trips to China, it is clear that there is genuine interest in the domain both within and outside of China. As a result, we will not be using a year-one freemium approach to simply inflate year-one registrations. Instead, we intend to be keenly priced to ensure margin to ourselves — and registrations — as well as protect the integrity of the domain. The volume we anticipate to be generated through keen pricing will then support the sales of our premium names in this domain.

The company also plans to invest in its .law sales team, because billings for that gTLD have been behind expectations.

M+M had $34.6 million in the bank and eight outstanding contested new gTLD applications at the end of the year.

ICANN refuses to play Ted Cruz’s game

Kevin Murphy, April 8, 2016, Domain Policy

ICANN has blown off US senator Ted Cruz by declining to answer a bunch of framed questions about its engagement with China.

In a letter (pdf) to Cruz and fellow senators Michael Lee and James Lankford, ICANN chair Steve Crocker testily explains that ICANN has offices and relationships all over the world, given the nature of its mandate.

There’s a suggestion that ICANN’s board resents the “insinuation” that talking to China means it’s ready to be captured by it or implement its censorship policies.

Crocker wrote:

ICANN does not endorse the views of any particular stakeholder, regardless of the organization’s engagement efforts, the composition of its advisory committees, and where it holds its meetings. In this sense, ICANN’s engagement with China as a global Internet stakeholder does not suggest any level of support for the nation’s government or its policies. Similarly, no endorsement of such matters could reasonably be inferred from the operations of the United States’ largest technology firms operating in China, including Cisco, Dell, HP, IBM, Intel, LinkedIn, Microsoft, Qualcomm and Uber. These firms, like ICANN, do not endorse the policies, laws, and regulations of China simply by operating there. As long as the U.S. Government has a policy of engagement with China, U.S. firms operate there without the insinuation that doing so makes them complicit in China’s censorship.

The letter was written in response to a bullet-pointed list of a few dozen question Cruz has posed in letters over the last couple of months.

The Cruz missives were a fairly obvious fishing expedition, with the senators apparently looking for sticks to beat ICANN with in the form of evidence that the organization is too friendly with the dreaded Chinese.

Some on the right wing of American politics seem to see the transition of ICANN/IANA partially away from US government oversight as a wedge issue they can use to show Obama is happily selling the ‘Murican constitution to China.

But Crocker ducks most of Cruz’s questions, preferring instead to present an alternative narrative.

He does not, for example, give answers to simple factual questions related to former CEO Fadi Chehade’s joining as co-chair of a committee of the China-led World Internet Conference.

Instead, he refers Cruz to a previous letter from Chehade, and notes that Chehade is no longer with ICANN.

He does not answer anything related to XYZ.com’s proposals related to selling .xyz domain names in China, which Cruz reckons could be used to censor the people of Hong Kong.

Neither does he confirm that ICANN pays government-affiliated CNNIC for collocated office space in Beijing, which wasn’t disclosed until it came out at a press conference last month.

I imagine Cruz, in receipt of Crocker’s letter, is feeling much the same as I do when an interviewee waffles in response to simple questions.

Pissed off.

I doubt this exchange is over.