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Domain industry shrank in Q4, but as usual there’s a big BUT

The worldwide domain name count shrank in the fourth quarter, according to newly released Verisign data, but as usual the numbers were hugely impacted by big swings in just a few TLDs.

The latest Domain Name Industry Brief (pdf), which is mainly compiled from zone file counts, shows that 2020 ended with 366.3 million names, down by 4.4 million or 1.2% compared to the end of the third quarter.

It’s the free and almost-free TLDs that swung the math.

Remarkably, industry wild-card .tk actually shrank during the quarter. This is highly unusual, as the registry’s business model is based on giving out names for free, never deleting domains, and monetizing the traffic to expired or suspended names.

It saw domains down by 2.8 million names over the quarter, from 27.5 million to 24.7 million.

Another big dipper was .icu, which sells cheap (usually under $1) and appeals to speculators largely in China.

While it slipped out of the top 10 TLDs, meaning the DNIB no longer breaks out its numbers, DI’s own zone file counts show its zone decline from 5.3 million to 3.4 million during Q4, a 1.9 million decline.

Notably spammy new gTLD .top, which also costs next to nothing and is popular in China, also had a role to play. Its zone count was down by about 900,000 between September 30 and December 31.

Those three TLDs alone account for a loss of 5.6 million names, far more than the 4.4 million industry-wide quarterly drop calculated by Verisign.

The impact of .icu’s continued spiral downwards is likely to be felt in Q1 2021 also. It’s lost another 2.4 million zone file names since the start of the year.

Verisign said the the universe of ccTLD domains contracted by 1.7 million of 1% during the quarter, ending the year with 158.9 million names.

The .tk shrinkage of course more than accounts for this dip. Without it, ccTLDs would be up by 1.1 million names or 1.1%. The major, top-10 ccTLDs mostly showed six-figure growth, the DNIB reflects.

New gTLDs were down 4.2 million names or 13.8% sequentially, ending the quarter with 26 million.

In addition to the aforementioned .top and .icu, this figure appears to have been affected by six-figure losses in some of the highest-volume, lowest-priced new gTLDs, including .club, .site .work and .vip.

In the main legacy gTLDs, Verisign’s own .com grew by 1.5 million names, from 151.8 million to 150.3 million, during the quarter. Its .net was again flat at 13.4 million. Public Interest Registry’s .org gained a (rounded) 100,000 names, ending the year at 10.3 million.

The annual numbers across the industry for 2020 have better optics. The DNIB shows that domain volume was up by 4.0 million or 1.1% year over year.

That breaks down into a 6.3 million increase in .com, a 1.3 million increase across the ccTLDs, and a 3.3 million decrease in new gTLDs, not all of which can be explained away by factoring out .icu and .top.

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.

Verisign drops half a mill on pandemic relief

Kevin Murphy, December 28, 2020, Domain Registries

Verisign has donated over half a million dollars to pandemic-related causes, the company announced last week.

The donations are aimed at relieving economic side-effects of the pandemic such as food poverty and unemployment.

The .com registry operator said in a blog post it has given $275,000 to food banks in Washington DC, Maryland, Virginia, and Delaware where most of its US operations are based, and in Fribourg, Switzerland, its European HQ.

It’s also given $250,000 to Virginia Cares, an initiative dedicated to retraining unemployed Virginians for in-demand jobs in the tech sector.

Verisign was of course an inadvertent beneficiary of the pandemic, as lockdown regimes worldwide led to a boost in domain registrations as businesses such as bars and cafes moved online.

.web ruling might not come this year

Kevin Murphy, October 26, 2020, Domain Registries

A decision about who gets to run the .web gTLD may not arrive until early next year, according to Verisign CEO Jim Bidzos.

“A final decision from the [Independent Review Process[ panel may be issued later this year or early next year,” he told analysts late last week.

.web sold at auction for $135 million four years ago to a company being secretly bankrolled by Verisign, but the outcome is being challenged in the IRP by runner-up bidder Afilias.

Afilias argues that the auction should be voided because ICANN failed to sufficiently investigate links between Verisign and the winning bidder. ICANN denies any wrongdoing.

It’s widely believed that .web is the strongest potential competitor to Verisign’s .com, and its attempt to secure the string is largely defensive.

The IRP case heard several days of testimony in August and the panel retired to consider its decision.

Floodgates, open! Trademark Clearinghouse now supports .com

Kevin Murphy, September 15, 2020, Domain Services

The Trademark Clearinghouse has added .com to the roster of TLDs supported by its infringement notification service.

The Deloitte-managed service recently announced the change to its Ongoing Notification Service, which came into effect late last month.

The update means TMCH subscribers will receive alerts whenever a .com domain is registered that contains their trademark, helping them to decide whether to pursue enforcement actions such as UDRP.

Unlike the ICANN-mandated 90-day Trademark Claims period that accompanies the launch of each new gTLD, the registrant herself does not receive an alert of possible infringement at point of registration.

The service, which is not regulated by ICANN, is still free to companies that have their marks registered in the TMCH, which charges an extra dollar for every variation of a mark the holder wishes to monitor.

Such services have been commercially available from the likes of MarkMonitor for 20 years or more. The TMCH has been offering it for new gTLDs since they started launching at the end of 2013.

With the .com-shaped gaping hole now plugged, two things could happen.

First, clients may find a steep increase in the number of alerts they receive — .com is still the biggest-selling and in volume terms the most-abused TLD.

Second, commercial providers of similar services now find themselves competing against a free rival with an ICANN-enabled captive audience.

The upgrade comes at the tail end of the current wave of the new gTLD program. With the .gay launch out of the way and other desirable open TLDs tied up in litigation, there won’t be much call for TMCH’s core services for the next few years.

It also comes just a couple months after the .com zone file started being published on ICANN’s Centralized Zone Data Service, but I expect that’s just a coincidence.

The $135 million battle for .web could be won in weeks

Afilias is to get its day in “court” to decide the fate of the .web gTLD just 10 days from now.

The registry is due to face off with ICANN before an Independent Review Process panel in a series of virtual hearings beginning August 3.

The IRP complaint was filed late 2018 as the endgame of Afilias’ attempt to have the results of the July 2016 .web auction overturned.

You’ll recall that Verisign secretly bankrolled the winning bidder, a new gTLD investment vehicle called Nu Dot Co, to the tune of $135 million, causing rival bidders to cry foul.

If that win was vacated, Afilias could take control of .web with its second-place bid.

Afilias claims that ICANN broke its own rules by refusing to thoroughly analyze whether NDC had a secret sugar daddy, something DI first reported on two weeks before the auction.

It has put forward the entirely plausible argument that Verisign splashed out what amounts to about a month’s .com revenue on .web in order to bury it and fortify its .com mindshare monopoly against what could be its most formidable competitor.

In the IRP case to date, ICANN has been acting as transparently as you’d expect when its legal team is involved.

It first redacted all the juiciest details from the Verisign-NDC “Domain Acquisition Agreement” and the presumably damaging testimony of one of its own directors, and more recently has been fighting Afilias’ demands for document discovery.

In March, the IRP panel ruled against ICANN’s protests on almost every count, ordering the org to hand over a mountain of documentation detailing its communications with Verisign and NDC and its internal deliberations around the time of the auction.

But the ace up ICANN’s sleeve may be an allegation made by Verisign that Afilias itself is the one that broke the auction’s rules.

Verisign has produced evidence that an Afilias exec contacted his NDC counterpart five days before the auction, breaking a “blackout period” rule so serious that violators could lose their applications.

While Afilias denies the allegation, the IRP panel ruled in March that Afilias must hand over copies of all communications between itself and rival bidders over the auction period.

We’re not likely to see any of this stuff until the panel issues its final declaration, of course.

In the past, IRP panels have taken as long as six or seven months after the final hearing to deliver their verdicts, but the most-recently decided case, Amazon v ICANN, was decided in just eight or nine weeks.

.com renewals lowest in years, but Verisign sees lockdown bump anyway

.com and .net saw decent growth in the lockdown-dominated second quarter, despite Verisign reporting the lowest renewal rate since 2017.

The company last night reported that it sold more new domains in Q2 than it did in the same period last year — 11.1 million versus 10.3 million a year ago.

It added a net 1.41 million names across both TLDs in the quarter, compared to growth of 1.34 in Q2 2019.

CEO Jim Bidzos did not directly credit coronavirus for the bump, but he told analysts that the growth was driven primarily by small businesses in North America getting online. The US went into lockdown in the last week of March.

Verisign has now upped its guidance for the year. It now expects growth in domains of between 2.75% and 4%. That’s higher than the guidance it was giving out at the start of the year, pre-coronavirus.

The company had lowered this guidance to between 2% and 3.75% in April due to coronavirus uncertainties, which with hindsight clearly seems overly cautious.

On the flipside, Verisign’s estimated renewal rate for the quarter was down to only 72.8%, down from 74.2% a year ago, the worst it’s been since Q1 2017, when renewals were suffering through the tail-end of a massive Chinese junk drop.

But Bidzos said that the low rate was “primarily related to the lower overall first-time renewal rate”, suggesting that it might be more due to registrar promotions or heightened speculation a year ago than any coronavirus-related drag factor.

For Q2, Verisign reported revenue up 2.6% year over year at $314 million, with net income up from $148 million to $152 million.

The company also announced yesterday that it is freezing its prices across all of its TLDs until March 31, 2021.

You’ll recall that it gets the right to increase prices 7% starting on October 26 this year, under its new deal with ICANN and the US government, and Verisign confirmed yesterday that there will definitely be a price increase next year.

Because there’s a six-month notice period requirement in the contract, news of the timing of this increase could come as soon as September this year.

Verisign expects to sell fewer domains because of coronavirus

Kevin Murphy, April 27, 2020, Domain Registries

Verisign doesn’t expect its domain name base to grow as fast as previously expected this year, due to the coronavirus pandemic.

On Thursday night, it ever so slightly downgraded its guidance for the year, saying it expects domains to grow by between 2% and 3.75%, compared to a previous high-end estimate of 4%.

It’s not a lot, but given how many domains Verisign has under management it still adds up to hundreds of thousands of domains and a few million in lost potential revenue.

CEO Jim Bidzos told analysts that the updated guidance reflected a “more cautious” outlook given the “uncertainty presented by Covid-19”.

It’s encouraging news for anyone wondering how the pandemic will effect the domain industry: the market-leading registry does not expect a big impact.

Verisign’s domain base totaled 160.7 million at the end of the quarter — 147.3 million in .com and 13.4 million in .net — which equates to growth of 3.8% over Q1 2019.

The growth is coming from .com — total .net regs were down by about 400,000 year over year.

The update came during Verisign’s first-quarter earnings call, which once again showed the .com registry printing money. It even managed to report net income higher than revenue, due to some quirks in its historical tax recognition.

For the three months to March 31, the company had net income of $334 million, compared to $163 million a year earlier, on revenue that was up 2% at $313 million.

Even discounting that bottom-line tax-related boost of $168 million, profits were up. Operating income was $206 million, up 3%, and the operating margin was up from 65.4% to 66%.

Even before the perhaps inevitable price increases next year, Verisign’s still managing to grow its margins organically, demonstrating that any prices hikes will be going straight to its bottom line and its shareholders’ pockets.

The company bought back $245 million of stock during the quarter and has another $826 million tucked away for further repurchases.

ICANN grants Verisign its price increases, of course

Kevin Murphy, March 30, 2020, Domain Registries

ICANN has given Verisign its ability to increase .com prices by up to 7% a year, despite thousands of complaints from domain owners.

The amendments give Verisign the right to raise prices in each of the last four years of its six-year duration. The current price is $7.85 a year.

Because the contract came into effect in late 2018, the first of those four years begins October 26 this year, but Verisign last week said that it has frozen the prices of all of its TLDs until 2021, due to coronavirus.

Not accounting for discounts, .com is already already worth $1.14 billion in revenue to Verisign every year, based on its end-of-2019 domains under management.

In 2019, Verisign had revenue of $1.23 billion, of which about half was pure, bottom-line, net-income profit.

In defending this shameless money-grab, ICANN played up the purported security benefits of the deal, while offering a critique of the domainers and registrars that had lobbied against it.

Göran Marby, ICANN’s CEO, said in a blog post.

I believe this decision is in the best interest of the continued security, stability, and resiliency of the Internet.

Overall, the decision to execute the .COM Registry Agreement amendment and the proposed binding Letter of Intent is of benefit to the Internet community.

The decision was explained in more detail in a eight-page analysis document (pdf) published late last week.

I’ll summarize this paper in three bullet points (my words, not ICANN’s):

  • Domainers are hypocrites.
  • The deal is good for DNS security.
  • Our hands were tied anyway.

First, while ICANN received over 9,000 comments about the proposed amendment, almost all negative, it said that publicity campaigns from domainer group the Internet Commerce Association and domainer registrar Namecheap were behind many of them.

the Internet Commerce Association (ICA) and Namecheap, are active players in the so called “aftermarket” for domain names, where domain name speculators attempt to profit by “buying low and selling high” on domain names, forcing end users to pay higher than retail prices for desirable domain names

It goes on to cite data from NameBio, which compiles lists of secondary market domain sales, to show that the average price of a resold domain is somewhere like $1,600 (median) to $2,400 (mean).

Both Namecheap and ICA supporter GoDaddy, which sells more .coms than any other registrar, have announced steep increases in their .com retail renewal fees in recent years — 20% in the case of GoDaddy — the ICANN document notes.

This apparent hypocrisy appears to be reason ICANN felt quite comfortable in disregarding many of the negative public comments it received.

Second, ICANN reckons other changes to the .com contract will benefit internet security.

Under a side deal (pdf) Verisign’s going to start giving ICANN $4 million a year, starting next January and running for five years, for what Marby calls “ICANN’s initiatives to preserve and enhance the security, stability, and resiliency of the DNS.” These include:

activities related to root server system governance, mitigation of DNS security threats, promotion and/or facilitation of Domain Name System Security Extensions (DNSSEC) deployment, the mitigation of name collisions, and research into the operation of the DNS.

Note that these are without exception all areas in which ICANN already performs functions, usually paid for out of its regular operating budget.

Because it looks like to all intents and purposes like a quid pro quo, to grease the wheels of getting the contract amendments approved, Marby promised that ICANN will commit to “full transparency” as to how its new windfall will be used.

The new contract also has various new provisions that standardize technical standardization and reporting in various ways, that arguably could provide some minor streamlining benefits to internet security and stability.

But ICANN is playing up new language that requires Verisign to require its registrars to forbid their .com registrants from doing stuff like distributing malware and operating botnets. Verisign’s registrar partners will now have to include in their customer agreements:

a provision prohibiting the Registered Name Holder from distributing malware, abusively operating botnets, phishing, pharming, piracy, trademark or copyright infringement, fraudulent or deceptive practices, counterfeiting or otherwise engaging in activity contrary to applicable law and providing (consistent with applicable law and any related procedures) consequences for such activities, including suspension of the registration of the Registered Name;

Don’t expect this to do much to fight abuse.

It’s already a provision that applies to hundreds of other TLDs, including almost all gTLDs, and registrars typically incorporate it into their registration agreements by way of a link to the anti-abuse policy on the relevant registry’s web site.

Neither Verisign nor its registrars have any obligation to actually do anything about abusive domains under the amendments. As long as Verisign does a scan once a month and keeps a record of the total amount of abuse in .com — and this is data ICANN already has — it’s perfectly within the terms of its new contract.

Third and finally, ICANN reckons its hands were pretty much tied when it comes to the price increases. ICANN wrote:

ICANN org is not a competition authority or price regulator and ICANN has neither the remit nor expertise to serve as one. Rather, as enshrined in ICANN’s Bylaws, which were
developed through a bottom up, multistakeholder process, ICANN’s mission is to ensure the security and stability of the Internet’s unique identifier systems. Accordingly, ICANN must defer to relevant competition authorities and/or regulators, and let them determine if any conduct or behavior raises anticompetition concerns and, if so, to address such concerns, whether it be through price regulation or otherwise. As such, ICANN org has long-deferred to the DOC and the United States Department of Justice (DOJ) for the regulation of wholesale pricing for .COM registry services.

It was of course the DoC, under the Obama administration, that froze Verisign’s ability to raise prices and, under the Trump administration, thawed that ability in November 2018.

If you’re pissed off that the carrying cost of your portfolio is about to go up, you can blame Trump, in other words.

No .com price increases this year. Thanks, coronavirus!

Kevin Murphy, March 26, 2020, Domain Registries

Verisign won’t increase prices on .com or any of its other TLDs this year.

The promise comes as part of a package of coronavirus-related measures the company announced on its blog yesterday. Verisign said:

In order to support individuals and small businesses affected by this crisis, Verisign will freeze registry prices for all of our Top-Level Domains (TLDs), including .com and .net, through the end of 2020. In addition, we will soon deploy a program, available to all retail registrars, to provide support and assistance for domain name registrants whose domain names will be expiring in the coming months.

No additional details on the proposed registrant support program were made available.

The pricing news sounds good, especially for high-volume domain owners such as domainers and trademark owners, but it should be noted that in the case of .com it amounts to a mere two-month price freeze.

Under the terms of its current agreement with ICANN, it can’t raise prices at all. The controversial proposed amendments that recently attracted about 9,000 objections, would reinstate price-raising powers.

However, assuming ICANN approves the new contract, which seems likely, Verisign would only be able to up its fees in the final four years of its six-year deal. The first of those four years begins October 20 this year.

Conceivably, it could have announced a 7% price hike for .com on October 21, but the company has now said that it will not.

Verisign also said yesterday that it’s donating an “initial” $2 million to “first responders and medical personnel in the Northern Virginia area, the United Way’s COVID-19 relief efforts, and the Semper Fi & America’s Fund”.

It is also doubling the funding available to the scheme where it matches employees’ charitable donations, which could increase (and incentivize) giving to coronavirus-related causes.