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Will ICANN take a bigger slice of the .com pie, or will .domainers get URS?

Kevin Murphy, November 5, 2018, Domain Registries

Will ICANN try to get its paws on some of Verisign’s .com windfall? Or might domainers get a second slap in the face by seeing URS imposed in .com?

With Verisign set to receive hundreds of millions of extra dollars due to the imminent lifting of .com price caps, it’s been suggested that ICANN may also financially benefit from the arrangement.

In a couple of blog posts Friday, filthy domain scalper Andrew Allemann said that ICANN will likely demand higher fees from Verisign in the new .com registry agreement.

Will it though? I guess it’s not impossible, but I wouldn’t say it’s a certainty by any means.

Verisign currently pays ICANN $0.25 per transaction, the same as almost all other gTLDs. Technically, there’s no reason this could not be renegotiated.

Putting aside some of the legacy gTLD contracts, I can only think of two significant cases of ICANN imposing higher fees on a registry.

The first was .xxx, which was signed in 2011. That called for ICM Registry, now part of MMX, to pay $2 per transaction, eight times the norm.

The rationale for this was that ICANN thought (or at least said it thought) that .xxx was going to be a legal and compliance minefield. It said it envisaged higher costs for overseeing the then-controversial TLD.

There was a school of thought that ICANN was just interested in opportunistically boosting its own coffers, given that ICM was due to charge over $60 per domain per year — at the time a ludicrously high amount.

But risk largely failed to materialize, and the two parties last year renegotiated the fees down to $0.25.

The second instance was .sucks, another controversial TLD. In that case, ICANN charged registry Vox Populi a $100,000 upfront fee and per-transaction fees of $1 per domain for the first 900,000 transactions, four times more than the norm.

While some saw this as a repeat of the .xxx legal arse-covering tactic, ICANN said it was actually in place to recoup a bunch of money that Vox Pop owner Momentous still owed when it let a bunch of its drop-catch registrars go out of business a couple years earlier.

While the .sucks example clearly doesn’t apply to Verisign, one could make the case that the .xxx example might.

It’s possible, I guess, that ICANN could make the case that Verisign’s newly regained ability to raise prices opens it up to litigation risk — something I reckon is certainly true — and that it needs to increase its fees to cover that risk.

It might be tempting. ICANN has a bit of a budget crunch at the moment, and a bottomless cash pit like Verisign would be an easy source of funds. A transaction fee increase of four cents would have been enough to cover the $5 million budget shortfall it had to deal with earlier this year.

On the other hand, it could be argued that ICANN demanding more money from Verisign would unlevel the playing field, inviting endless litigation from Verisign itself.

ICANN’s track record with legacy gTLDs has been to reduce, rather than increase, their transaction fees.

Pre-2012 gTLDs such as .mobi, .jobs, .cat and .travel have all seen their fees reduced to the $0.25 baseline in recent years, sometimes from as high as $2.

In each of these cases, the registries concerned had to adopt many provisions of the standard 2012 new gTLD registry agreement including, controversially, the Uniform Rapid Suspension service.

Domainers hate the URS, which gives trademark owners greater powers to take away their domains, and the Internet Commerce Association (under the previous stewardship of general counsel Phil Corwin, since hired by Verisign) unsuccessfully fought against URS being added to .mobi et al over the last several years, on the basis that eventually it could worm its way into .com.

I’m not suggesting for a moment that ICANN might reduce Verisign’s fees, but what if URS is the price the registry has to pay for its massive .com windfall?

It’s not as if Verisign has any love for domainers, despite the substantial contribution they make to its top line.

Since the NTIA deal was announced, it’s already calling them “scalpers” and driving them crazy.

ICA lost the .com price freeze fight last week, could it also be about to lose the URS fight?

Trump gives Verisign almost $1 billion in free money

Kevin Murphy, November 5, 2018, Domain Registries

The Trump administration may have just handed Verisign close to $1 billion in free money.

That’s according to the back of the envelope I’m looking at right now, following the announcement that the National Telecommunications and Information Administration is reinstating Verisign’s right to increase .com registry fees.

As you may have read elsewhere already (I was off sick last week, sorry about that) a new amendment to the Verisign-NTIA Cooperative Agreement restores Verisign’s ability to raise prices by 7% per year in four of the six years of the deal.

The removal of the Obama-era price freeze still needs to be incorporated into Verisign’s ICANN contract, but it’s hard to imagine ICANN, which is generally loathe to get into pricing regulation, declining to take its lead from NTIA.

Verisign would also have to choose to exercise its option to increase prices in each of the four years. I think the probability of this happening is 1 in 1.

Layering this and a bunch of other assumptions into a spreadsheet, I’m coming up with a figure of roughly an extra $920 million that Verisign will get to add to its top line over the next six years.

Again, this isn’t an in-depth study. Just back-of-the-envelope stuff. I’ll talk you through my thinking.

Not counting its occasional promotions, Verisign currently makes $7.85 for every year that a .com domain is added or renewed, and for every inter-registrar transfer.

In 2017, .com saw 40.89 million add-years, 84.64 million renew-years and 3.79 million transfers, according to official registry reports.

This all adds up to 129,334,643 revenue events for Verisign, or just a tad over $1 billion at $7.85 a pop.

Over the four-year period of the price increases transaction fees will go up to $8.40, then $8.99, then $9.62, then $10.29. I’m rounding up to the nearest penny here, it’s possible Verisign may round down.

If we assume zero transaction growth, that’s already an extra $762.2 million into Verisign’s coffers over the period of the contract.

But the number of transactions inevitably grows each year — more new domains are added, and some percentage of them renew.

Between 2016 and 2017, transaction growth was 3.16%.

If we assume the same growth each year for the next six years, the difference between Verisign’s total revenue at $7.85 and at the new pricing comes to $920 million.

Verisign doesn’t have to do anything for this extra cash, it just gets it.

Indeed, the new NTIA deal is actually less restrictive on the company. It allows Verisign to acquire or start up an ICANN-accredited gTLD registrar, something it is currently banned from doing, just as long as that registrar does not sell .com domains.

Verisign’s .net contract also currently bans the company from owning more than 15% of a registrar, so presumably that agreement would also need to be amended in order for Verisign to get into the registrar business.

I say again that my math here is speculative; I’m a blogger, not a financial analyst. There may be some incorrect assumptions — I’ve not accounted for promotions at all, for example, and the 3.16% growth assumption might not be fair — and there are of course many variables that could move the needle.

But the financial markets know a sweetheart deal when they see one, and Verisign’s share price went up 17.2% following the news, reportedly reaching heights not seen since since the dwindling days of the dot-com bubble 18 years ago.

The reason given for the lifting of the price freeze was, for want of a better word, bullshit. From the NTIA’s amendment:

In recognition that ccTLDs, new gTLDs, and the use of social media have created a more dynamic DNS marketplace, the parties agree that the yearly price for the registration and renewal of domain names in the .com registry may be changed

Huh?

This seems to imply that Verisign has somehow been disproportionately harmed by the rise of social media, the appearance of new gTLDs and some unspecified change in the ccTLD marketplace.

While it’s almost certainly true that .net has taken a whack due to competition from new gTLDs, and that the domain marketplace overall may have been diminished by many small businesses spurning domains by choosing to set up shop on, say, Facebook, .com is still a growing money-printing machine with some of the fattest margins seen anywhere in the business world and about a 40% global market share.

If the Trump administration’s goal here is to make some kind of ideological statement about free markets, then why not just lift the price caps altogether? Give Verisign the right to price .com however it pleases?

Or maybe Trump just wants to flip the bird to Obama once more by reversing yet another of his policies?

Who knows? It doesn’t make a lot of sense to me.

New gTLDs rebound in Q2

Kevin Murphy, August 21, 2018, Domain Registries

New gTLD registration volumes reversed a long trend of decline in the second quarter, according to Verisign’s latest Domain Name Industry Brief.

The DNIB (pdf), published late last week, shows new gTLD domains up by 1.6 million sequentially to 21.8 million at the end of June, a 7.8% increase.

That’s the first time Verisign’s numbers have shown quarterly growth for new gTLDs since December 2016, five quarters of shrinkage ago.

Domains (millions)
Q3 201623.4
Q4 201625.6
Q1 201725.4
Q2 201724.3
Q3 201721.1
Q4 201720.6
Q1 201820.1
Q2 201821.8

The best-performing new gTLD across Q2 was .top according to my zone file records, adding about 600,000 names.

.top plays almost exclusively into the sub-$1 Chinese market and is regularly singled out as a spam-friendly zone. SpamHaus currently ranks it as almost 45% “bad”.

Overall, the domain universe saw growth of six million names, or 1.8%, finishing the quarter at 339.8 million names, according to Verisign.

Verisign’s own .com ended Q2 with 135.6 million domains, up from 133.9 million at the end of March.

That’s a sequential increase of 1.7 millions, only 100,000 more than the total net increase from the new gTLD industry.

.net is still suffering, however, flat in the period with 14.1 million names.

ccTLDs saw an increase of 3.5 million names, up 2.4%, to end June at 149.7 million, the DNIB states.

But that’s mainly as a result of free TLD .tk, which never deletes names. Stripping its growth out (Verisign and partner ZookNic evidently have access to .tk data now) total ccTLD growth would only have been 1.9 million names.

Have your say on single-character .com domains

ICANN wants your opinion on its plan to allow Verisign to auction off o.com, with a potential impact on the future release of other single-character .com domain names.

The organization has published a proposed amendment to the .com registry contract and opened it for public comment.

The changes would enable Verisign to sell o.com, while keeping all other currently unallocated single-character names on its reserved list.

The company would not be able to benefit financially from the auction beyond its standard $7.85 reg fee — all funds would be held by an independent third-party entity and distributed to undisclosed non-profit causes.

The arrangement would also see the buyer pay a premium renewal fee of 5% of the initial outlay, doubling the purchase price over the course of 25 years.

They would not be able to resell the domain without selling the registrant company itself.

It’s a pretty convoluted system being proposed, given that there may well end up only being one bidder.

Overstock.com, the online retailer, has been pressuring ICANN and Verisign to release o.com for well over a decade, and the proposed auction seems to be a way to finally shut it up.

The company has a US trademark on O.com, so any other bidder for the name would probably be buying themselves a lawsuit.

The proposed auction system does not address trademark issues — there’s no sunrise period of trademark claims period.

One party already known to be upset about lack of rights protection is First Place Internet, a search engine company that has a US trademark on the number 1.

It told ICANN (pdf) back in January that the o.com deal would “set a dangerous precedent” for future single-character name releases.

The ICANN public comment period, which comes after ICANN received the all-clear from US competition regulators, closes June 20.

As a matter of disclosure, several years ago I briefly acted as a consultant to a third party in support of the Verisign and Overstock positions, but I have no current interest in the situation one way or the other.

.com adds 5.5 million names, renewals back over 70%

Kevin Murphy, April 30, 2018, Domain Registries

Verisign reported first-quarter financial results that reflected a healthier .com namespace following the spike caused by Chinese speculation in 2016.

The company Friday reported that .com was up to 133.9 million domains at the end of March, an increase of 5.5 million over the year.

The strong showing was tempered slightly by a further decline in .net, where domains were down from 15.2 million to 14.4 million.

Over the quarter, there was a net increase of 1.9 million names across both TLDs and the renewal rate was an estimated 74.9%, a pretty damn good showing.

Actual renewals for Q4, measurable only after Verisign announced its earnings, were confirmed at 72.5%, compared to a worryingly low 67.6% in Q4 2016.

In a call with analysts, CEO James Bidzos confirmed that the turnaround was due to the surge in Chinese domainer speculation that drove numbers in 2016 finally working its way out of the system.

In Q1, the cash-printing company saw net income of $134 million, compared to $116 million a year earlier, on revenue up 3.7% at $299 million.

Bidzos told analysts that it’s “possible” that the company may get to launch .web in 2018, but said Verisign has not baked any impact from the contested gTLD into its forecasts.