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ICANN will not attend White House drugs meeting

Kevin Murphy, September 28, 2010, Domain Policy

ICANN has declined an invitation from the Obama administration to attend a meeting tomorrow to discuss ways to crack down on counterfeit drugs web sites.

The meeting, first reported by Brian Krebs, was called with an August 13 invitation to “registries, registrars and ICANN” to meet at the White House to talk about “voluntary protocols to address the illegal sale of counterfeit non-controlled prescription medications on-line.”

The meeting is reportedly part of the administration’s Joint Strategic Plan to Combat Intellectual Property Theft, which was announced in June.

It also follows a series of reports from security firms that called into question domain name registrars’ willingness to block domains that are used to sell fake pharma.

ICANN tells me that, following talks with White House Intellectual Property Enforcement Coordinator Victoria Espinel, it was agreed that it would “not be appropriate” for ICANN to attend.

The decision was based on the fact that ICANN’s job is to make policy covering internet names and addresses, and not to regulate the content of web sites.

ICANN’s vice president of government affairs for the Americas, Jamie Hedlund, said the meeting was “outside the scope of our role as the technical coordinator of the Internet’s unique identifiers.”

I suspect it also would not have looked great on the global stage if ICANN appeared to be taking its policy cues directly from the US government rather than through its Governmental Advisory Committee.

Demand Media-owned registrar eNom, which has took the brunt of the recent criticism of registrars, recently signed up to a service that will help it more easily identify and terminate domains used to sell counterfeit medicines.

eNom to crack down on fake pharma sites

Kevin Murphy, September 17, 2010, Domain Registrars

Demand Media is to tighten security at its domain registrar arm, eNom, after bad press blighted its recent IPO announcement.

The company has signed a deal with fake pharmacy watchdog LegitScript, following allegations that eNom sometimes turns a blind eye to illegal activity on its customers’ domains.

The news emerged in the company’s amended S-1 registration statement (large HTML file), filed with the US Securities and Exchange Commission yesterday. New text reads:

We recently entered into an agreement with LegitScript, LLC, an Internet pharmacy verification and monitoring service recognized by the National Association of Boards of Pharmacy, to assist us in identifying customers who are violating our terms of service by operating online pharmacies in violation of U.S. state or federal law.

LegitScript will provide eNom with a regularly updated list of domain names selling fake pharma, so the registrar can more efficiently turn them off. The companies have also agreed to work together on research into illegal online pharmacies.

Surrounding text has also been modified to clarify that eNom is not required, under ICANN rules, to turn off domains that are being used to conduct illegal activity.

This is a bit of a PR win for the small security outfits KnuJon and HostExploit, firms which had used the occasion of Demand’s S-1 filing to give eNom a good kicking in the tech and financial press.

HostExploit reported last month that eNom was statistically the “worst” registrar as far as illegal content goes.

ICANN executives are reportedly going to be hauled to Washington DC at the end of the month to explain the problem of fake pharma to the White House.

Registries and registrars have also been invited, and I’d be surprised if eNom is not among them.

Will Go Daddy be the next domain name IPO?

Kevin Murphy, August 11, 2010, Domain Registrars

It was four years ago this week, August 8, 2006, when Bob Parsons unexpectedly canceled Go Daddy’s planned IPO at the eleventh hour.

But with its closest competitor, eNom parent Demand Media, ready to go public, eyes inevitably turn to Scottsdale to see if the market leader is ready to follow suit.

I’ve no doubt Go Daddy will be watching Demand’s IPO carefully, but there are some reasons to believe a me-too offering is not a short-term certainty.

Bob Parsons owns Go Daddy

First, and most importantly, Bob Parsons owns Go Daddy. At the time of the 2006 S-1, he was the company’s sole investor, and I believe that’s still the case.

Unlike Demand Media, which raised about $355 million in financing in its early days, Go Daddy doesn’t have a gang of institutional investors clamoring for a return on their investments.

The flip-side of this argument is that it does have is a loyal senior management team holding share options they’re not yet able to cash in on the public markets.

The fact that Parsons is still in charge may cause some investor nerves, given the trust hit he will have taken on Wall Street four years ago, but I don’t think that’s a massive consideration.

The IPO market is still poor

The first attempt at an IPO was canceled mainly due to poor market conditions, according to Parsons’ blog post at the time.

It had only been a few months since Vonage’s catastrophic offering, which saw early-mover investors lose millions, and there was little appetite for tech IPOs.

A lot has changed in the last four years, but the current tech IPO market is still struggling, with many companies recently under-pricing their offerings or losing value since.

According to VentureDeal stats reported at GigaOm, of the 21 tech IPOs in the first half of this year, only five were trading above their IPO price at the end of July. Most had seen double-digit declines.

While some analysts think the upcoming Skype and Demand Media IPOs could breathe life into the market, it’s far from a certainty.

Go Daddy is a cash cow

Go Daddy’s financial statements will look a lot healthier today that back in 2006.

Parsons said he yanked the IPO in part because there was too much focus on Go Daddy’s performance under Generally Accepted Accounting Principles.

Under GAAP, Go Daddy was a loss-making company, due to the way that revenue from domain names has to be recognized over the course of the registration while the associated costs are incurred up-front.

This meant that Go Daddy was a cash machine – with something like $95 million of deferred revenue on its balance sheet at the time of the 2006 filing – but technically unprofitable.

Whether this has changed or not, I don’t know; Go Daddy is still growing. But it’s a lot larger now than it was in 2006, and its cashflow and balance sheets will certainly look impressive even if its income statement does not.

I’m guessing a lot will depend on how Demand performs over the coming months as to whether Go Daddy follows its lead.

But Parsons said four years ago that the firm would revisit the public markets again, and I’m sure we won’t have too long to wait until it does.

eNom called world’s most “abusive” registrar

Kevin Murphy, August 11, 2010, Domain Registrars

A small security firm has singled out eNom as the domain name registrar and web host with the most criminal activity on its network.

HostExploit released a report today claiming the concentration of “badware” on the network belonging to eNom and its soon-to-be-public parent Demand Media is “exceptionally high”.

The claim is based on the proportion of dodgy sites on eNom’s network relative to its size, rather than the actual quantity.

The report says the Demand-owned autonomous system AS21740 has the fifth-highest amount of badware and the sixth-highest number of botnet command and control servers.

It goes on to say that the four or five AS’s with larger amounts of malware are themselves between 10 and 7,500 larger than eNom, as measured by address space.

The report, which I’m guessing HostExploit released to coincide with the hype around Demand Media’s upcoming IPO, draws heavily on existing research, such as this recent KnuJon registrar report (pdf).

It also uses stats from Google-backed StopBadware.org to demonstrate that eNom hosts a disproportionately large number of malware-serving URLs.

According to StopBadware, Go Daddy actually hosts more bad URLs than eNom – 10,797 versus 7,429 – but Go Daddy’s market share is of course over three times larger.

According to WebHosting.info, eNom currently has 9.5 million domains under management, compared to Go Daddy’s 35.2 million.

In Demand Media’s IPO registration statement, filed last Friday, the company acknowledges that it sometimes gets bad publicity but says it’s caught between a rock and a hard place.

We do not monitor or review the appropriateness of the domain names we register for our customers or the content of our network of customer websites, and we have no control over the activities in which our customers engage.

While we have policies in place to terminate domain names if presented with a court order or governmental injunction, we have in the past been publicly criticized for not being more proactive in this area by consumer watchdogs and we may encounter similar criticism in the future. This criticism could harm our reputation.

Conversely, were we to terminate a domain name registration in the absence of legal compulsion, we could be criticized for prematurely and improperly terminating a domain name registered by a customer.

Digging for dirt in the Demand Media IPO – roundup

Kevin Murphy, August 9, 2010, Domain Registrars

Demand Media, parent of second-largest domain name registrar eNom, has filed to go public, and the publication of its S-1 registration document has given an unprecedented glimpse inside the company.

Unsurprisingly, the “content mill” part of Demand’s operation, which accounts for more than half of its revenue, has garnered the most media coverage over the weekend.

Demand says that the fact that is “transforming traditional content creation models” and is “frequently the subject of unflattering reports in the media about our business and our model.”

Reports of its IPO are no exception.

This report in DailyFinance.com observes that the key difference between Demand and traditional media is that Demand does it “at scale”, with some 10,000 writers producing 5,700 articles per day.

DaniWeb notes that Demand’s freelancers are “working for wages often well below industry standard to churn out content” and said the company is subject to “redundancies, inefficiencies and the reliance on trying to game Google”.

Others are more direct: “wtf: this is why the Internet is full of unreadable junk”

CNNMoney.com reports that Demand is “notorious” for paying as little as $15 per article, and that it can make a 58% return on a month’s articles over seven quarters.

As a freelancer reporter, I don’t like Demand’s model either. I think it devalues the profession. The S-1 reveals that the company is well aware that it’s also quite exploitative:

We believe that over the past two years our ability to attract and retain freelance content creators has benefited from the weak overall labor market and from the difficulties and resulting layoffs occurring in traditional media, particularly newspapers. We believe that this combination of circumstances is unlikely to continue and any change to the economy or the media jobs market may make it more difficult for us to attract and retain freelance content creators.

On the domain name side of the business, DomainNameWire was quickest off the mark, digging out the fact that eNom uses look-ups by prospective registrants to decide what articles might be profitable and what web sites it could develop.

The S-1 says:

These queries and look-ups provide insight into what consumers may be seeking online and represent a proprietary and valuable source of relevant information for our platform’s title generation algorithms and the algorithms we use to acquire undeveloped websites for our portfolio.

eNom has already said that this should NOT be interpreted as “front-running”. (apologies, the first version of this article accidentally omitted the word “not”)

Also found in the S-1, and already known from eNom’s registration agreement Ts & Cs, the company keeps some customers’ expired domain names for itself, if they have value.

I can remember a time not too many years ago when this kind of behavior was frowned upon.

DNW also points to the list of Demand’s subsidiaries. There are 146 of them, at least 100 of which are shells for ICANN registrar accreditations.

Others, such as Acquire This Name, which KnuJon had beef with (pdf) a year ago, act as eNom resellers.

Looking at the financials, All Things Digital gently mocks the company’s reliance on non-standard “Adjusted OIBDA” numbers in its S-1 to make the company appear profitable.

Meanwhile, Mike Berkens at TheDomains is incredulous looking at the amount of money Demand has lost since its inception: some $52 million.