Minds + Machines is to get out of the registrar and back-end registry services markets in separate deals with Nominet and Uniregistry.
The cost-saving shake-up will lead to about 10 job losses, or about 25% to 30% of its current headcount, CEO Toby Hall told DI this morning.
Under the Nominet deal, M+M will outsource the back-end registry functions for 28 new gTLDs, currently managed in-house, to the .uk ccTLD manager.
The deal covers all the gTLDs for which M+M is the contracted party (such as .law, .cooking and .fashion), as well as the four it runs in partnership (eg .london) and the five where it currently acts as back-end for a third party registry (eg .broadway).
The company also plans to dump its “unprofitable” registrar entirely, migrating its existing customers to Uniregistry’s Uniregistrar business.
About 49,000 domains will be affected by this move, Hall said.
Uniregistry will pay M+M a commission over the lifetime of the accounts.
Focusing on the registry business was the plan from the moment Hall took over M+M, following a shareholder coup that kicked out founding CEO Antony Van Couvering in January.
Hall told DI:
It [previously] had a very ambitious plan. It wanted to be vertically integrated, but the considered view is there are people out there who are far better able to run parts of the exercise than ourselves, both on the RSP piece and likewise the registrar piece. The strategy from day one was to rapidly evolve into becoming a business-to-business marketing-led registry business and radically overhauling our cost structure at the same time.
The company is currently in a financial quiet period and will not yet disclose the amount of savings it expects to reap, Hall said. He added:
Reducing cost isn’t a strategy for growth, and as a business that will be where we will be judged. Growing our portfolio, growing our domains under management, growing our revenue within those domains. That’s what the business has to be focused on. We see within the industry that the highest value is in the [TLD] ownership part.
The job losses are expected to be largely on the technical side of the house.
The RSP outsourcing means that Nominet significantly boosts its stable of managed TLDs. While it’s in the top five back-ends in terms of DUM (due to the 11 million in .uk) its portfolio of clients there is relatively small, largely limited to a handful of dot-brands.
Nominet CEO Russell Haworth said in a statement:
This partnership takes us into the top tier of registry operators globally by volume of TLDs and compliments the brands we currently manage, such as .BBC, .Bentley and .Comcast. It also underlines our long-term strategy to provide a more diversified range of services to gTLDs and registrars.”
With the Uniregistry registrar deal, Hall said that competing with its own channel “was just not right for us”.
It might be worth noting that Uniregistry is actually a vertically integrated triple-play along the lines of M+M, also, managing its own back-end, registry and registrar businesses.
Hall said that the M+M registrar had sold mainly to domain investors with little interest in buying value-added services such as email and hosting, which is often where much of the profit lies.
Both deals are subject to ICANN approvals, and client approval in case of the back-end transition, will be phased in over many months, and are expected to be finalized by the end of the year.
UPDATE: M+M said later this morning that it is changing its official company domain to mmx.co from mindsandmachines.com.
Former Minds + Machines chair Fred Krueger has taken the company to court, claiming he’s owed shares worth over half a million dollars.
In a lawsuit filed in Los Angeles this week, Krueger says the shares were promised to him in 2007 but have subsequently gone “missing”.
The suit also names as defendants M+M chief financial officer Michael Salazar and Antony Van Couvering, who until last week was CEO.
Krueger himself was asked to leave the company by its board of directors in May last year.
He was one of the company’s founders in 2007. According to his lawsuit, he was promised 25 million shares, which were to be delivered to his Goldman Sachs account in a batch of 20 million and a batch of five million.
Krueger now claims that Goldman has no record of the five-million batch arriving and that M+M has failed to figure out whether the shares were ever even issued.
His complaint says he paid $400,000 for the shares. Judging by M+M’s current share price, they’re now worth around £437,500 ($609,000).
Krueger says that he didn’t notice the shares were missing until forensic accountants picked over his net worth as part of his 2013 divorce.
The suit alleges breach of contract, negligence, and other claims related to the shares. In total, he’s looking for at least $1.5 million in damages.
It also sheds a bit of light on Krueger’s actions immediately following his May 2015 dismissal from the company.
When he “resigned”, he issued a statement via the company that said among other things “my goal is to keep the vast majority of my shares”.
But within a couple of weeks he had started selling and in a matter of months he had disposed of all of his 104 million shares.
Now, according to his lawsuit, his May 2015 “Exit Agreement” with M+M’s board actively incentivized him to sell all of his shares. It says:
In May 2015, Plaintiff Krueger left Minds + Machines Board of Directors under an agreement Plaintiffs Krueger and Needly made with Minds + Machines Group that if Plaintiff Krueger would sell all of his shares in Minds + Machines Group, Minds + Machines Group would return to Needly all of the stock it was holding in Needly.
Needly is (or possibly was, judging by its web site) Krueger’s side project, a web site content management software company.
Krueger says M+M agreed to pay $800,000 and take 1% of Needly’s shares under a consulting agreement. Now, he says the company is refusing to return those shares, as agreed, until he admits that he’s already sold the five million “missing” M+M shares.
Here’s his complaint in PDF format.
It’s a strange old case, and no doubt a distraction for new CEO Toby Hall, who took over from Van Couvering last week with a pledge to boost sales by focusing more on the registrar channel.
Antony Van Couvering has been fired as CEO of Minds + Machines and replaced by someone who was until very recently the company’s agency PR guy.
Neither Van Couvering, the company, nor incoming CEO Toby Hall, have disclosed the reason for his ouster.
But I suspect the “differences and disagreements” that Van Couvering alluded to in his CircleID piece this morning may refer to M+M’s go-to-market strategy.
Hall told DI this morning that his focus as the company’s new leader is going to be on the registrar channel.
“It’s all about engaging with the outside world and recognizing we’re a business-to-business play,” Hall said. “It’s a fundamental shift in perspective.”
The strategy “has to be stacked in a way that makes our business partners make revenue”, he said.
“We’re not a consumer registrar,” he said.
M+M is a vertically integrated domain name company, acting as both registry and registrar.
Registrar sources tell us that Van Couvering wasn’t keen on working with third-party retailers, preferring to focus on its in-house registrar.
It seems that’s going to change under Hall.
M+M said in a press release (jarringly, emailed to reporters this morning as usual by Hall himself):
Mr Van Couvering was removed from office with immediate effect by means of a unanimous resolution of directors passed at a meeting of directors held on 19 February 2016.
The Group is currently making the transition from asset gatherer to monetisation of its leading portfolio of top-level domains; the Board believes a change of leadership will assist in this process.
Hall was appointed chief marketing officer last month.
Since the early 1990s, he’s been head of the London-based PR slash investor relations outfit GTH Communications, which focuses on small-cap businesses. M+M was a GTH client almost since it was founded, Hall said.
He said he’s going to be stepping back from GTH to focus on M+M.
Van Couvering founded Minds + Machines in 2008. It was soon acquired by the company that would be known as Top Level Domain Holdings, which later changed its name to Minds + Machines.
TLDH founder Fred Krueger got canned by the M+M board last year too.
Today, Van Couvering wrote:
It’s a story told a thousand times: founder of a company ousted by investors. It’s a story so common you can find it any day of the week as a minor headline in a tech blog. Not much of a story at all really, until it happened to me…
Minds + Machines is still pulling in most of its cash from one-time new gTLD auction defeats, according to its latest trading update.
The company yesterday reported billings for 2015 of $7.92 million, up from $5.03 million in 2013.
But the company brought in $9.15 million by pulling out of private new gTLD auctions, where the winning bid is shared among the losers. That’s down from $37.5 million in 2014.
“Billings” is the money make at the point of sale, rather than audited revenue which is recognized over the life of the registration. Revenue numbers will come in April.
For the fourth quarter, sales of both premium and standard-fee names were up.
Premium names were up 215% at $1.52 million, which standard name billings were up 184% at $2.66 million.
The company said its registry business ended the year with 278,523 names under management, a 158% increase on year-ago numbers.
M+M met or beat its “key performance indicator” targets in terms of average revenue per name (both standard and premium) and sales growth.
However, the Chinese market boom caused it to miss its market share KPI.
It blamed missing the low end of its 3% to 5% new gTLD market share target by half a percentage point on the rapid growth of China.
The money being pumped into domain names from China in the second half of last year tends to favor the budget end of the new gTLD market, where names can be picked up for cents, whereas M+M’s TLD mix is skewed a little higher.
M+M said last week that it plans to open an office in China soon.
Portfolio gTLD registries Famous Four Media and Minds + Machines have both announced that they’re formally entering the Chinese market.
Both companies are establishing “wholly foreign-owned enterprises” (WFOEs), a form of company that does not require local investment, on the mainland.
The moves are aimed at getting the registries’ respective gTLDs accredited by the Chinese government, something that is required before local registrants are allowed to use them.
In a press release, FFM senior legal counsel Oliver Smith said:
It was clear to us soon after launching our first domain registry that domain registrations from China comprised a strong proportion of the total. It was a natural progression of our strategy to build a physical presence in China. The accreditation process is complicated but well-structured and, thanks to the help of advice from the Chinese government, should be completed relatively quickly.
In some of Famous Four’s gTLDs, Chinese registrars are the overwhelming majority of the sales channel.
In .win, the registry’s biggest-seller, China was responsible for about 85% of registrations at the last count, for example.
Meanwhile, M+M is taking a slightly different route into the country.
It said today that while it also shortly plans to open a WFOE, it has also partnered with ZDNS, a local provider of proxy services for registries.
ZDNS was the company XYZ.com partnered with for its controversial launch into China. According to M+M, it’s also working with .CLUB Domains and some Chinese gTLD registries.
M+M is also using the specialist consultancy Allegravita for its marketing there.
Its local entity will be called Beijing Ming Zhi Mo Si Technology Company Limited (which may or may not translate to something like “Wise Mediation”).
M+M’s first Chinese launches will be .beer, .fashion, .fit, .law, .wedding, .work and .yoga, with .vip and .购物 (“.shopping”) coming later in the year.