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Was .xxx’s launch disappointing?

Kevin Murphy, December 8, 2011, Domain Registries

The weekend box office numbers are in, and .xxx didn’t put as many bums on seats as might have been expected.

ICM Registry sold 55,367 new .xxx domain names in its first 24 hours of general availability, giving it a total of almost 159,351 registrations, according to the company.

That’s pretty good going for a TLD which, despite the spin in ICM’s recent TV commercials, is intended for a limited customer base, and which is selling for $80 to $100 a year.

Given its $60 registry fee, ICM will have taken over $3.3 million in revenue yesterday, over $550,000 of which will be given to its sponsoring organization, IFFOR.

However, the 159,351 total includes non-resolving domains, ICM has confirmed.

Due to the unique trademark protection mechanisms put in place for non-porn companies, it’s possible to pay for a .xxx domain that will only ever resolve to a standard registry placeholder.

ICM has previously said that it took almost 80,000 sunrise applications, and that the landrush phase put its total “comfortably over 100,000”.

It did not, however, break out the mix of Sunrise A (resolving) and Sunrise B (non-resolving) domains.

That’s an important distinction, both for ICM’s ongoing revenue and for gauging demand for .xxx among registrants.

Each Sunrise B domain gave ICM a $161 windfall but, unlike every other TLD launched to date, has the sale had no recurring revenue component.

I think it’s possible that 50,000 to 60,000 sunrise domains were non-resolvers, which would give .xxx a total of roughly 100,000 active domains under management after one day of GA.

(My assumptions are that all 80,000 sunrise applications were unique and approved, and that roughly two thirds were for Sunrise B non-resolving domains).

Assuming all the active domains are renewed, it’s a $6 million a year business (or $5 million, if you exclude the mandatory IFFOR donation) for ICM already.

The .xxx zone is already bigger than .travel, .pro, .jobs, .aero, .coop, .museum and .cat. It will likely be bigger than .name, .tel and .asia by the end of the month.

So why suggest that it’s a disappointing result?

Pre-reservations

First, for a few years ICM was accepting no-cost .xxx “pre-reservations” through its web site, while its gTLD application was in ICANN limbo.

It racked up over 900,000 such reservations for roughly 650,000 unique .xxx domain names before shutting the offer down in July this year.

One might expect that most people interested enough in .xxx to pre-register a domain months or years in advance might also be interested in grabbing that domain during landrush, sunrise or at the moment of GA. That apparently didn’t happen.

.CO

Let’s also compare .xxx to the launch of .co by .CO Internet last year.

While .CO did not have anything like the long-term media exposure as .xxx, it did of course have the advantage of offering a completely generic string priced at a third of .xxx.

Within its first 24 hours of general availability, .CO said that it had 233,000 domains under management, about 39,000 of which were landrush or sunrise registrations.

Even at the cheaper registry fee (about $20 a year) .CO still made more money in day one than ICM (although ICM wins hands-down in terms of premium domain sales).

.CO, incidentally, also only had 10 accredited registrars at launch (not counting resellers) compared to ICM’s over 70.

Go Daddy

Go Daddy is responsible for roughly half of all new .com registrations, with similar numbers in other TLDs including .co, but it does not appear to be promoting .xxx very heavily.

For the last few days, its homepage has contained only one small below-the-fold reference to .xxx domains. Its TLD drop-down menu has .xxx in tenth place, between .biz and .ca.

Conversely, ICM has been promoting Go Daddy (and DomainMonster) more heavily in its own marketing – notably on gavin.xxx, the site “owned” by its TV commercial character.

Expectations

So is .xxx on track to meet expectations at this early stage?

ICM CEO Stuart Lawley has previously predicted 300,000 to 500,000 registrations in the first few months, and that’s still an achievable goal given its day-one performance.

.CO Internet, for example, more than doubled its 233,000 first-day take within two months of going into general availability.

The new Russian ccTLD .рф registered 200,000 domains in its first six hours when it launched in November 2010, and hit 800,000 by April this year.

While .xxx clearly hasn’t yet smashed estimates in the same way as its sunrise did, I think early indications are that it’s looking pretty healthy.

Dyson confirmed for new gTLDs Senate hearing

Kevin Murphy, December 6, 2011, Domain Policy

The US Senate Committee on Commerce, Science and Transportation has published the witness list for this Thursday’s hearing into ICANN’s new gTLD program.

Esther Dyson, the founding chair of ICANN’s board of directors and now a fierce critic of the organization, may turn out to cause the most fireworks.

While Dyson was pro-expansion a decade ago, voting in favor of .info, .biz and others, she recently came out against the program in a widely syndicated op-ed and at a CADNA conference.

Kurt Pritz, ICANN’s senior vice president of stakeholder relations and regular new gTLDs go-to guy, will return to Capitol Hill to defend the program.

(We’re likely to see some criticism of CEO Rod Beckstrom as a result of his absence, as we did following the House of Representatives hearing earlier this year, I imagine.)

Fiona Alexander of the National Telecommunications and Information Administration, ICANN’s governmental overseer, has also been named as a witness.

Predictably, the Association of National Advertisers has a seat on the panel in the form of Dan Jaffe, its vice president of government relations.

The ANA and its newly formed Coalition for Responsible Internet Domain Oversight is believed to have brought about the hearing due to its anti-ICANN lobbying activities.

The witness with the wildcard credentials is Angela Williams, general counsel of the Young Men’s Christian Association of the United States of America.

The YMCA does not appear to have spent a great deal of time contributing to ICANN or the new gTLDs program.

It is however a member of ICANN’s new Not-for-Profit Organizations Constituency (NPOC), which is viewed by some (largely other non-commercial stakeholders) as a shill for intellectual property interests.

Former ICANN CFO sues Sedari over €100k deal

Kevin Murphy, December 5, 2011, Domain Services

Kevin Wilson, who joined new gTLD consultancy Sedari as chief financial officer earlier this year, was fired in October and is now suing the company over a €100,000 investment deal gone bad.

Wilson, who spent four years as ICANN’s CFO, was one of a number of familiar domain name industry faces to join UK-based Sedari when it came out of stealth mode this summer.

But he was let go in October after falling out with CEO Liz Williams over financial matters.

Wilson claims that even as CFO he had to fight for access to Sedari’s financial records, and that when he finally questioned the company’s accounting he was terminated.

His termination letter said that Sedari had “very serious concerns” about his performance.

He had agreed to invest €100,000, in two €50,000 installments, and was fired shortly after deciding not to make the second payment, according to his legal complaint.

Wilson claims that he agreed to become an investor after being told about paying clients, including Cloud Registry, that he came to believe may not have existed.

He also alleges that “substantial sums” were taken from the company coffers by Williams for spa treatments and other personal expenditures.

The lawsuit alleges “fraud” on this basis, and seeks the return of Wilson’s initial €50,000 stake.

Wilson also wants the court to declare that, as a resident of California, he is not bound by the post-employment non-compete clauses of his contract.

He’s currently an independent new gTLDs consultant.

Sedari, through its solicitor Faegre & Benson, said in a statement:

Mr. Wilson has reneged on his legally binding obligations to Sedari both in relation to the payment by him of certain sums and his agreement not to act contrary to the best interest of the company. As a result, the Board has forfeited Mr. Wilson’s shares and taken further action to enforce its rights against him.

The statement notes that Sedari has not yet been formally served the complaint – which was filed in the Superior Court in Los Angeles on October 25 – adding:

In the event that Mr. Wilson proceeds with his complaint, it will be defended comprehensively.

The claim is devoid of merit, wrong in fact and all material allegations are rejected. Mr. Wilson will also be pursued for any further loss his actions may cause the alleged defendants.

Wilson said in a statement that he wants to “resolve matters amicably”.

According to exhibits filed with the lawsuit, Sedari’s other investors include Williams, with a majority 53.7% stake, as well as director Dennis Jennings and policy chief Philip Sheppard.

Registry services provider Afilias paid $375,000 for a 27.4% stake in the company, according to these documents. Its chairman, Philipp Grabensee, sits on the Sedari board.

Here’s the complaint.

Clash over new gTLD risk fund

Kevin Murphy, December 4, 2011, Domain Policy

The ICANN community is split along predictable lines – domain registries versus intellectual property interests – in the latest controversy to hit the new top-level domains policy-making.

ICANN’s board of directors will meet this week to decide the fate of its new gTLD failure risk fund, an expensive buffer designed to protect registrants if new gTLD registries go bust.

The current plan is to ask each new gTLD applicant to front the entire cost of three years’ operation with a Continuing Operations Instrument – either a letter of credit or cash in escrow.

The idea is that if they go out of business, funds will be available to pay an emergency registry operator to, in the worst case scenario, gracefully wind down the gTLD.

Registries and some potential applicants are not happy about this idea. They say that the COI imposes too great a cost on start-up registries, which could lead to more failed businesses.

Since smaller businesses may not be able to secure letters of credit, they’ll have to escrow hundreds of thousands of dollars, rather than using the money to make sure they don’t fail in the first place.

Registries have proposed an alternative – a Continued Operations Fund – which would see all applicants deposit a flat fee of $50,000 into a central risk pool that ICANN would manage.

An ICANN public comment period on the COF that closed on Friday revealed the anticipated level of opposition from business and IP interests.

The main concern is that the COF represents a transfer of wealth from rich companies, which would easily and cheaply qualify for a letter of credit, to less well-funded applicants.

The COF “seeks to subsidize certain registry operators instead of allowing the market itself (via letter of credit based upon applicant viability) to determine the level of risk for each applicant”, Claudio DiGangi of the International Trademark Association wrote.

Steve Metalitz, president of ICANN’s Intellectual Property Constituency, echoed INTA’s concerns, adding the IPC’s suspicions about why the COF has been proposed:

[The COF] allows more underfunded applicants into the application pool which will in turn lead to more registry failures, cost to ICANN, and poor outcomes for registrants. While this may be good in the short term for members of the Registry Stakeholder Group (RySG) who desire to provide backend services to such underfunded applicants, the short term economic gain of members of one SG should not be prioritized over the risks to registrants and ICANN that the COF represents

One member of the IPC has suggested that if ICANN were to introduce a COF now, it would give opponents of the new gTLD program grounds to sue, under California insurance law, to put it to a halt.

On the pro-COF side, .org manger the Public Interest Registry said that the current COI plan discourages companies for applying for new gTLDs, which is at odds with ICANN’s goals of increasing competition in the registry space.

PIR’s director of policy Paul Diaz also points out that letters of credit will be hard to come by for companies in certain countries, which may lead to less geographically diverse applicants.

Somewhat surprisingly, Minds + Machines CEO Antony Van Couvering, perhaps sensing which way the wind is blowing at ICANN, has reluctantly backed the original COI model, but suggests a “simple short-term fix” to reduce the cost to applicants.

When determining the amount of the COI, applicants should be free to base it on their own “worst case scenario” registration volume projections, rather than their “most likely” models, on the basis that registries are unlikely to go out of business if they meet their revenue targets:

Presumably if you’re hitting your numbers you’re in good shape financially. It’s the low numbers you have to worry about. Setting the amount of the COI at this more reasonable and likely threshold will take care of the vast majority of failures.

ICANN only received comments from eight people on the COF proposal, and unsurprisingly they’re all (with one possible exception) looking out for their own financial interests.

Without a crystal ball, deciding which model will be “best” for the new gTLD program is a very tough call, but ICANN’s board of directors is expected to do so on Thursday.

US Senate to hold new gTLDs hearing

Kevin Murphy, December 2, 2011, Domain Policy

A US Senate committee is to hold a hearing into ICANN’s new generic top-level domains program next Thursday.

The Committee on Commerce, Science, and Transportation will “examine the merits and implications of this new program and ICANN’s continuing efforts to address concerns raised by the Internet community.”

It will be webcast on the Committee’s web site.

It is believed to have been scheduled due to lobbying by the Association of National Advertisers, which has an ongoing campaign to put a stop to the new gTLD program.

It will follow a similar hearing by the House Subcommittee on Intellectual Property, Competition and the Internet in May, which was used to vent outrage about the program but ultimately delivered nothing.

(Note: this story has been updated from the originally posted version to reflect information contained in the official announcement.)