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New gTLDs: no advantage to applying early

Kevin Murphy, October 23, 2011, Domain Policy

ICANN has confirmed that new top-level domain applications filed early in next year’s application window will not get priority over those filed right at the end.

The subject of “batching” – the way ICANN plans to divide applications into more easily managed chunks of 500 – has seen some debate recently.

Some applicants and consultants have said that filing your application January 12 rather than April 12 would be a wise move, despite the evidence to the contrary.

Now ICANN senior vice president of stakeholder relations Kurt Pritz has busted the myth, during a session on new gTLDs with the Generic Names Supporting Organization in Dakar today.

“There’s no advantage to applying early or later in the process,” he said. “As long as your application is in by the due date it has the same chance of being in any batch.”

It doesn’t come much clearer than that.

ICANN has said that it only plans to process 500 applications at a time. If there are significantly more than 500, then it will process them in batches.

Due to the length of time it is expected to take to process an application, finding yourself in dumped into the second batch could add a few quarters to your go-live runway.

If you’re a commercial gTLD applicant, there could be a significant first-mover advantage to being in the first batch. Revenues from speculative and defensive registrations could be higher, before the novelty of new gTLDs gives way to fatigue.

Applicants in that position are going to use every trick in the book to streamline their process through ICANN and maximize their chances of being in the first batch.

While ICANN has not yet decided how to create the batches, it has ruled out filing time from the criteria. Pritz talked the GNSO through some of its current thinking today.

The preferred option is random selection. The problem with this idea is that it may fall foul of US gambling laws if it fits the definition of a lottery.

It sounds stupid, but it’s happened before: when Neustar introduced a random element to its launch of .biz, it would up having to pay $1.2 million to settle claims that it ran an illegal lottery.

“The issue of random selection is that we just have to make sure it complies with all possible applicable laws,” Pritz said. “Our initial legal research points out that this is real risk… but it is the most attractive form of selection because it is objective and fair.”

The other option under consideration is a “secondary time stamp”, Pritz said. This unhelpful label caused some head-scratching during the GNSO session today.

Pritz explained by analogy: imagine every applicant was asked to send a letter to ICANN, and the order of the batches would be determined by the order in which the letters are received.

The important thing to note is that this secondary time stamp would not be based on the date the application itself was submitted to ICANN.

Pritz said that ICANN had also discussed a “charity auction” batching method, but that this idea has now been ruled out.

Whatever mechanism is decided upon, it seems that applicants will have the opportunity to opt in or opt out of the first batch. Some .brand applicants currently clueless about how to use their gTLD may not be super-interested in getting priority processing, for example.

“We think those numbers are non-negligible,” Pritz said.

Will ICANN approve cheap gTLDs for poor applicants?

Kevin Murphy, October 21, 2011, Domain Policy

One of the big questions at ICANN’s 42nd public meeting in Dakar next week is whether the board of directors plans to approve subsidized new gTLD application fees for worthy applicants.

A volunteer working group known as JAS came up with a set of recommendations last month that would lower the $185,000 fee for applicants from developing nations with public benefit missions.

It was a wide-ranging set of proposals that would stretch beyond the scope of the $1 million to $2 million ICANN approved for applicant support initiatives at its last meeting in June.

Chiefly, JAS wants the application fee reduced to $45,000 for qualified developing-world applicants, meaning ICANN would have to find the funds to cover the $140,000 shortfall elsewhere.

In addition, JAS wants ICANN to set up a fund to loan money to these same applicants. It also wants these applicants to be able to pay fees on a staggered schedule.

Whether it was deliberate or not (I suspect it was semi-deliberate), the JAS wish-list seems to me to go above and beyond the support the ICANN board said it was prepared to offer in June.

I don’t think the board will grant those wishes when it meets next Friday, and here’s a few reasons why.

First, CEO Rod Beckstrom has already basically ruled out blanket fee reductions, even for poorer applicants, and he did so after the board had already discussed them.

At an ICANN panel on new gTLDs in London last month, Beckstrom was asked by an audience member if the application fee could be reduced before January.

At roughly 32 minutes into the embedded video, this is what he said:

There’s no plans to reduce the fee and I could not contemplate that happening before the program opens. The fees have been determined and there’s no process to review them, and there would be no basis at the present time because the costing estimates in the program appear to be reasonably accurate.

He went on to say that economies of scale may lead to a reduction in fees in future rounds, but did not mention the JAS recommendations at all.

As I was also on the panel, I called him on the omission later in the discussion, roughly 45 minutes into the video above. He said:

The board of directors did make a directional indication in Singapore to set aside up to a million to two million dollars for financial support for applicants…

However, it’s not a repricing of the fees, it would be some type of support for those applicants. A reduction in the application fee or effectively subsidizing the application fee is one possible concept, but what I can tell you as the CEO and as a board member is that board’s indication is one to two million dollars, not an unlimited number, so can do math and figure out what might be possible and what might not.

We’re not going to change the program fees, it just means there might be some benefit to or some support for some applicants, but it may not come in the form of that subsidy for the fee.

What we have here is JAS asking for a fundamental restructuring of the application fee in certain circumstances, and ICANN’s CEO saying that’s not likely to happen.

At that time, the JAS report had not been formally submitted to the board, but it had nevertheless been seen and discussed by the board at its two-day retreat in mid-September.

The GNSO, which had been frustrated with the cross-constituency structure of the JAS for some time, didn’t even formally approve the report before forwarding it to the board, due to time constraints.

Another indication of the board’s thinking on the JAS recommendations comes from the minutes of its Finance Committee meeting, September 15. Here’s an extract:

Staff has initiated efforts to be ready for implementation if and when approved. Establishment of a fund – a short-term mechanism for earmarking funds for applicant support, and a long-term formal mechanism for several purposes. Meeting community expectations: Board had approved US $2mm, while the JAS/GAC-ALAC recommendations would be more costly. Four tasks: developing criteria based on the JAS report plus practical concerns, developing procedures, entity for considering applications, and mechanism for holding the funds. Discussed the need to stay within the mission and purpose of ICANN and the ability to set-up special funds.

There’s no mention of application fees, but there is an acknowledgment that the JAS recommendations would be more expensive to implement than just the $2 million ICANN has already set aside.

There’s also talk of “practical concerns” and the “need to stay within the mission and purpose of ICANN”, all of which says to me that there’s a worry JAS asked for too much.

We’ll have to wait until next Friday to find out for sure, but my guess is that the board will likely side with ICANN’s bean-counters and that the JAS will not get much of what it asked for.

What’s At Stake conference bans new gTLD consultants

Kevin Murphy, October 20, 2011, Domain Policy

A conference in New York next month has been set up for marketers to discuss ICANN’s new top-level domains program without pitches from consultants.

What’s At Stake, scheduled for November 1, is for new gTLD skeptics, primarily marketers from large companies that will be impacted by the program.

It’s going to discuss the implications of the program and a few ways ICANN could tweak it to make it less daunting for large corporate applicants.

The conference, found at whatsatstake.com, is being organized by New York marketing pro Judy Shapiro, in conjunction with CADNA, the Coalition Against Domain Name Abuse.

Former ICANN chair Esther Dyson, who has recently emerged as a fierce critic of the program, is scheduled to keynote the event.

The goal is not to “bash ICANN”, Shapiro told DI in an interview yesterday.

Unlike the Association of National Advertisers and other trade groups, the conference will focus on changes that could be made to the program, rather than its outright suspension, she said.

Primarily, Shapiro wants to see ICANN name the date for a second round of applications.

“If they just said they’re going to do another auction in so many months time, it would be a thousand times better right away,” she said, referring to a second application round rather than an actual “auction”.

Currently, the first application window is scheduled to run from January 12 to April 12 next year. There’s no fixed date for a second round, and some say it could be five years before we see one.

This has economically incentivized new gTLD consultants and registry service providers to play up the “clock is ticking” and “it may be your only chance to apply” memes.

While accurate, this has arguably helped cast the domain name industry yet again as a bunch of borderline extortionists focused primarily on pumping defensive registrations.

It also could mean that some large companies fire off applications for far more gTLDs than they could conceivably need or use, just in order to “defensively” own a keyword related to their industry.

If that happens, it’s quite possible that we’ll see a bunch of dormant or otherwise half-assed extensions go live, substantiating the view that new gTLDs are a waste of time and that .com is king, etc. etc. etc.

The ICANN program as it stands today is “brilliantly constructed to force everyone to buy everything they want in one fell swoop,” Shapiro said.

The problem with naming a second-round date is of course that the first one is likely to take years to run its course. Everybody is expecting some kind of litigation, which could delay any schedule.

Shapiro herself expects that there will be a lawsuit designed to delay the program at some point between now and January.

Shapiro’s background is in corporate brand management for companies such as AT&T, Lucent and CA. She currently runs the online marketing company engageSimply.

“I was very familiar with ICANN. It was not a mystery to me,” she said, explaining her decision to launch the conference. “But I found I was clueless [about the new gTLD program] and I was shocked that I was clueless. I did a survey of 40 friends at top companies, and they were clueless too.”

She decided to offer a conference after she read an August 16 AdAge op-ed by Alexa Raad, CEO of the consultancy Architelos, which she said many marketers dd not understand.

But What’s At Stake is an invitation-only event, and new gTLD consultants are not welcome.

“I am paying for it, I do not want any pitches,” said Shapiro.

While she is trying to secure the attendance of an ICANN executive, she said the organization is being “not so forthcoming”, even maybe a little “defensive”.

If true, this is a pity. It strikes me that these the kinds of people ICANN needs to be reaching out to, even if it means one of its regular expository go-to guys has to squirm in his chair for a few hours.

“They’ve done such a bad job reaching out to this community,” Shapiro said. “Everyone I’m talking to has said: Why are they doing this?”

I put it to her that the new gTLD program has been in development for several years, and that literally anybody was able to participate in the creation of the Applicant Guidebook.

“The problem has been that the issue of domain management falls usually under the technical and legal sides of the house,” she said. “There’s been no collaboration between the IT, legal and marketing folks.”

Marketing people, usually focused on making short-term numbers, are only just waking up to the possibilities and potential problems that new gTLDs will create, she indicated.

The message that the new gTLD program is a cross-disciplinary challenge is also one that many new gTLD consultants have been preaching since even before ICANN approved the program in June.

There’s a convergence of views, to an extent, here. The problem seems to be the apparent disconnect between what the domain name industry thinks marketers should think and what they do think.

Marketers have been far more focused recently on the “local/mobile/social triad” of disruptive advertising technologies, rather than on new gTLDs, Shapiro said.

“The ICANN industry is completely disconnected from the realities of marketing industry,” she said.

The other demand Shapiro/CADNA has for ICANN is for the program to be made more corporate-friendly, but this appears to be very much a secondary concern.

The program currently requires applicants to disclose personal information about their company principals, which sits uncomfortably with many senior executives at large brands, for example.

The Continued Operations Instrument, a financial bond designed to fund failover support for defunct registries, is also a concern. As I noted earlier in the week, it seems unnecessary to impose this on single-registrant .brand applicants.

There are already at least two special provisions in the Applicant Guidebook that exclude .brand registries from certain commitments, so creating more would not be unprecedented.

The problem of course is that as soon as ICANN starts giving extra privileges to certain classes of applicant, it runs the risk of creating loopholes that can be gamed by other applicants.

What’s At Stake starts at 8.45am local time November 1. Shapiro said she’s hoping to webcast it and possibly even allow questions from people not able to attend in person.

Aussies to apply for four geo-TLDs

Kevin Murphy, October 19, 2011, Domain Registries

The Australian state governments of New South Wales and Victoria have put out a tender for a registry provider for up to four new top-level domains.

They want to apply to ICANN next year for geographic gTLDs including .victoria, .sydney, .melbourne and possibly .nsw, according to the RFP.

The new gTLDs would be self-funded commercial ventures, with some names reserved for public use, it says. Revenue would be shared between the government and the operator.

If a local presence is taken into account then ARI Registry Services, which recently changed its name from AusRegistry International to dilute the perception that it was too Australia-focused, could be considered a likely front-runner for the gigs.

The tender closes November 15.

With 86 days to go, the cost of new gTLDs is still unknown

Kevin Murphy, October 18, 2011, Domain Policy

If you’re planning to apply for a new generic top-level domain or two, wouldn’t it be nice to know how much it’s going to cost you?

It’s less than three months before ICANN opens the floodgates to new gTLD applicants, but you’re probably not going to find out how big your bank account needs to be until the last minute.

With 86 days on the clock until the application window opens, and 177 until it closes, there are still at least two huge pricing policies that have yet to be finalized by ICANN.

The first relates to reduced application fees and/or financial support handouts for worthy applicants from developing nations. I’ll get to that in a separate piece before Dakar.

The second is the controversial Continued Operations Instrument, a cash reserve designed to ensure that new gTLDs continue to operate even if the registry manager goes out of business.

In the current Applicant Guidebook, prospective registries are told to prove that they have enough money – either with a letter of credit or in a cash escrow – to keep their gTLD alive for three years.

To be clear, the COI money doesn’t go into ICANN’s coffers; applicants just need to show that the cash exists, somewhere.

The funds would be used to pay the Emergency Back-End Registry Operator (whichever company that turns out to be) in the event of a catastrophic gTLD business failure.

With hundreds of new gTLDs predicted, many of them likely to be laughably naive, we’re likely to see plenty of such failures.

With that in mind, ICANN wants to make sure that registrants and end users are not impacted by too much downtime if they put their faith in incompetent or unlucky registries.

It is estimated that the COI will amount to a six-figure sum for almost all commercial registries. For generics with a higher projected registration volume it could easily run into the millions.

It’s controversial for a number of reasons.

First, it raises the financial bar to applying considerably.

Forget the $185,000 application fee. Under the COI provision, applicants need to be flush enough to be able to leave millions of dollars dormant in escrow for at least five years.

It’s been sensibly argued that this money would be better devoted to making sure the registry doesn’t fail in the first place.

Second, even though the Guidebook gives .brand applicants the ability to shut down their gTLDs without the risk of another provider taking them over, it also expects them to create a COI.

This appears to be an unnecessary waste of cash. If a single-registrant .brand gTLD fails, the registry itself is the only registrant affected and the COI is essentially redundant.

Third, some applicants are thinking about low-balling their business model projections in order to keep their COI to a manageable amount.

This, as the better new gTLD consultants will tell you, could be a bad idea. When applications are reviewed the evaluators will be looking for discrepancies like this.

If you’re making one set of financial projections to investors and another to ICANN, you risk losing points on and possibly failing the evaluation.

Anyway, with all this in mind (and with apologies for burying the lead) ICANN has just said that it’s thinking about completely revamping the COI policy before applications are accepted.

Seriously.

ICANN’s Registry Stakeholder Group community has made a proposal – which appears to be utterly sensible on the face of it – that would reduce costs by pooling the risk among successful applicants.

The RySG said it that the COI “should not be so burdensome as to actually become a roadblock to the success of new registries by causing capital to be tied up unduly.”

Rather than putting up enough cash to cover its own failure, each successful applicant would pay $50,000 up-front into a Continued Operations Fund that would cover all potential registry failures.

The COF would be administered by ICANN (or possibly a third party), and would be capped at $20 million. In a round of 400 new gTLDs, that target would be reached immediately.

If the COF fell short of $20 million, each registry would have to pay $0.05 per domain name per year into the fund until the cap was reached.

It’s a shared-risk insurance model, essentially.

While ICANN’s COI policy is ultra-cautious, implicitly assuming that ALL new gTLDs could simultaneously fail, the COF proposal assumes that only a small subset will.

Reverse-engineering the RySG’s numbers, the COF appears to cover the risk of failure for registries representing some 10 million domain-years.

ICANN has opened up the proposal to public comments until December 2.

This means we’re unlikely to see any concrete action to approve or reject the COF alternative until, at the earliest, about a month before the first round application window opens.

ICANN likes cutting things fine, doesn’t it?