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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.

Cloudflare selling all domains at cost: “All we’re doing is pinging an API”

Kevin Murphy, September 28, 2018, Domain Registrars

Content delivery network provider Cloudflare has promised to sell domains in all TLDs at the wholesale cost, with no markup, forever.

The company made the commitment yesterday as it announced its intention to get into the registrar business.

Founder Matthew Price used the announcement to launch a blistering attack on the current registrar market, which he said is charging “crazy” prices and endlessly upselling their customers with unwanted, worthless products. He blogged:

why should registrars charge any markup over what the TLDs charge? That seemed as nutty to us as certificate authorities charging to run a bit of math. When we see a broken market on the Internet we like to do something about it.

we promise to never charge you anything more than the wholesale price each TLD charges. That’s true the first year and it’s true every subsequent year. If you register your domain with Cloudflare Registrar you’ll always pay the wholesale price with no markup.

For instance, Verisign, which administers the .com TLD, currently charges $7.85 per year to register a .com domain. ICANN imposes a $0.18 per year fee on top of that for every domain registered. Today, if you transfer your .com domain to Cloudflare, that’s what we’ll charge you per year: $8.03/year. No markup. All we’re doing is pinging an API, there’s no incremental cost to us, so why should you have to pay more than wholesale?

There are catches, of course.

For starters, the service is not available yet.

Price wrote that Cloudflare will roll it out gradually — for inbound transfers only — to its “most loyal” customers over an unspecified period. Even customers on its cheapest plans will get access to the queue, he wrote.

Eventually, he said, it will be available “more broadly”.

It will be interesting to see if the no-markup pricing could become available to non-customers too, and whether it sticks to its business model when its support lines start ringing and it becomes apparent the business is actually big ole cash vampire.

Cloudflare has been ICANN-accredited for several years, but it’s only been offering registrations to high-value enterprise customers so far.

My records show that it has not much more than 800 domains under management, all in .com, .net, .org and .info.

The announcement was made, perhaps not coincidentally, a couple days after CRM software provider Zoho made headlines when its 40 million customers were taken offline because its former registrar suspended zoho.com over a trivial level of abuse. In response to the screw-up, Zoho transferred the domain to Cloudflare.

Verisign confirms first price increase under new .net contract

Verisign is to increase the wholesale price of an annual .net domain registration by 10%, the company confirmed yesterday.

It’s the first in an expected series of six annual 10% price hikes permitted under its recently renewed registry agreement with ICANN.

The annual price of a .net registration, renewal, or transfer will go up from $8.20 to $9.02, effective February 1, 2018

If all six options are exercised, the price of a .net would be $15.27 by the time the current contract expires, including the $0.75 ICANN fee. It would be $14.52 without the ICANN fee.

The increase was confirmed by CEO Jim Bidzos as Verisign reported its second-quarter earnings yesterday.

For the quarter, Verisign saw net income go up to $123 million from $113 million a year ago, on revenue that was up 0.7% at $289 million.

It now has cash of $1.8 billion, up $11 million on a year ago.

It ended the quarter with 144.3 million .com and .net names in its registry, up 0.8% on last year and 0.68 million sequentially.

.net price increases approved

Verisign has been given the right to continue to raise the wholesale price of .net domains.

It now seems likely the price charged to registrars will top $15 by 2023.

ICANN’s board of directors at the weekend approved the renewal of the .net Registry Agreement, which gives Verisign the right increase its prices by 10% per year for the six years of the contract.

Assuming the company exercises all six options — and there’s no reason to assume it will not — the price of a .net would be $15.27 by the time the contract expires, $0.75 of which would be paid to ICANN in fees.

There was some negative public comment (pdf) about the increases, largely from domainers and those representing domainers, but the ICANN board saw nothing to persuade it to change the terms of the contract.

In notes appended to its resolution, the board stated:

the Board understands that the current price cap provisions in Verisign’s Registry Agreements, including in the .NET Registry Agreement, evolved historically to address various market factors in cooperation with constituencies beyond ICANN including the Department of Commerce. During the negotiations for the renewal, Verisign did not request to alter the pricing cap provisions, the parties did not negotiate these provisions and the provisions remain changed from the previous agreement. The historical 10% price cap was arguably included to allow the Registry Operator to increase prices to account for inflation and increased costs/investments and to take into account other market forces but were not dictated solely by ICANN.

(I assume the word “changed” in that quote should have read “unchanged”.)

Unlike contract renewals for other pre-2012 gTLDs, the .net contract does not include any of the new gTLD program’s rights protection mechanisms, such as the Uniform Rapid Suspension policy.

ICANN explained this disparity by saying these mechanisms are not consensus policies and that it has no right to impose them on legacy gTLD registry operators.

Verisign to keep price increase power under new .net contract

Kevin Murphy, April 21, 2017, Domain Registries

The wholesale price of a .net domain is likely to top $15 by 2023, under a proposed renewal of its ICANN contract revealed today.

ICANN-imposed price caps are staying in the new Registry Agreement, but Verisign retains the right to increase its fees by 10% in each of the six years of the deal’s lifespan.

But domain investors do have at least one reason to be cheerful — while the contract adds many features of the standard new gTLD registry agreement, it does not include a commitment to implement the Uniform Rapid Suspension anti-cybersquatting procedure.

The current .net annual fee charged to registrars is $8.95 — $8.20 for Verisign, $0.75 for ICANN — but Verisign will continue to be allowed to increase its portion by up to 10% a year.

That means the cost of a .net could hit $15.27 wholesale (including the $0.75 ICANN fee) by the time the proposed contract expires in 2023.

Verisign has form when it comes to utilizing its price-raising powers. It exercised all six options under its current contract, raising its share of the fee from $4.65 in 2011.

On the bright side for volume .net holders, the prices increases continue to be predictable. ICANN has not removed the price caps.

Also likely to cheer up domainers is the fact that there are no new intellectual property protection mechanisms in the proposed contract.

Several post-2000 legacy gTLDs have agreed to incorporate the URS into their new contracts, leading to outrage from domainer organization the Internet Commerce Association.

ICA is worried that URS will one day wind up in .com without a proper ICANN community consensus, opening its members up to more risk of losing valuable domains.

The fact that URS is not being slipped into the .net contract makes it much less likely to be forced on .com too.

But Verisign has agreed to several mostly technical provisions that bring it more into line with the standard 2012-round new gTLD RA.

For example, it appears that daily .net zone files will become accessible via ICANN’s Centralized Zone Data Service before the end of the year.

Verisign has also agreed to standardize the format of its data escrow, Whois and monthly transaction reports.

The company has also agreed to start discussions about handing .net over to an emergency back-end operator in the event it files for bankruptcy.

The current contract is due to expire at the end of June and the proposed new deal would kick in July 1.

It’s now open for public comment until June 13.