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Will ICANN take a bigger slice of the .com pie, or will .domainers get URS?

Kevin Murphy, November 5, 2018, Domain Registries

Will ICANN try to get its paws on some of Verisign’s .com windfall? Or might domainers get a second slap in the face by seeing URS imposed in .com?

With Verisign set to receive hundreds of millions of extra dollars due to the imminent lifting of .com price caps, it’s been suggested that ICANN may also financially benefit from the arrangement.

In a couple of blog posts Friday, filthy domain scalper Andrew Allemann said that ICANN will likely demand higher fees from Verisign in the new .com registry agreement.

Will it though? I guess it’s not impossible, but I wouldn’t say it’s a certainty by any means.

Verisign currently pays ICANN $0.25 per transaction, the same as almost all other gTLDs. Technically, there’s no reason this could not be renegotiated.

Putting aside some of the legacy gTLD contracts, I can only think of two significant cases of ICANN imposing higher fees on a registry.

The first was .xxx, which was signed in 2011. That called for ICM Registry, now part of MMX, to pay $2 per transaction, eight times the norm.

The rationale for this was that ICANN thought (or at least said it thought) that .xxx was going to be a legal and compliance minefield. It said it envisaged higher costs for overseeing the then-controversial TLD.

There was a school of thought that ICANN was just interested in opportunistically boosting its own coffers, given that ICM was due to charge over $60 per domain per year — at the time a ludicrously high amount.

But risk largely failed to materialize, and the two parties last year renegotiated the fees down to $0.25.

The second instance was .sucks, another controversial TLD. In that case, ICANN charged registry Vox Populi a $100,000 upfront fee and per-transaction fees of $1 per domain for the first 900,000 transactions, four times more than the norm.

While some saw this as a repeat of the .xxx legal arse-covering tactic, ICANN said it was actually in place to recoup a bunch of money that Vox Pop owner Momentous still owed when it let a bunch of its drop-catch registrars go out of business a couple years earlier.

While the .sucks example clearly doesn’t apply to Verisign, one could make the case that the .xxx example might.

It’s possible, I guess, that ICANN could make the case that Verisign’s newly regained ability to raise prices opens it up to litigation risk — something I reckon is certainly true — and that it needs to increase its fees to cover that risk.

It might be tempting. ICANN has a bit of a budget crunch at the moment, and a bottomless cash pit like Verisign would be an easy source of funds. A transaction fee increase of four cents would have been enough to cover the $5 million budget shortfall it had to deal with earlier this year.

On the other hand, it could be argued that ICANN demanding more money from Verisign would unlevel the playing field, inviting endless litigation from Verisign itself.

ICANN’s track record with legacy gTLDs has been to reduce, rather than increase, their transaction fees.

Pre-2012 gTLDs such as .mobi, .jobs, .cat and .travel have all seen their fees reduced to the $0.25 baseline in recent years, sometimes from as high as $2.

In each of these cases, the registries concerned had to adopt many provisions of the standard 2012 new gTLD registry agreement including, controversially, the Uniform Rapid Suspension service.

Domainers hate the URS, which gives trademark owners greater powers to take away their domains, and the Internet Commerce Association (under the previous stewardship of general counsel Phil Corwin, since hired by Verisign) unsuccessfully fought against URS being added to .mobi et al over the last several years, on the basis that eventually it could worm its way into .com.

I’m not suggesting for a moment that ICANN might reduce Verisign’s fees, but what if URS is the price the registry has to pay for its massive .com windfall?

It’s not as if Verisign has any love for domainers, despite the substantial contribution they make to its top line.

Since the NTIA deal was announced, it’s already calling them “scalpers” and driving them crazy.

ICA lost the .com price freeze fight last week, could it also be about to lose the URS fight?

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.

Uniregistry to grandfather existing domains before big price increases

Uniregistry has backtracked on its plan to hike renewal fees on thousands of domain name registrations.

CEO Frank Schilling described the U-turn, which followed a ferocious backlash from domain investors, as “the right thing to do”.

The company had announced price increases across 16 of its 27 gTLDs that in one case exceeded 3,000% but in many more cases represented increases in the hundreds of percent.

The increases were to apply to new and renewing registrations, and Schilling had said that they were necessary to keep the affected TLDs afloat.

But domainers were furious, taking to blogs and message boards to announce and decry the death of all new gTLDs.

Leading registrar Go Daddy soon said that it would no longer sell Uniregistry TLDs, at least temporarily.

But yesterday Uniregistry announced a change of heart, providing an unusually detailed account of the thought process leading to the price increases that’s worth quoting at length.

“The registration providers we consulted reported that differentiating prices based on the time of the registration was technically difficult and confusing for customers,” said Bret Fausett, head of the Registry Services Team. “Based on that feedback, and considering the small number of registrants affected, we made the difficult decision to raise prices for all registrants.”

“After the announcement, however, we, and our registration partners, have heard clearly from our end users that the ability to register ten-years at the existing price does not ameliorate the pain of subsequent price increases for registrants facing substantial price increases,” said Mr. Fausett. “So, for the names in our highest-priced tiers, the price changes will affect only new registrations. We are asking our registration partners to do whatever is necessary to enable this approach.”

“Creating a legacy tier of prices for inaugural registrants in our niche, premium top-level domains is technically more difficult,” said Frank Schilling, Managing Director of Uniregistry, “but it’s the right thing to do for those pioneering individuals and companies who have staked their claims in the new Internet real estate.”

In other words, if you register a name in the affected gTLDs before September 8, your renewal fee will be at the current lower level.

Whether this will be enough to mitigate Uniregistry’s reputational damage in the domainer community remains to be seen.

But the company also said it plans to overhaul its premium names pricing by the end of the second quarter, scrapping the multi-tier pricing approach in favor of a one-size-fits-all menu.

Schilling said that price reductions will affect “millions” of reserved names and mean “hundreds of millions” of dollars of hypothetical value have been wiped from the portfolio.

Schilling expects GoDaddy to return after dumping Uniregistry gTLDs

Kevin Murphy, March 14, 2017, Domain Registries

Uniregistry CEO Frank Schilling has expressed his “surprise” that GoDaddy has decided to stop selling his company’s gTLDs, but said he expects the registrar to return in future.

GoDaddy’s decision to stop new registrations and inbound transfers for Uniregistry’s portfolio of gTLDs came after the registry revealed price increases for 16 strings that ranged from nominal to over 3,000%.

The registrar told Domain Name Wire yesterday that Uniregistry’s move presented “an extremely poor customer experience” and “does not reflect well on the domain name industry”.

Registrars are of course the customer-facing end of the domain name industry, and the burden of explaining renewal price increases of 5x falls on their shoulders.

But Schilling seems to expect the ban to be temporary.

“We are extremely surprised by GoDaddy’s reaction but are pleased that our extensions are available at many other registrars who support our approach. We remain ready to support GoDaddy when they decide on a path which works for their customers,” he told DI today.

“We expect them to return,” he added.

It’s a plausible prediction. GoDaddy’s statement to DNW said Uniregistry had been cut off “until we can assess the impact on our current and potential customers”, which suggests it’s not necessarily permanent.

GoDaddy is Uniregistry’s first or second-largest registrar in most of the affected gTLDs.

But because the gTLDs in question have so few domains in them, the number of GoDaddy-sponsored domains is typically under 1,000 per gTLD.

Even in the much larger zones of .click and .link (which are receiving small price increases and will still wholesale for under $10), GoDaddy’s exposure is just a few thousand domains and it’s nowhere near the market leader.

I wonder how much of GoDaddy’s decision to drop Uniregistry has to do with the reaction from domain investors.

Ever since DI broke the news of the price increases a week ago, there’s been a stream of angry domainer blog and forum posts, condemning Schilling and Uniregistry for the decision and using the move as a stick to batter the whole new gTLD program.

For registrars, it doesn’t necessarily strike me a terrible deal.

While they will have to deal with customer fallout, over the longer term higher wholesale prices means bigger margins.

Registrars are already adding about a hundred bucks to the $300 cost of a .game domain, and the price increase from $10 to $300 of the Spanish equivalent, .juegos, likely means similar margins there too.

Schilling: big price increases needed to keep new gTLDs alive

Uniregistry is to massively increase the price of some of its under-performing new gTLDs in an effort to keep them afloat.

Sixteen TLDs from the company’s portfolio of 27 will see price increases of up to 3,000% starting September 8, CEO Frank Schilling confirmed to DI today.

“We need more revenue from these strings, especially the low volume ones, without question,” he said. “We can’t push on a string and stoke demand overnight. So in order for that string to survive as a standalone it has to be profitable.”

While domainers have taken to new gTLDs in greater numbers than Schilling anticipated, demand among worldwide consumers has been slower than expected, Schilling said.

“If you have a space with only 5,000 registrations, you need to have a higher price point to justify its existence, just because running a TLD isn’t free,” he said.

The alternative to repricing would be to sell the TLD in question to a competitor, which in turn would then be forced to reprice anyway, he said.

The TLDs seeing the biggest price hikes are .hosting and .juegos (Spanish for “games”) which are going up from about $20 retail and about $10 retail respectively to about $300 apiece.

Schilling said he believed that true web hosts could afford the new pricing. The .juegos increase is modeled on what Uniregistry has been doing with .game, which currently retails for closer to $400.

At the budget, sub-$10 end of the portfolio, .click and .link are to see fees rise by a buck or two per year.

Names in .audio, .blackfriday, .diet, .flowers, hiphop .guitars and .property, currently priced in the $10 to $25 range, will all start retailing for about $100 per year.

The other affected TLDs are .christmas, .help, .sexy and .tattoo, which will all see big increases but stay in the sub-$100 range.

The TLDs seeing the biggest price increases are among the ones with the fewest registrations — .juegos has about 1,000 names in its zone, while .hosting has fewer than 6,000. Most of the 16 TLDs have fewer than 10,000 names in their zones.

Uniregistry is no stranger to highly-priced domains. It runs .cars, .car and .auto, where it sells every domain at $2,888 a year retail (with no reserved premiums) but has fewer than 500 names in each zone.

Schilling said that in some ways he prefers this model to the more standard model of low-price base fees with high-price premiums.

The higher prices will likely lead in the short term to lower registration numbers (as speculators flee) but will give Uniregistry more cash to invest in marketing.

“That metering effect of high prices, we like that, in terms of trying to grow the namespace, and it gives us money we can use to try to market the strings to prosperity,” Schilling said.

“At a higher price point, the marketing can scale, but we just can’t do it on base registrations of ten bucks or twenty bucks,” he said.

He added that the higher base fee gives Uniregistry more flexibility to provide periodic discounts.

ICANN rules make it much easier to have a high base fee and keep it regularly discounted than to periodically increase fees, which requires six months notice.

“Between renewals promotions and pricing promotions, a lot of the effects of the price increases will be moot,” Schilling said.

Because the new prices don’t kick in until September, registrants are able to lock in pricing at current levels by renewing for up to 10 years.

While the price increases and Schilling’s relatively gloomy commentary will certainly fuel opponents of new gTLDs, whom are legion, Schilling is still bullish on the market, which he continues to characterize as a marathon rather than a sprint.

“Within ten years, will it be bigger? Absolutely. It’ll be quintuple what it is today,” he said. “But we need to get to 10 years, and to keep the lights on between here and there we need higher prices, without question.”

Verisign announces .net price increase

Verisign has just announced that prices for .net domains are going up again this coming February.

Announcing its second-quarter earnings, the company revealed plans to raise its registry fee from $7.46 to $8.20, effective February 1, 2017.

That’s the maximum 10% price hike it’s allowed to claim under its .net Registry Agreement with ICANN.

Raising .net prices has become a bit of an annual tradition with Verisign, one of the few gTLD registries to still have its prices regulated by ICANN.

The company had about 16.2 million .net domains under management at the last formal, published count in March. Its daily “domain base” has .net at 15.7 million names today.