This latest Chinese bubble could deflate ccTLD growth

With many ccTLD operators recently reporting stagnant growth or shrinkage, one registry has performed stunningly well over the last year. Sadly, it bears the hallmarks of another speculative bubble originating in China.
Verisign’s latest Domain Name Industry Brief reported that ccTLDs, excluding the never-shrinking anomaly that is .tk, increased by 1.4 million domains in the first quarter of the year.
But it turns out about 1.2 million of those net new domains came from just one TLD: Taiwan’s .tw, operated by TWNIC.
Looking at the annual growth numbers, the DNIB reports that ccTLDs globally grew by 7.8 million names between the ends of March 2018 and March 2019.
But it also turns out that quite a lot of that — over five million names — also came from .tw.
Since August 2018, .tw has netted 5.8 million new registrations, ending May with 6.5 million names.
It’s come from basically nowhere to become the fifth-largest ccTLD by volume, or fourth if you exclude .tk, per the DNIB.
History tells us that when TLDs experience such huge, unprecedented growth spurts, it’s usually due to lowering prices or liberalizing registration policies.
In this case, it’s a bit of both. But mostly pricing.
TWNIC has made it much easier to get approved to sell .tw names if you’re already an ICANN-accredited registrar.
But it’s primarily a steep price cut that TWNIC briefly introduced last August that is behind huge uptick in sales.
Registry CEO Kenny Huang confirmed to DI that the pricing promo is behind the growth.
For about a month, registrants could obtain a one-year Latin or Chinese IDN .tw name for NTD 50 (about $1.50), a whopping 95% discount on its usual annual fee (about $30).
As a result, TWNIC added four million names in August and September, according to registry stats. The vast majority were Latin-script names.
According to China domain market experts Allegravita, and confirmed by Archive.org, one Taiwanese registrar was offering free .tw domains for a day whenever a Chinese Taipei athlete won a gold medal during the Asian Games, which ran over August and September. They wound up winning 17 golds.
Huang said that the majority of the regs came from mainland Chinese registrants.
History shows that big growth spurts like this inevitably lead to big declines a year or two later, in the “junk drop”. It’s not unusual for a registry to lose 90%+ of its free or cheap domains after the promotional first year is over.
Huang confirmed that he’s expecting .tw registrations to drop in the fourth quarter.
It seems likely that later this year we’re very likely going to see the impact of the .tw junk drop on ccTLD volumes overall, which are already perilously close to flat.
Speculative bubbles from China have in recent years contributed to wobbly performance from the new gTLD sector and even to .com itself.

Dodgy registrars could be banned from .org promotions

The worse a registrar is at tackling abuse, the more likely it is to be excluded from promotions in the .org space, according to a new policy from Public Interest Registry.
The .org registry said today that it is introducing a new “Quality Performance Index” to rate its registrars according to the quality of their registrations.
They’ll be ranked according to three criteria: abuse takedown, renewal rates, and domain usage.
Those that score above a certain threshold will be pre-qualified for promotions. The others will be encouraged to talk to their PIR rep about things they could do to get their scores up.
This kind of mechanism should in theory make it relatively easy to separate registrars into conscientious corporate citizens on the one hand and fly-by-night spam-friendly jerks on the other.
Keeping the bad guys away from the discounts could go a long way to keeping .org a relatively healthy zone.
But I expect there may be concern from the middle-ground of the registrar space, where we have well-meaning but under-resourced registrars that may find their scores wanting.
An additional concern may be that PIR said it intends to change the score threshold depending on the promotion, which appears to give it the ability to exclude registrars more or less at will.
The QPI initiative also extends to PIR’s newer, lesser-used gTLDs.

These people support scrapping .org price caps

The first examples of people supporting the scrapping of price caps in .org have emerged.
ICANN’s Business Constituency and Intellectual Property Constituency have both in the last few hours filed comments on the proposed renewal of Public Interest Registry’s .org contract, which includes the controversial removal of the current 10%-a-year price caps.
The BC expresses outright support for the end of caps — the first example I’ve seen of explicit support for the move — while the IPC utterly fails to address it.
A prominent US antitrust lawyer has also weighed in to claim that approving the new provisions would not raise competition concerns.
Both the IPC and BC seem happy to accept the proposed pricing regime, given that PIR’s new contract will also include new rights protection mechanisms, such as the Uniform Rapid Suspension process.
The BC wrote in its comment to ICANN:

Given the BC’s established position that ICANN should not be a price regulator, and considering that .ORG and .INFO are adopting RPMs and other registrant provisions we favor, the BC supports broader implementation of the Base Registry Agreement, including removal of price controls

Seemingly uninterested in price caps whatsoever, the IPC wrote:

The IPC applauds Public Interest Registry and other Registry Operators that choose to implement enhanced rights protection mechanisms for third party trademark owners, and to take on enhanced responsibilities for the Registry Operator to prevent use of registrations for abusive purposes, including but not limited to violations of intellectual property rights.

From outside the ICANN community, Washington DC-based antitrust attorney David Balto, a former Federal Trade Commission official, has submitted a brief analysis in which he finds little to be concerned about from a competition perspective. He writes:

An analysis of the .org gTLD under competition would likely find that it has little market power, and thus would be unable to unreasonably raise prices. Any attempt to do so should result in users defecting to alternative gTLDs.
Users have ample protections in the form of marketplace competition and contract provisions that allow users to be notified of price increases and lock in rates for up to ten years.

These arguments stand in stark contrast to those made by many in the domainer community, such as in Andrew Allemann’s post today.
Balto says that “market power” — a legal test under US competition law — starts to kick in at about 30% market share. But .org only has about 5.5%, he wrote.
The lawyer does not identify a client affiliation in his letter.
With just a few hours left on the clock before public comments close, there have been 3,129 submitted comments, the vast majority coming from domain investors.
Some non-profit groups have also registered their objections.

ICANN urged to reject .com price increases

The Internet Commerce Association has asked ICANN to refuse to allow Verisign to raise its wholesale prices for .com domain names.
The domainer trade group wrote to ICANN last week to point out that just because the Trump administration has dropped the US government objection to controlled price increases, that doesn’t necessarily mean ICANN has to agree.
Verisign’s deal with the National Telecommunications and Information Administration “does not of course, compel ICANN to agree to any such increases. Any such decision regarding .com pricing
remains with ICANN” ICA general counsel Zak Muscovitch wrote.
The deal allows Verisign to increase the price of .com registrations, renewals and transfers by 7% per year in four of the next six years, leading to a compound 30% increase by the time it concludes.
The arguments put forth Muscovitch’s letter are pretty much the same as the arguments ICA made when it was lobbying NTIA to maintain the price freeze.
Namely: Verisign already makes a tonne of money from .com, it has a captive audience, it cannot claim credit for .com’s success, and .com is not constrained by competition.
“As NTIA makes clear, it is up to Verisign to request a fee increase and ICANN that may agree or disagree. ICANN should not agree. Indeed, it would be a dereliction of ICANN’s responsibilities to the ICANN community if Verisign were permitted to raise its fees when it is already very well paid for the services which it provides,” Muscovitch’s letter (pdf) concludes.
For many years ICANN has been reluctant to get involved in price regulation. It remains to be seen whether it will make an exception for .com.

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

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

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”

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

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.