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Is ICANN still over-estimating revenue from “stagnating” gTLD industry?

Kevin Murphy, March 11, 2018, 21:20:42 (UTC), Domain Policy

ICANN may have slashed millions from its revenue estimate for next year, but it has not slashed deeply enough, according to registrars and others.
Industry growth is flat, and below even ICANN’s “worst case” expectations for the fiscal year starting July 1, registrars told the organization in comments filed on its FY19 budget last week.
The Registrars Stakeholder Group said that “the FY 2019 budget fails to recognize that overall industry growth is flat.”
ICANN’s budget foresees FY19 revenue of $138 million, up $3.5 million on the projected result for FY18.
“These revenue projections presume growth in the domain market that is not aligned with industry expectations,” the RrSG said, pointing to sources such as Verisign’s Domain Name Industry Brief, which calculated 1% industry growth last year.
ICANN’s predictions are based on previous performance and fail to take into account historical “one-time events”, such as the Chinese domain speculation boom of a couple years ago, that probably won’t be repeated, RrSG said.
RrSG also expects the number of accredited registrars to decrease due to industry consolidation and drop-catching registrars reducing their stables of shell accreditations.
(I’ll note here that has added half a dozen drop-catchers to its portfolio in just the last few weeks, but this goes against the grain of recent trends and may be an aberration.)
RrSG said ICANN’s budget should account for reduced or flat accreditation fee revenue (which as far as I can tell it already does).
The comment, which can be read in full here, concludes:

Taken together, these concerns represent a disconnect between ICANN funding projections, and the revenue expectations of Registrars (and presumably, gTLD Registries) from which these funds are derived. In our view, ICANN’s assessment of budgetary “risks” are too optimistic , and actual performance for FY19 will be significant lower.

For what it’s worth, the Registries Stakeholder Group had this to say about ICANN’s revenue estimates:

Reliable forecasts, characterised by their scrutiny and realism, are fundamental to put together a realistic budget and to avoid unpleasant surprises, such as the shortage ICANN is experiencing in the current fiscal year. The RySG advises ICANN to continue to conduct checks on its forecasts and to re-evaluate the methodology used to predict its income in order to prevent another funding shortfall such as that which the organization experienced in FY18.

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Comments (6)

  1. We think ICANN is whistling in the darkness of Denial, as to the failure rate of their GTLD Experiment. More failure figures to come. JAS
    Gratefully, Jeff Schneider (Contact Group) (Metal Tiger) (Former Rockefeller IBEC Marketing Intelligence Analyst/Strategist) (Licensed CBOE Commodity Hedge Strategist) (Domain Master )

  2. The big problem with ICANN’s projections for the NGTs, apart from the volumes, has been the differing registration fees. That, in itself, creates different dynamics to the traditional COM/NET/ORG model where the core registration fee was relatively stable but with discounting being used as a marketing tool. The NGT model is far more complex in that it has a wide range of registration fees and the domain names in these NGTs renew at differing rates. The higher price NGTs tend to be quite sticky with relatively strong renewals. Heavily discounted NGTs tend to have low renewal rates and the monthly rates on some of them can be 5% or lower depending on what discounting offer drove registrations in the previous year. Despite the usual doom and gloom about the NGTs, some of the gTLDs are doing quite well for new TLDs. However, the effect of discounting as a business model has created some large gTLDs at the top of the range but at the expense of low renewal rates. As these 1M+ gTLDs are the most visible in some of the domain counts, people focus on them rather than the smaller NGTs. As for ICANN’s tens of millions of year one NGT registrations, it was like it had a figure in mind and decided to get some “projections” to make it seem real. Unfortunately for ICANN, and some of the registries that believed that they were paying $185K for a the equivalent of a gold mine, it didn’t work out that way.

  3. Phil Buckingham says:

    ICANN has a huge flaw in its budgetary forecasting model . That is why they totally misread the Chinese bubble bursting in FY 18 budgets. The market is actually still declining. Their only saving grace will be if they have factored in Google launching .app in FY19 , which finally looks like will happen. Clearly .web is very very unlikely to launch in the next two years . Music . gay and .hotel also.

  4. It is like there is no real analysis being done by ICANN, Phil,
    It was obvious to almost everyone that the Chinese Bubble was going to burst but the concentration of the larger gTLDs on discounting as a business model really causes problems for any projections because these heavily discounted registrations provide little recurring revenue because most of these registrations do not renew. I’m not sure that Google’s .APP will be any kind of saviour because Google has not displayed any great expertise as regards the NGTs and it is probably going to be quite conservative in its approach to launching .APP gTLD. Tying .APP into its Android App store (Google Play) might be one way of encouraging uptake.

  5. Snoopy says:

    Hope the are factoring in continued ntld declines. If large Chinese ntld holders start to desert then there could be huge declines.
    Suspect over 10 million ntld domains are held by a smallish group of Chinese speculators, unlikely they are profitable.

    • it is not that clean-cut, Snoopy,
      The bulk of the Chinese registrations are volatile, low renewal rate registrations. They are typically in NGTs that depend on heavy discounting as a business model. The problem with these kinds of registrations is that it is typically cheaper to register a new domain name than pay for the full-priced renewal when it comes to renew. This means that the renewal rates for these Chinese registrations, in both Chinese NGTs and Chinese dominated NGTs, tend to be much lower than other registrations. Depending on a highly volatile section of the market is not a good thing for ICANN as a registry dependent on discounting as a core element of its business model will always be chasing the next discounting deal and trying to keep new registrations ahead of deletions. Also, it is not a good thing to lump all NGTs into a single TLD as some of them are doing better than even .COM when it comes to renewals.

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