Go Daddy passes 45 million domains milestone

Go Daddy now has 45 million domain names under management.
That’s the word from Scottsdale tonight. The news comes less than a year after the registrar announced its 40 millionth domain name registration.
According to the company, it “is registering, renewing or transferring a domain name every eight-tenths of a second” and is now “larger than eight of its closest competitors combined”.
Obviously, this is great news for Go Daddy.
It also means that the company is in a very dominant position in the market, which may attract more attention in future.

Go Daddy offers Whois privacy for .co domains

.CO Internet has started allowing registrars to offer Whois privacy services for .co domains, according to Go Daddy.
In a blog post, Go Daddy’s “RachelH”, wrote:

When the Internet Corporation for Assigned Names and Numbers (ICANN) and .CO Internet S.A.S. drafted the .co policy earlier this year, they decided to hold off on private registration to prevent wrongful use of the new ccTLD — especially during the landrush. Now that .co has carved its place among popular TLDs, you can add private registration to your .co domain names.

Unless I’m mistaken, ICANN had no involvement in the creation of .co’s policies, but I don’t think that’s relevant to the news that .co domains can now be made private.
During its first several months, .CO Internet has been quite careful about appearing respectable, which is why its domains are relatively expensive, why its trademark protections were fairly stringent at launch, and why it has created new domain takedown policies.
It may be a sign that the company feels confident that its brand is fairly well-established now that it has decided to allow Whois privacy, which is quite often associated with cybersquatting (at least in some parts of the domain name community).
It could of course also be a sign that it wants to give its registrars some love – by my estimates a private registration would likely double their gross margin on a .co registration.

Whistleblower alleged shenanigans at DirectNIC

A former employee of a company allegedly affiliated with domain name registrar DirectNIC claimed the company operated a fraudulent domain arbitrage scheme using Yahoo ads and Parked.com.
Mark Deshong filed a whistleblower lawsuit in August. It was settled in October, but its claims are quite interesting, and don’t appear to have been reported on elsewhere.
Until April this year, Deshong worked for a company called Keypath LLC, a domain registration and monetization company based in Tampa, Florida.
According to his lawsuit (pdf), Keypath is owned by the same bunch of people (notably Sigmund Solares and Michael Gardner) who run DirectNIC and Parked.com, as well as entities including Intercosmos Media Group and The Producers Inc.
Deshong said he was fired after blowing the whistle on a “fraudulent” scheme to bilk money out of Yahoo Search Marketing using the old practice of domain arbitrage.
The suit claimed Keypath bought ads on YSM to bring traffic to sites such as cameras.com that, in turn, displayed nothing but contextual ads generated automatically by YSM.
The company would pay Yahoo small amounts for the traffic it received, but would be paid larger amounts for the traffic it sent elsewhere.
That’s domain arbitrage in a nutshell. It was commonplace among domainers back in 2007 and earlier, and Keypath was far from the only company engaged in the practice.
Yahoo tried to put a stop to arbitrage on its ad network in February 2008, as Domain Name Wire reported at the time, but the lawsuit alleged that Keypath carried on regardless, using bogus identities.
This is when the “fraudulent” behavior is alleged to have commenced.
The suit claimed Keypath “created fictitious, unregistered DBA [Doing Business As] company names” in order to obtain up to 1,000 credit cards from Regions Bank.
The complaint, in an eyebrow-raising paragraph, goes on to list almost 100 of these alleged DBA companies’ names.
Each one of these companies would get a Gmail or Hotmail email address and a Skype phone number for the city where the “fictitious” company was supposedly based, the complaint alleged.
A proxy server would be obtained in each of these cities, which Keypath would use to access YSM and order ads pointing to parked pages, under the guise of one of the DBAs, the suit alleged.
The scheme covered about 50,000 domains and made about $375,000 during January 2010, according to the complaint.
The lawsuit was filed under Florida’s whistleblower act, so while it alleged multiple illegal acts (such as bank fraud and wire fraud) on Keypath’s part, it only attempted to prove wrongful termination.
Deshong basically claimed that he was canned after telling his superiors he could no longer carry out duties he believed to be illegal – he didn’t want to go to jail.
In its response (pdf) to the complaint, Keypath denied essentially all of Deshong’s claims.
It also denied that the company has ties to DirectNIC, Michael Gardner, Sigmund Solares, Intercosmos, Parked.com or The Producers.
(Probably a disingenuous claim. Florida company records show they’re all currently or recently linked to businesses located at 5505 West Gray Street in Tampa, Parked.com’s main US office. Keypath’s web site shows the same address).

Keypath also accused Deshong of a shakedown, attempting to “extort an unreasonable severance package”, and said that he had “improperly retained” a company laptop after he was fired.
The suit was settled out of court (pdf) on October 25th for an undisclosed sum.
The lawsuit is only tangentially related to the cybersquatting lawsuit Verizon filed against DirectNIC earlier this year. That case appears to be currently tied up in a pre-trial discovery/jurisdictional nightmare.

Register.com settles Baidu domain hijacking lawsuit

Register.com has apologised to Chinese portal company Baidu for allowing its domain, baidu.com, to be hijacked by the Iranian Cyber Army hacker group.
The two companies have announced that the lawsuit, which alleged gross negligence among other things, has now been settled. Terms were not disclosed.
If Baidu’s complaint was to be believed, the hackers took over baidu.com with a trivial social engineering attack that relied upon a Register.com tech support employee being asleep at the wheel.
The company is one of China’s largest internet firms, employing over 6,000 people and turning over well over $600 million a year. But for the period of the hijack, visitors to baidu.com instead just saw the hackers’ defacement message instead.
The registrar had argued in court that its terms and conditions released it from liability, but the judge didn’t buy it.
Register.com, which was acquired by Web.com for $135 million in June, said yesterday:

After an internal investigation, we found that the breach occurred because Register’s security protocols had been compromised. We have worked with United States law enforcement officials and Baidu to address the issue. We sincerely apologize to Baidu for the disruption that occurred to its services as a result of this incident.

Baidu said it accepted the apology. And the check, I imagine.

Three registrars face the ICANN chop

ICANN has told three registrars they are in breach of their registrar contracts and will lose their accreditation next month unless they rectify the problems.
These registrars, all of which appear to have negligible numbers of gTLD domains under management, are affected:
Mister Name will be shut down if it does not pay its ICANN fees and escrow its Whois data.
Open System Ltd is accused of not having a functioning Whois service.
Best Bulk Domains Inc also doesn’t have a functioning Whois, ICANN said. It also has not been paying its dues and hasn’t maintained accurate contact information for itself.
All three have dates in mid-December to clean up their acts or lose their right to sell gTLD domains.
You can find ICANN’s compliance letters here.

Another reason why Go Daddy might not become a registry

Domain name registries and registrars will soon be able to own each other, but there are plenty of good reasons why many of them, including the largest, may not.
George Kirikos and Mike Berkens are asking very interesting questions today, based on earlier investigative reporting by DomainNameWire, about whether Go Daddy would or should be barred from owning a registry on cybersquatting grounds.
But that’s not the only reason why Go Daddy may have problems applying for a new top-level domain.
I reported back in March, when only my mother was reading this blog, that Go Daddy may have gotten too big to be allowed into the registry market.
If you think Go Daddy wants to apply to ICANN to manage a new TLD registry or two, ask yourself: why did Go Daddy spend most of the year opposing vertical integration?
I have no inside knowledge into this, but I have a theory.
In 2008, CRA International produced an economic study for ICANN that, broadly speaking, recommended the relaxation of the rules separating registries and registrars.
In December that year, less than two years ago, Go Daddy filed its very much pro-VI comments on the study:

Go Daddy has and continues to be an advocate for eliminating the existing limits on registry/registrar cross-ownership.
…
The arguments that have been presented in favor of maintaining the status quo simply do not hold water. Current and past examples of cross-ownership already serve as test cases that demonstrate cross-ownership can and does work, and it can be successfully monitored.

Over the course of the next 12 months, the company’s official position on VI mellowed, and by this year it had made a 180-degree turn on the issue.
Its comments to the VI working group, filed in April 2010, say:

Go Daddy’s position on the vertical integration (VI) issue has changed over time. When VI discussions first began our position was very much to the left (if left is full, unqualified VI), but it has moved steadily to the right (if right is maintaining the so-called status quo). At this point, we are nearly fully on the right.

The company cited concerns about security, stability and consumer protection as the reasons for its shift. While I’ve no doubt that’s part of the story, I doubt it paints a full picture.
The decision may also have something to do with another economic study, produced for ICANN in February this year, this time by economics experts Steven Salop and Joshua Wright. It was published in March.
This study, crucially I think, suggested that where cross-ownership was to take place and the larger of the two companies had market power, that the deal should be referred to government competition regulators. Salop & Wright said:

We recommend that ICANN choose a market share threshold in the 40-60% range (the market share measured would be that of the acquiring company). The lower end is the market share at which U.S. competition authorities begin to be concerned about market power.

Guess which is the only registrar that falls into this market share window?
In January this year, Go Daddy put out a press release, when it registered its 40 millionth domain, which claimed:

Go Daddy now holds a near 50 percent market share of all active new domains registered in the world and is more than three times the size of its closest competitor.

Correlation does not equal causation, of course, so there’s no reason the second economic study and Go Daddy’s policy U-turn are necessarily linked, but I’d be surprised if the market power issue did not play a role.
The newly published Applicant Guidebook appears to have taken on board a key Salop & Wright recommendation, one that may be relevant:

ICANN-accredited registrars are eligible to apply for a gTLD… ICANN reserves the right to refer any application to the appropriate competition authority relative to any cross-ownership issues.

It seems to me that Go Daddy may be one of the few companies such a provision applies to. The company may find it has a harder time applying to become a registry than its competitors.
In the interests of sanity, I should point of that the AGB has been out for less than 48 hours, and that anything written about its possible consequences at this point is pure speculation.

DirectNIC chief tries to dismiss cybersquatting suit

The CEO of DirectNIC is trying to wriggle out of a cybersquatting lawsuit filed by Verizon, seemingly on the grounds that the telco has been unable to track him down.
Sigmund Solares heads up the Grand Cayman-based registrar and lives in Florida, but since suing DirectNIC back in March, Verizon has not been able to find him to serve him notice.
Now, his lawyers are arguing on a technicality that the suit against him should be dismissed (pdf).
Verizon claims that DirectNIC and its directors, via a bunch of shell companies, cybersquatted “nearly every single famous trademark in existence”, including some of Verizon’s.
It filed an amended complaint (pdf) a month ago. Due to its inability to track down Solares, it served the Florida Secretary of State instead, which it’s allowed to do if the defendant evades service.
Verizon has filed a number of declarations from process servers who were unable to serve him, despite staking out his Tampa home on at least 10 occasions over the space of several months.
Solares’ lawyers now want the complaint against him dismissed on the grounds that he’s not been served, and that he was not evading service, he was just away on business and vacation:

no where in the Plaintiffs’ affidavits do the Plaintiffs allege any actions whatsoever on the part of Mr. Solares. The Plaintiffs’ complaint and affidavits merely recount their efforts to serve Mr. Solares. Such allegations cannot clearly show that Mr. Solares is evading process because they allege no actions on his part at all. Plaintiffs’ assertions only show Mr. Solares’ absence from Tampa during the periods when the Plaintiffs attempted to effect service of process.

In response, Solares has filed a fairly detailed account (pdf) of his whereabouts between March and September, which included trips to Milan, Miami, Aruba, Ireland and Boston.
Some of the dates and locations coincide with big domainer conferences.
Verizon’s complaint attacks DirectNIC on essentially two fronts.
It claims that DirectNIC’s practice of parking expiring domains – including those that infringe trademarks – constitutes cybersquatting. This is of course a fairly common industry practice.
It also claims that DirectNIC itself cybersquatted on thousands of domains via a number of shell companies, including NOLDC, Spiral Matrix, Kenyatech, Kentech, Speedy Web, Unused Domains, and Belize Domain WHOIS Service.
There’s a fair bit of circumstantial evidence connecting the firms, and UDRP panelists have previously inferred that they shared ownership, but I don’t think it’s ever been definitively proved.
I reported on this evidence in a bit more depth here.
It’s possible that more evidence could emerge during discovery, but the suit cannot proceed to that stage while the court is still figuring out whether Solares has been served or not.
Dell previously sued DirectNIC on the same grounds. Solares signed an affadavit denying he had anything to do with Kenyatech. That suit was settled.

WordPress.com becomes a domain name registrar

Automattic, the company behind the WordPress.com blogging service, appears to have been granted an ICANN registrar accreditation, which would allow it to start selling domain names direct to its users.
The development seems to put a question mark next to the company’s reseller relationship with Go Daddy subsidiaries Wild West Domains and Domains By Proxy.
Currently, WordPress.com allows users to buy domain names and map them to their wordpress.com blog directly through their blog’s interface. The company charges $17 a year, with optional privacy.
It’s my understanding that the company currently acts as a Wild West Domains reseller, with the privacy protection service offered by Domains By Proxy. Both are Go Daddy companies.
Recently, WordPress.com started offering an Offsite Redirect service, enabling users to bounce visitors to example.wordpress.com to example.com after they’ve switched hosts.
Go Daddy used this as an opportunity to encourage WordPress.com users to migrate to its own hosting service in this blog post.
Automattic showed up on ICANN’s list of accredited registrars IDs yesterday, suggesting that it will not be long before it is also on the official list of accredited registrars.

Go Daddy files for business community patents

Go Daddy has applied for three US patents covering an “Online Business Community” that looks a bit like a social network for small businesses.
The patents describe a web site that enables companies and potential customers to interact through forums, community groups and ratings systems, as well as advertising, buying and selling.
In the applications, Go Daddy says it had noticed that:

presently-existing methods of conducting online business, however, do not permit businesses and potential customers alike to interact in one place to share business-related resources; advertise, buy, and sell goods and services; interact; hold discussions; and network.

The patents, if granted, would cover such a service.
While most or all of the features outlined in the applications can be found individually in other Go Daddy products, I don’t think the company currently has a service that combines them all in the way described by the patents. Go Daddy Marketplace probably comes closest.
The applications appear to cover the creation of ad hoc business communities, for example, as well as the formation of “partnerships” between members such as suppliers and customers.
They also appear to account for communication between members using technologies such as instant messaging or voice over IP, and for members to rate each other for trustworthiness.
The three applications, 20100262686, 20100262629 and 20100262502, were filed in June and published today.

Demand Media to invest up to $75m in content

Demand Media plans to invest between $50 million and $75 million in content in 2011, according to the company’s latest IPO filing.
The company, which owns number two registrar eNom, has also disclosed that it plans to list itself on the New York Stock Exchange under the ticker symbol DMD.
Under “Use of Proceeds” in its latest amended S-1 registration form (huge HTML file), filed today with the Securities and Exchange Commission, Demand says:

We currently anticipate that our aggregate investments in content during the year ending December 31, 2011 will range from $50 million to $75 million.

Demand Media’s main business is the advertising it sells against the thousands of freelance articles it publishes every day. It had about $102 million in current assets on its balance sheet on June 30 this year.
Previous text talking about about using the proceeds of the IPO to “acquire or invest in complementary technologies, solutions or businesses” has been dropped.
The amended S-1 spends quite a lot of time talking about a reverse stock split that it is carrying out prior to its public offering.