Verisign facing its own activist investor

While new gTLD registries Rightside and Minds + Machines have faced board-room challenges by activist investors in recent months, it seems industry heavyweight Verisign is contended with a similar problem.
John Chevedden, once described as an “economy class” activist due to his relatively small stakes, is attempting to give smaller Verisign shareholders the ability to propose directors for the company’s board.
Rather than attempting to gut the companies he invests in, he tries to make the odd incision into their corporate governance in order to give smaller investors a greater voice in their companies.
He’s filed a proposal, which will be voted on at Verisign’s June 9 annual general meeting, for a new “proxy access” bylaw.
Essentially, the proposal would allow an unlimited number of shareholders who collectively own over 3% of the company’s stock to propose two people for director elections (or 25% of the board, whichever is greater).
But Verisign’s current board is recommending that shareholders vote against the proposal, saying it’s “unnecessary”.
The company says that it plans to introduce its own proxy access bylaw that would be slightly different.
The Verisign alternative would limit the size of the nominating gang to 20 shareholders. That would mean that each individual investor would have to own much larger stakes, in order to pass the 3% threshold and nominate director candidates.
Verisign says Chevedden’s proposal, which does not limit the number of small shareholders involved, would be expensive and unwieldy to manage.
Chevedden reportedly has quite a decent success rate with these kinds of proposals.

Two more dot-brands self-terminate

The dot-brand dead-pool is now up to three gTLDs.
FLSmidth, which supplies machinery to the cement industry, and Emerson Electric, which also makes industrial machinery, have both decided that they don’t need their new gTLDs.
The affected gTLDs are .flsmidth and .emerson.
Both companies have filed cursory notices of termination with ICANN, indicating that they no longer wish to have a new gTLD Registry Agreement.
Neither company has yet received a preliminary determination from ICANN, a step that will lead to a month-long public comment period before the contracts are terminated.
In Emerson’s case, .emerson has not been delegated so there will be no impact on the number of TLDs in the root.
FLSmidth’s dot-brand has been live since September 2014, but the company never made the transition away from its .com.
While registry reports show that six domains have been registered, its latest zone file shows only the obligatory nic.flsmidth domain is active.
The first new gTLD to cop out was .doosan, the dot-brand for Korean conglomerate Doosan. It took over four months from filing its notice last October to the TLD being retired.

.web has an auction date

The .web gTLD will go to auction July 27, according to ICANN.
The organization released an updated auction schedule (pdf) on Wednesday night that also slates .kids/.kid for an auction on the same day.
Both auctions have confusing “indirect contention” elements, where two strings were ruled confusingly similar.
With .web, it’s lumped in with Vistaprint’s application for .webs, which lost a String Confusion Objection filed by Web.com.
Under ICANN rules, .webs is confusingly similar to to Web.com’s .web, but not to the other six .web applications.
This means that Vistaprint and Web.com basically are fighting a mini contention set auction to see who gets their applied-for gTLD.
If Web.com wins the auction for .web, Vistaprint cannot have .webs. However, if any other .web applicant wins, Vistaprint can go ahead with .webs.
Either way, there will be a .web delegated this year. Google, Donuts, Radix, Afilias, Schlund Technologies, Nu Dot Co are all contenders.
In the case of .kids/.kid, the one applicant for .kid — Google — won SCOs against DotKids Foundation and Amazon by default because both .kids applicants failed to respond to the complaints.
DotKids Foundation recently lost a Community Priority Evaluation, enabling the auction to go ahead.
Because Google is in contention with both .kids applicants, only one of the two strings will ultimately be delegated — .kids and .kid will not coexist.
The only other scheduled auction right now is that of .doctor, which is planned for May 25. Radix, Donuts and The Medical Registry will fight it out in this rather less complex battle.
It’s worth noting that if any of these contention sets unanimously choose to resolve their differences via private auction, none of the ICANN auctions will go ahead.

Verisign has great quarter but sees China growth slowing

Verisign beat its sales expectations in the first quarter of the year, but leadership said rapid growth from Chinese registrants will now “normalize”.

The .com/.net registry last night reported net income up 21% at $107 million, on revenue that was up 9.1% to $282 million.
That’s based primarily on it selling 2.65 million net new .com/.net names during the quarter, at 7.1% increase on the Q1 2014 level baseline. It said it sold 10 million new names in the quarter, up from 8.7 million a year ago.
For comparison, Q1 2015 saw 1.51 million net adds across the two TLDs. Three months ago, the company had predicted net adds to be 1.5 to 2 million names.
It had 142.5 million names at the end of the quarter, 126.6 million of which were .com.
CEO James Bidzos told analysts: “We again saw activity coming from registrars in China that exceeded our expectations.”
However, he added: “At this point, we expect activity from registrars in China to normalize as we continue through the second quarter.”
When pressed, CFO George KIlguss elaborated (according to the SeekingAlpha earnings call transcript):

as we look at the trends, we’ve seen the demand that happened in the second half of the first quarter kind of ebb and flow. So we saw it come. It was pretty strong for a few weeks and then it came back to more than normalized path. So we don’t have a perfect crystal ball, but based on the trends that we’ve seen that we’ve been tracking, it seems to be back on the normalized path for that particular region, at least as what we’ve seen historically.

Verisign is currently negotiating for the renewal of its .com contract with ICANN, which may or may not enable it to raise its government-frozen registry prices in future.

The .web gTLD could go live in 2016

The new gTLD .web could be coming to the internet sooner than expected after two of the remaining barriers to delegation disappeared.
Following the withdrawal last week of an application for the plural .webs, an auction for .web could happen in the next couple of months, enabling a go-live date possibly in 2016.
.web, often considered the most desirable truly generic gTLD, has had a rough time of it in the 2012 ICANN new gTLD program.
There were seven applications for the string. Google, Web.com, Donuts, Radix, Afilias, Schlund Technologies, Nu Dot Co all applied.
The registrar Web.com (owner of Network Solutions, Register.com, et al) appears to be especially keen to get the domain, given that the string more or less matches its brand.
It perhaps should have been a straightforward auction shoot-out.
But, complicating matters, bespoke printing firm Vistaprint had filed two applications — one vanilla, one “community” based — for the plural version of the string, “.webs”.
Vistaprint runs a website development service called Webs.com. It’s the plural of the Web.com brand.
Web.com wasn’t happy about Vistaprint’s .webs applications, so it filed String Confusion Objections against both, arguing that .web and .webs were too confusingly similar to co-exist on the internet.
While there are now many examples of plurals and singulars living together (see .auto/s, .fan/s and .gift/s), the registrar won both of its SCO complaints, meaning Vistaprint’s two applications and the seven .web applicants were lumped together into the same contention set.
If two strings are in the same contention set, only one can survive to be ultimately delegated to the DNS.
Vistaprint appealed the SCO decisions, first with a Request for Reconsideration to the ICANN board (predictably unsuccessful) and then with an Independent Review Process complaint.
While the IRP was being mulled over, .web was in limbo.
The IRP was unsuccessful. The IRP panel ruled in October that ICANN had not violated its bylaws in accepting the SCO panel’s decision.
But it gave ICANN a nudge, suggesting that perhaps it could give Vistaprint leave to appeal the original SCO determinations via another mechanism.
In early March, the ICANN board proper decided that:

the Vistaprint SCO Expert Determination is not sufficiently “inconsistent” or “unreasonable” such that the underlying objection proceedings resulting in the Expert Determination warrants re-evaluation.

The board said that the .web/.webs contention set should be processed as normal; in other words: go to auction.
That removed the first barrier to the .web/.webs auction going ahead.
The second barrier was the fact that Visaprint had file two applications for .webs — one regular, one “community”.
By self-identifying as a “community”, Vistaprint qualified for the Community Priority Evaluation. A winning CPE means all competing applications — including the .web applications in this case — would be eliminated.
While the CPE process is far from perfect, I think the chances of Vistaprint winning would be pretty slim.
Perhaps Vistaprint agreed with me. Whatever the thought process, the company has withdrawn its “community” application. The withdrawal was reflected on the ICANN web site at the weekend, according to the little birds at DI PRO.
What this means is that the seven .web applications and Vistaprint’s remaining, non-community .webs application will be going to auction together.
It could be a private auction, where the proceeds are divvied up between the losers, or an ICANN “last resort” auction, where ICANN gets all the money.
Either way, the winning bidder is likely to pay a LOT of cash for their chosen string.
GMO Registry paid $41 million for .shop back in January. I’d be flabbergasted if .web wasn’t eight figures too.
If Vistaprint offers to pay more money for .webs than Web.com wants to pay for .web, Web.com will be eliminated from the race and Vistaprint will get .webs.
In that scenario, the remaining six .web applicants fight it out for control of the gTLD.
However, if Vistaprint loses against Web.com then all of the seven .web applicants fight it out at auction.
Depending on the identity of the winner and the timing of auctions and pre-delegation testing, it could slip into the root and possibly even become available before the end of the year.
That’s assuming no more surprises, of course.
UPDATE: This post originally incorrectly described the rules of the .web/.webs auction. It was updated with a correct explanation at 2120 UTC.

Greimann wins Nominet board seat

Key-Systems general counsel Volker Greimann has been elected to Nominet’s board as a non-executive director, beating two rival candidates.
Nominated by Blacknight and EuroDNS, he got 1,169,785 of the 2,144,612 votes cast, beating Dot Advice CEO Phil Buckingham and Namesco domain development manager Kelly Salter.
Nominet uses a somewhat complex single transferable vote system in its elections, in which members votes are weighted according to how many .uk domains they have under management.
Voting power is capped at 3% of the total pool for each member, so no one registrar or small group of registrars can capture the election.
Salter, who had been nominated by top-ten registrars Go Daddy and LCN.com, was defeated in the first round of voting, with Greimann picking up the majority of the votes as a second preference, enabling him to win.
Buckingham was essentially the “domainer candidate”, backed by Netistrar and Namedropper, who’d promised to address the controversial issue of Nominet’s 50% price increase.
The price increases are arguably less important to registrars which can pass the increase on to their customers, than they are to domainers, which have to swallow the added costs themselves.
Buckingham secured about 34% of the votes in the second round.
Only 15% of the members eligible to vote did so, though that’s up from 12% last year.
The full results can be found here.
Nominet will hold its Annual General Meeting in London tomorrow.

M+M turns $22m profit into $10m loss

Minds + Machines today reported a 2015 loss of $10 million and further outlined its “transformative” restructuring and China strategy.
It’s the second full year of operating results M+M has posted since its first new gTLDs went live, and they’re not encouraging.
Revenue for accounting purposes was $6.3 million, but the cost of sales was $6.2 million, leaving gross profit of just $101,000.
Factoring in $12.1 million of operating expenses, a $7.9 million gain from losing new gTLD auctions, and other expenses, the total loss before tax was $10 million.
That’s compared to the $22 million profit M+M reported for 2014, a number entirely reliant on $33.7 million of auction loss payments.
The company also reported its “billings”, a line item that does not use the accounting method of deferring revenue across the life of a domain and is therefore more in line with incoming cash.
Billings for 2015 were $7.9 million, compared to $5 million in 2014. Gross profit under that measure was $1.7 million, but the $12 million of operating costs still made the company very unprofitable.
Ignoring the auction benefits in 2015, which will not last forever, it’s pretty clear that M+M was a company spending much more operating new gTLDs than it was making from them.
COO/CFO Michael Salazar said in a statement:

However, billings of $7.9 million for the year were simply not of a sufficient scale to cover the associated cost of sales ($6.2 million) and operating expenses ($12.2 million), which combined reached $18.4 million for 2015. Similarly, the $0.6 million savings achieved in the period by the decisions mid-year to stream-line the existing operational set-up were not of a magnitude to have any material impact in the year under review. That said, forfeited cost of sales and operational expenses as a result of the 2015 cost-cutting decisions will amount to $2.7 million in 2016

It’s perhaps little wonder that activist shareholders, apparently not prepared to play the long game, threw out half of the board and key senior executives during the period.
Former PR man Toby Hall took over as CEO in February, replacing co-founder Anthony Van Couvering, and announced earlier this month that M+M is dumping its registrar and back-end registry businesses.
Its registrar customers have been sold to Uniregistry, and it will outsource its registry back-end to Nominet, to save costs.
Salazar said that the two deals will lead to $2 million in savings, but won’t be complete before the fourth quarter. It seems unlikely they’ll have a great impact on 2016 numbers.
Headcount has been reduced from a peak of 61 to 43 at the end of the year, and is expected to drop further to 25. Salazar said this will save it $4.7 million a year.
Even with these cost reductions, M+M will still need to essentially double its revenue in order to hit operating profitability, it seems.
The company is pinning some of its growth hopes on .vip, which it expects to do well in China. It launches May 18.
Hall said in a statement that M+M would not follow the lead of competitors (Famous Four Media springs to mind) by offering first-year registrations for free to build market share. He said:

Based on the enquiries received during Sunrise and feedback gained through our two recent marketing trips to China, it is clear that there is genuine interest in the domain both within and outside of China. As a result, we will not be using a year-one freemium approach to simply inflate year-one registrations. Instead, we intend to be keenly priced to ensure margin to ourselves — and registrations — as well as protect the integrity of the domain. The volume we anticipate to be generated through keen pricing will then support the sales of our premium names in this domain.

The company also plans to invest in its .law sales team, because billings for that gTLD have been behind expectations.
M+M had $34.6 million in the bank and eight outstanding contested new gTLD applications at the end of the year.

Registrars say Amazon is “closing” open gTLD

A group comprising some of the largest domain registrars has claimed Amazon is attempting to close off a new gTLD that it previously indicated would be unrestricted.
The 12-strong group, which includes Go Daddy, Network Solutions and Tucows, also claims that the company’s proposal for a “Registration Authentication Platform” is anti-competitive.
The complaints follow Amazon’s filing of a Registry Services Evaluation Process request with ICANN in March.
The RSEP speaks in broad terms about rejigging the conventional domain registration path so that all .moi sales are funneled through Amazon’s registry site, where registrants will have their eligibility verified and then be offered a set of add-on “technology tools” before being bounced back to their chosen registrar.
Amazon hasn’t said who will be eligible to register .moi domains, nor has it explained what technology tools it plans to offer. I expect the tools will include things such as hosting and security, where many registrars currently make money.
Unsurprisingly, many registrars are not happy about these vague proposals.
In a comment (pdf) to the RSEP filed yesterday, they said:

Ultimately, the use of pre-registration verification and “optional” value added services will negatively impact competition. By tying both practices in a TLD, a TLD Operator can create a “captive audience” via the pre-registration verification and then offering optional services. This will effectively bypass the existing registration and purchase process, putting TLD Operator in a privileged position. The TLD is set up to capture customers earned via the Registrars marketing efforts to promote its own tools and services.

It’s not unusual for “sponsored” or “restricted” gTLDs to implement registry-side verification, they admitted, but said that .moi is meant to be “open”.
They wrote:

While this practice is not explicitly prohibited under gTLDs, we believe that post-delegation inclusion of these practices should only be allowed in compelling circumstances because they are, in effect, retroactively “closing” what was applied for and approved to be operated as an open, generic TLD.

Amazon’s application for .moi, like all of its new gTLD applications, is not entirely clear on what the company’s plans are. There’s vague talk about eligibility, but no details and nothing substantial to suggest a tightly restricted zone.
The signatories to the registrar comment represent the majority of registered domain names. They are: Astutium, Blacknight Internet Solutions, Domain.com, EuroDNS, GoDaddy.com, OpenproviderNetEarth One, Key-Systems, Netistrar, Network Solutions, Nordreg, Realtime Register, Tucows Domains.
One registrar, Com Laude, whose sister company Valideus handles Amazon’s gTLD applications, wrote a comment (pdf) expressing the opposite view.
Com Laude says that it’s not unusual for registries to require registry-side verification. It points to .bank, .pharmacy and .travel as examples.
The company also claims that the 12 registrars are in essence complaining about the idea of vertical integration — where registries and registrars are under common ownership — which is already in place at companies such as Uniregistry and Rightside.
Com Laude’s Jeff Neuman wrote:

We do not believe that it is unacceptable for a company like Amazon to do what these other companies have been doing for some time. To apply different standards to Amazon Registry than it does for each of the other vertically integrated entities would single them out for disparate treatment – especially when there is no factual basis to believe that Amazon Registry has not adhered to its vertical integration-related obligations under the Registry Agreement.

What’s going on here, I suspect, is a bit of a proxy war.
Neither Amazon nor the registrars care a great deal about .moi, I think. The gTLD is merely a canary for Amazon’s 30-odd yet-to-be-launched gTLDs. The company has the rights to potentially more attractive strings, including .book, .song and .tunes.
Amazon originally wanted to make these strings “closed generics”, or what ICANN calls “exclusive access” gTLDs, where only Amazon could register names.
It has since disavowed such plans, but still hasn’t said who will be able to register names in its portfolio or how they will prove eligibility.
.moi was not originally identified as a closed generic by ICANN, but it could represent a model for what Amazon plans to do with the rest of its stable.

.hotel fight gets nasty with “criminal” hacking claims

A group of would-be .hotel gTLD registries have called on ICANN to reject the winning applicant’s bid or be complicit in “criminal acts”.
The group, which includes Travel Reservations, Famous Four Media, Radix, Minds + Machines, Donuts and Fegistry is threatening to file a second Independent Review Process complaint unless ICANN complies with its demands.
Six applicants, represented by Flip Petillion of Crowell & Moring, claim that Hotel Top Level Domain Sarl should forfeit its application because one of its representatives gained unauthorized access to their trade secrets.
That’s a reference to a story we covered extensively last year, where an ICANN audit found that DotBerlin CEO Dirk Krischenowski, or at least somebody using his credentials, had accessed hundreds of supposedly confidential gTLD application documents on ICANN’s web site.
Krischenowski, who has denied any wrongdoing, is also involved with HTLD, though in what capacity appears to be a matter of dispute between ICANN and the rival .hotel applicants.
In a month-old letter (pdf) to ICANN, only published at the weekend, Petillion doesn’t pull many punches.
The letter alleges:

Allowing HTLD’s application to proceed would go agaist everthing that ICANN stands for. It would amount to an acquiescence in criminal acts that were committed with the obvious intent to obtain an unfair advantage over direct competitors.
…
ICANN caught a representative of HTLD stealing trade secrets of competing applicants via the use of computers and the internet. The situation is even more critical as the crime was committed with the obvious intent of obtaining sensitive business information concerning a competing applicant.

It points out that ICANN’s Applicant Guidebook disqualifies people from applying for a new gTLD if they’ve been convicted of a computer crime.
To the best of my knowledge Krischenowski has not been convicted of, or even charged with, any computer crime.
What ICANN says he did was use its new gTLD applicants’ customer service portal to search for documents which, due to a dumb misconfiguration by ICANN, were visible to users other than their owners.
Krischenowski told DI in an emailed statement today:

According to ICANN, the failure in ICANN’s CSC and GDD portals was the result of a misconfiguration by ICANN of the software used (as mentioned at https://www.icann.org/news/announcement-2-2015-11-19-en). As a user, I relied on the proper functioning of ICANN’s technical infrastructure while working with ICANN’s CSC portal.

HTLD’s application for .hotel is currently “On Hold”, though it is technically the winner of the seven-application contention set.
It prevailed after winning a controversial Community Priority Evaluation in 2014, which was then challenged in an Independent Review Process case by the applicants Petillion represents.
They lost the IRP, but the IRP panelists said that ICANN’s failure to be transparent about its investigation into Krischenowski could amount to a breach of its bylaws.
In its February ruling, the IRP panel wrote:

It is not clear if ICANN has properly investigated the allegation of association between HTLD and D. Krischenowski and, if it has, what conclusions it has reached. Openness and transparency, in the light of such serious allegations, require that it should, and that it should make public the fact of the investigation and the result thereof.

The ruling seems to envisage the possibility of a follow-up IRP.
ICANN had told the panel that its investigation was not complete, so its failure to act to date could not be considered inaction.
The ICANN board resolved in March, two days after Petillion’s letter was sent, to “complete the investigation” and “provide a report to the Board for consideration”.
While the complaining applicants want information about this investigation, their clear preference appears to be that the HTLD application be thrown out.

Aussies get to drop the .com

Australia’s ccTLD manager has confirmed that local registrants will be able to register .au domains at the second level, eschewing the usual .com.
auDA said yesterday that its board has approved a plan that will let people register names such as example.au, rather than example.com.au or example.org.au.
The country follows the example of New Zealand and the UK, which have also started to permit second-level registrations in recent years.
auDA agreed with its policy committee that direct .au registrations would:

– make available domain names which are shorter, more appealing and more memorable
– give Australians more choice in deciding what domain name to register
– respond to market demand
– be more attractive to natural individuals than the current option, id.au
– strengthen the “.au brand” in a globally competitive market
– add value to all three main categories of users – registrars and resellers, registrants and ultimate users of the .au domain name system.

There’s no timeline yet on when 2LDs will become available, much less a policy on how potential conflicts will be handled, but auDA said it will provide updates later in the year.