Drop auctions not a slam-dunk, says Nominet

Nominet has responded to criticism of its plans to introduce registry-level .uk drop auctions by saying it’s not about money-grabbing and is not guaranteed to even happen.

Registry MD Eleanor Bradley today blogged:

In some quarters the commentary suggests the driver for change is financial, or to make life more difficult for some business models. It is not.

…

As commercial gain was not our objective, we have suggested that any additional funds raised by changing the policy would be directed towards public benefit activity or used to provide specific services to registrars. Indeed, how to best spend additional funds that result from any policy change is part of the consultation.

The consultation referred to here was launched earlier this month. It suggests replacing the current drop-catching system, in which Nominet suspects some members “collude” to pool their EPP connections, with one of two new processes.

One would be a straightforward auction of desirable dropping names. The other would be to charge drop-catchers up to £6,000 a year for extra concurrent registry connections.

Bradley wrote that “the assumption in some quarters that an auction approach is our preferred option — a fait accompli –- are wide of the mark”.

As I’m one of the people who reported that auctions were Nominet’s “apparently preferred” option, I’ll note that my take was based on the company’s own consultation document, which scores auctions more highly than the alternative on a five-point scale of its own devising.

And a preferred option is not the same as a fait accompli, of course.

The consultation is open for a couple more weeks. A group of disgruntled members plan to petition the board to retain the status quo at its AGM in September.

Nominet members revolt over “deepest pockets wins” auction plans

A group of Nominet members and registrars have launched a petition to prevent Nominet from introducing registry-level auctions for dropping .uk domain names.

The petition, organized by Netistrar, reads: “We the undersigned members request that Nominet maintains equal registrar access to expired domain names on a first come first served basis.”

Nominet recently launched a policy consultation that lays out plans to essentially kill off the existing system of drop-catching expired domains and replace it with either registry auctions or a pay-to-play model asking fees of up to £6,000 a year.

The petition says that “these proposals technically and financially restrict a registrars ability to access expired domains”, noting that other ccTLDs “manage an expiry process without an expensive and centralized auction system.”

So far, 70 registrars and individuals (out of the about 3,000 Nominet members) have signed the petition, but they account for more than 400,000 .uk domains.

The petition will be presented at Nominet’s annual general meeting in September. The current policy consultation ends August 14.

Nominet wants to kill off the .uk drop-catching market

Nominet has revealed a sweeping set of policy proposals that would totally revamp how expired domains are deleted and could essentially kill off drop-catching in the .uk domains market.

The company is thinking about auctioning off expired domains at the registry level, or charging drop-catchers up to £6,000 ($7,500) a year to carry on more or less as normal.

Currently, expired .uk domains are deleted at an undisclosed time each day, leading drop-catch registrars to spam the registry back-end with availability checks on the best names.

Upon finding a desired domain has dropped, they then attempt to register it immediately by spamming EPP create commands.

About 0.7% of the domains deleted each year, about 12,000 of the 1.76 million names dropped in 2018, are re-registered within a second of release, Nominet says.

The system as it stands bothers the registry due to the technical load it creates and the fact that it means the most desirable names are snapped up by small number of domainers for resale.

It also does not like the fact the current system encourages collusion between Nominet members and the creation of dummy memberships by drop-catchers.

So it’s proposing two main options for rejiggering the economics.

The first and apparently preferred solution would be for Nominet to auction off the names, rather than deleting them. It would look a lot like auctions often seen in newly launching TLDs.

The second option is to charge drop-catchers extra fees for a greater number of simultaneous EPP connections.

Currently, each registrar gets six. Under the proposal, called “Economically controlled access to expiring domains”, they’d be able to buy additional batches of six for £600 a pop, up to a maximum of 10 batches or £6,000.

Regardless of which option is chosen, Nominet also wants to make drop times more predictable, by publishing a daily drop-list available to all.

Nominet knows there’s a pretty good chance it’s going to be accused of profiteering, and says in the paper:

If either of the options proposed are implemented, we envisage that any profits derived from the auction or economically controlled access models will be directed towards public benefit activity and/or ringfenced to provide specific services to registrars e.g. a training fund. However, we are also seeking ideas on how any profits would be best spent to benefit the .UK namespace in this consultation.

The consultation can be found here. Interested parties have until August 14 to submit comments.

Drop-catcher drops almost all remaining registrars

Drop-catch specialist Pheenix has terminated almost all of its remaining registrar accreditations, leaving it with just its core registrar.
By my count, 50 shell registrars have terminated their ICANN contracts over the last few days, all of them part of the Pheenix dropnet.
Only Pheenix.com remains accredited.
That’s one registrar, down from a peak of about 500 at the end of 2016.
Almost 450 were terminated in November.
With registrars equating to connection time with the .com registry, it looks like Pheenix’s ability to catch dropping names through its own accreditations has been severely diminished.
By my count, ICANN currently has 2,495 accredited registrars, having terminated 524 and accredited about 40 since last July, when it said it expected to lose a net 750 over the coming 12 months.
Fifty registrars is worth a minimum of $200,000 in fixed annual fees to ICANN.

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

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 Web.com 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.

ICANN terminates 450 drop-catch registrars

Almost 450 registrars have lost their ICANN accreditations in recent days, fulfilling predictions of a downturn in the domain name drop-catch market.
By my reckoning, 448 registrars have been terminated in the last week, all of them apparently shells operated by Pheenix, one of the big three drop-catching firms.
Basically, Pheenix has dumped about 90% of its portfolio of accreditations, about 300 of which are less than a year old.
It also means ICANN has lost about 15% of its fee-paying registrars.
Pheenix has saved itself at least $1.2 million in ICANN’s fixed accreditation fees, not including the variable and transaction-based fees.
It has about 50 registrars left in its stable.
The terminated registrars are all either numbered LLCs — “Everest [1-100] LLC” for example — or named after random historical or fictional characters or magic swords.
The move is not unexpected. ICANN predicted it would lose 750 registrars when it compiled its fiscal 2018 budget.
VP Cyrus Namazi said back in July that the drop-catching market is not big enough to support the many hundreds of shell registrars that Pheenix, along with rivals SnapNames/Namejet and DropCatch.com, have created over the last few years.
The downturn, Namazi said back then, is material to ICANN’s budget. I estimated at the time that roughly two thirds of ICANN’s accredited registrar base belonged to the three main drop-catch firms.
Another theory doing the rounds, after Domain Name Wire spotted a Verisign patent filing covering a system for detecting and mitigating “registrar collusion” in the space, is that Verisign is due to shake up the .com drop-catch market with some kind of centralized service.
ICANN reckoned it would start losing registrars in October at a rate of about 250 per quarter, which seems to be playing out as predicted, so the purge has likely only just begun.

ICANN expects to lose 750 registrars in the next year

ICANN is predicting that about 750 accredited registrars will close over the next 12 months due to the over-saturation of the drop-catching market.
ICANN VP Cyrus Namazi made the estimate while explaining ICANN’s fiscal 2018 budget, which is where the projection originated, at the organization’s public meeting in South Africa last week.
He said that ICANN ended its fiscal 2017 last week with 2,989 accredited registrars, but that ICANN expects to lose about 250 per quarter starting from October until this time next year.
These almost 3,000 registrars belong to about 400 registrar families, he said.
By my estimate, roughly two thirds of the registrars are shell accreditations under the ownership of just three companies — Web.com (Namejet and SnapNames), Pheenix, and TurnCommerce (DropCatch.com).
These companies lay out millions of dollars on accreditation fees in order to game ICANN rules and get more connections to registries — mainly Verisign’s .com.
More connections gives them a greater chance of quickly registering potentially valuable domains milliseconds after they are deleted. Drop-catching, in other words.
But Namazi indicated that ICANN’s cautious “best estimate” is that there’s not enough good stuff dropping to justify the number of accreditations these three companies own.
“With the model we have, I believe at the moment the total available market for these sought-after domains that these multifamily registrars are after is not able to withstand the thousands of accreditations that are there,” he said. “Each accreditation costs quite a bit of money.”
Having a registrar accreditation costs $4,000 a year, not including ICANN’s variable and transaction fees.
“We think the market has probably gone beyond what the available market is,” he said.
He cautioned that the situation was “fluid” and that ICANN was keeping an eye on it because these accreditations fees have become material to its budget in the last few years.
If the three drop-catchers do start dumping registrars, it would reveal an extremely short shelf life for their accreditations.
Pheenix upped its registrar count by 300 and DropCatch added 500 to its already huge stable as recently as December 2016.

Pheenix adds 300 more registrars to drop-catch arsenal

The domain drop-catching arms race is heating up, with budget player Pheenix this week acquiring 300 more registrar accreditations from ICANN.
According to DI records, the company now has almost 500 registrar accreditations in its family.
More accreditations means more registry connections with which to attempt to acquire expired domains as they return to the available pool.
It also means that Pheenix’s dropnet (a word I just made up that sounds a bit like “botnet” in a pathetic attempt to coin a term for once in my career) is now a bit bigger than that of Web.com, the registrar pool behind Namejet and SnapNames.
It’s still a long way behind TurnCommerce, owner of DropCatch, which two weeks ago added a whopping 500 new accreditations, bringing its total to over 1,250.
An extra 300 accreditations would have cost Pheenix over $1 million in up-front ICANN fees and will incur ongoing fixed annual fees in excess of $1.2 million.

DropCatch spends millions to buy FIVE HUNDRED more registrars

Domain drop-catching service DropCatch.com has added five hundred new registrar accreditations to its stable over the last few days.
The additions give the company a total accreditation count of at least 1,252, according to DI data.
That means about 43% of all ICANN-accredited registrars are now controlled by just one company.
DropCatch is owned by TurnCommerce, which is also parent of registrar NameBright and premium sales site HugeDomains.
Because gTLD registries rate-limit attempts to register names, drop-catchers such as DropCatch find a good way to increase their chances of registering expiring names is to own as many registrars as possible.
DropCatch is in an arms race here with Web.com, owner of SnapNames and half-owner of NameJet, which has about 500 registrars.
The new accreditations would have cost DropCatch $1.75 million in ICANN application fees alone. They will add $2 million a year to its running costs in terms of extra fixed fees.
That’s not counting the cost of creating 500 brand new LLC companies — named in the new batch DropCatch.com [number] LLC where the number ranges from 1046 to 1545 — each of which is there purely for the purpose of owning the accreditation.
In total, the company is now paying ICANN fixed annual fees in excess of $5 million, not counting its variable fees and per-transaction fees.
Because the ICANN variable fee is split evenly between all registrars (with some exceptions I don’t think apply to DropCatch), I believe the addition of 500 new registrars means all the other registrars will be paying less in variable fees.
There’s clearly money to be made in expiring names.

One company now owns almost a third of all registrars

TurnCommerce acquired another 299 registrar accreditations from ICANN over Christmas week.
The company, which is behind domain properties including DropCatch.com, now has at least 452 registrars in its stable. That’s over 31% of the 1,456 total currently reported by Internic.
Each of the new accreditations is named “DropCatch”, followed by a number from 446 to 751. Each has a matching .com domain as its nominal base of operations and an associated LLC shell company.
At $4,000 a year for the base accreditation fee, TurnCommerce must be spending close to $2 million a year in ICANN fees alone.
Companies in the drop-catching business acquire large numbers of registrars in order to control more batches of connections with which to spam gTLD registries with “add” requests when potentially valuable domains expire and are deleted.
With almost a third of all accredited registrars now operating under the same control, one imagines TurnCommerce’s chances of securing the names it wants have been significantly improved.
As well as DropCatch, TurnCommerce runs retail registrar NameBright and premium sales site HugeDomains. It has plans to launch additional services at Expire.com and PremiumDomains.com shortly.
Its latest crop of registrars means ICANN has accredited over 2,200 companies since the gTLD registrar market was opened for competition 15 year ago, though many have allowed their contracts to lapse or, less frequently, have been terminated by ICANN compliance efforts.