Web.com acquires dozens of registrars from Rightside

Web.com has acquired dozens of registrars from rival/partner Rightside, seemingly to boost the success rate of its SnapNames domain drop-catching business.
I’ve established that at least 44 registrars once managed by Rightside/eNom have moved to the Web.com stable in recent weeks, and that might not even be the half of it.
All of the registrars in question are shell companies used exclusively to register pre-ordered names as they are deleted by registries, usually Verisign.
The more registrars you have, the more EPP connections you have to the Verisign registry and the better your chance at catching a domain.
Web.com runs SnapNames, and is in a 50-50 partnership with Rightside on rival drop-catcher NameJet.
The two compete primarily with NameBright’s DropCatch.com, which obtained hundreds of fresh ICANN accreditations last year, bringing its total pool to over 750.
Web.com has fewer than 400 accreditations right now. Rightside has even fewer.
It’s usually quicker to buy a registrar than to obtain a new accreditation from ICANN.
If Web.com finds itself in need of more accreditations in order to compete, and Rightside is happy to let them go, it could be possible to infer that SnapNames is doing rather better in terms of customer acquisition than NameJet.
But the two services recently announced a partnership under which names grabbed by either network would be placed in an auction in which customers of either site could participate.
This would have the effect of increasing the number of caught names going to auction due to there being multiple bidders, and thus the eventual sales prices.

Verisign’s silly .xyz lawsuit thrown out

Verisign has had its false advertising lawsuit against the .xyz gTLD registry thrown out of court.
XYZ.com this week won a summary judgement, ahead of a trial that was due to start next Monday.
“By granting XYZ a victory on summary judgement, the court found that XYZ won the case as a matter of law because there were no triable issues for a jury,” the company said in a statement.
The judge’s ruling does not go into details about the court’s rationale. XYZ’s motion to dismiss has also not been published.
So it’s difficult to know for sure exactly why the case has been thrown out.
Verisign sued in December, claiming XYZ and CEO Daniel Negari had lied in advertising and media interviews by saying there are no good .com domain names left.
Many of its claims centered on this video:

XYZ said its ads were merely hyperbolic “puffery” rather than lies.
Verisign also claimed that XYZ had massively inflated its purported registration numbers by making a shady $3 million reciprocal domains-for-advertising deal with Network Solutions.
XYZ general counsel Grant Carpenter said in a statement: “These tactics appear to be part of a coordinated anti-competitive scheme by Verisign to stunt competition and maintain its competitive advantage in the industry.”
While Verisign has lost the case, it could be seen to have succeeded in some respects.
XYZ had to pay legal fees in “the seven-figure range”, as well as disclose hundreds of internal company documents — including emails between Negari and me — during the discovery phase.
Through discovery, Verisign has obtained unprecedented insight into how its newest large competitor conducts its business.
While I’ve always thought the lawsuit was silly, I’m now a little disappointed that more details about the XYZ-NetSol deal are now unlikely to emerge in court.

Did XYZ.com pay NetSol $3m to bloat .xyz?

Evidence of a possibly dodgy deal between XYZ.com and Network Solutions has emerged.
Court documents filed last week by Verisign suggest that the .xyz registry may have purchased $3 million in advertising in exchange for $3 million of .xyz domain names.
Verisign, which is suing .xyz and CEO Daniel Negari over its allegedly “false” advertising, submitted to the court a list of hundreds of exhibits (pdf) that it proposes to use at trial.
Among them are these two:

• Email from Negari to Andrew Gorrin re EPP Feed and billing directly for $3,000,000 in domains
• Credit Memo to Andrew from Negari “We have elected to pay for our $3MM Q2 advertising insertion order, which was dated May 20th with a credit…….” (5/31/14)

Gorrin is Web.com’s senior VP of marketing and Negari is Daniel Negari, XYZ.com’s CEO.
The documents these headings refer to are not public information, and are not likely to be any time soon, but they appear to refer to on the one hand XYZ billing NetSol for $3 million in domain names and on the other NetSol billing XYZ for $3 million in advertising.
Only one of the two document headings is dated, so we don’t know how closely they coincided.
Other headings, among the 446 documents Verisign wants to use at trial, suggest that they happened at pretty much the same time:

• Email from Andrew Gorrin to Ashley Henning (web.com) re Bulk Purchase of .xyz domains (5/29/14)
• Email from Andrew Gorrin to Negari re XYZ.Com Advertising IO and Marketing Agreement attaching signed agreements (5/20/14)
• Email string Ashley Henning to Christine Nagey, Andrew Gorrin, Edward Angstadt re Bulk Purchase of .XYZ Domains (5/30/14)

The emails Verisign cites were dated May 2014, shortly before .xyz went into general availability June 2.
What we seem to be looking at here — and I’m getting into speculative territory here — are references to two more or less simultaneous transactions, both valued at exactly $3 million, between the two parties.
Both companies have consistently refused to address the nature of their deal, citing NDAs.
As you recall, the vast majority of .xyz’s early registrations were provided by NetSol, which pushed hundreds of thousands of free .xyz domains into its customers’ accounts without their explicit consent.
The number of freebies is believed to be about 350,000, based on comments Negari recently made to The Telegraph, in which he stated that .xyz, which had about 850,000 domains in its zone at the time, would have 500,000 registrations if the freebies were excluded.
With a registry fee roughly equivalent to .com’s (.xyz’s is believed to be a little lower), 350,000 names would work out to roughly $3 million.
Negari has stated previously that every .xyz registration was revenue-generating, even the freebies.
Is it possible that NetSol paid XYZ’s registry fees using money XYZ paid it for advertising? Is it possible no money changed hands at all?
I’m not saying either company has done anything illegal, and it’s completely possible I’m completely misunderstanding the situation, but it does rather put me in mind of the old “round-trip” deals that tech firms used to dishonestly prop up their tumbling revenue at the turn of the century.
Back in 2000, the dot-com bubble was on the verge of popping, taking the US economy with it, and companies facing the decline of their businesses came up with “creative” ways to show investors that they were still growing.
AOL Time Warner, for example, “effectively funded its own online advertising revenue by giving the counterparties the means to pay for advertising that they would not otherwise have purchased”.
Regulators exercised their legal options in these cases only where there appeared to be dishonest accounting, and I’ve seen no evidence to suggest that XYZ or Web.com unit NetSol have failed to adhere to anything but the highest accounting standards.
Again, I’m not saying we’re looking at a “round-trip” deal here, and there’s not a great deal of evidence to go on, but it sure smells familiar.
Certainly, questions have been raised that Verisign did not raise in its initial complaint.
Anyway.
On a personal note, I’d like to disclose that among the documents Verisign demanded from XYZ are dozens of pages of previously confidential emails exchanged between myself and Negari.
I’ve read them, and they’re mostly heated arguments about a) his refusal to give details about the NetSol deal and b) my purported lack of journalistic integrity whenever I published a post about .xyz with an even slightly negative angle.
XYZ had no choice but to supply these emails. I can’t blame it for complying with its legal requirements.
I wasn’t the only affected blogger. Mike Berkens, Konstantinos Zournas, Rick Schwartz and Morgan Linton also had their private correspondence compromised by Verisign.
I don’t know how they feel about this violation, but in my view this shows Verisign’s contempt for the media and its disregard for the sanctity of off-the-record conversations between reporters and their sources.
And that’s what I have to say about that.

.xyz starts to plummet — NetSol freebies to blame?

XYZ.com has been seeing its .xyz zone file shrink rapidly over the last five days, likely as a result of free domains pushed out to Network Solutions customers starting to expire.
DI PRO stats show that .xyz has shrunk by 49,658 domains this week — today at 888,413 names compared to a June 4 peak of 942,927.
It was June 4 last year when the industry become aware that NetSol was automatically pushing .xyz names into the accounts of its existing customers without their explicit consent.
Renewal rates usually do not become clear for 45 days after expiration, due to grace periods, but domains can delete earlier.
On June 9, 2014, one year ago today, .xyz had 87,073 domains in its zone file. It’s difficult to see where a loss of almost 50,000 names this week could come from if not the NetSol freebies deleting.
It is believed that the NetSol giveaway contributed about 350,000 names to .xyz’s zone over the period of its offer.
NetSol has been bundling .xyz renewals — which along with the free year of email and privacy comes to a whopping $57 — when it asks its customers to renewal their matching .com/.net/.org domains.
.xyz likely hasn’t seen the worst of its total shrinkage yet.
When eNom pushed free .info domains into its customers’ accounts about 10 years ago the renewal rate on those names was virtually zero.

NetSol’s free .xyz bundle renews at $57

Network Solutions is charging a total of $57.17 for renewing the .xyz domain names and associated services it gave away for free as part of .xyz’s controversial launch last year.
A little over a year ago, NetSol found controversy when it pushed hundreds of thousands of .xyz domain names into its customers’ accounts without their explicit consent.
The offer, which required customers to opt out if they didn’t want it, included a year of private registration and a year of email.
The move allowed XYZ.com, the .xyz registry, to report itself as the largest new gTLD registry.
It’s been the subject of some speculation how renewals would be treated by NetSol, but now we know.
Customers, at least in cases reported by DI readers, are being sent renewal notices for their .xyz bundles in the same mailshots as for their .com domains.
Clicking the “Renew” button in these emails takes registrants to a NetSol page on which they can select which of their products they would like to renew.
All, including the .xyz products, are pre-selected for renewal but may be deselected.
Pricing is set at $15.99 for the .xyz domain, $15.99 for the private registration and $25.19 for the email service. That’s a total of $57.17.
Here’s a screenshot of the shopping cart with the pricing (I’ve redacted the domain). Click to enlarge.

The original email sent by NetSol to customers last June, said:

We want to show you how much we appreciate your loyalty by rewarding you with complimentary access to a 1-year registration of a .XYZ domain, one of the hottest new domain extensions. .XYZ domains are proving to have broad appeal and also be extremely memorable. In addition to your complimentary domain, you’ll also receive Professional Email and Private Registration for your .XYZ domain – free of charge.
…
If you choose not to keep this domain no action is needed and you will not be charged any fees in the future. Should you decide to keep the domain after your complementary first year, simply renew it like any other domain in your account.

The fine print read:

Offer applies to first year of new registrations only. The offer is not transferable and is only available to the recipient. After the complimentary first year the .XYZ domain name and its related services shall expire unless you actively renew the .XYZ domain name and its related services at the then-current rates.
Please note that your use of this .XYZ domain name and/or your refusal to decline the domain shall indicate acceptance of the domain into your account, your continued acceptance of our Service Agreement located online at http://www.networksolutions.com/legal/static-service-agreement.jsp, and its application to the domain.

There’s concern from some registrants that customers may renew their .xyz services without really understanding how they ended up in their account in the first place.
.xyz currently has over 857,000 domains in its zone file.
XYZ.com CEO Daniel Negari was recently quoted as saying that roughly 500,000 of those were not freebies.
The company is being sued by .com registry Verisign for using its reg numbers in “false advertising” that seeks to compare .xyz to .com.

New gTLDs steal $5 million from Web.com’s top line

Top registrar Web.com is seeing disappointing revenue from its domain business due to new gTLDs.
The “increased availability” of names has taken a chunk out of the company’s premium domain sales, CEO David Brown told analysts on the company’s third-quarter earnings call yesterday.

While we continue to expect the recently expanded top-level domain environment to increase our ability to sell domains over the medium to long term, the increased availability of names has had a near-term negative impact on domain-related revenue. This is primarily associated with non-core domain-related revenue such as sales of premium domain names and bulk domain sales.

As a result, the company has reduced its full-year 2014 revenue guidance from between $576 million and $579 million to between $566.7 million and $568.7 million
The company blamed about half of the reduction — about $5 million — on softness in its domain name business.
Brown explained that the new gTLD environment has seen domain investors exercise much more caution when it comes to buying premium names and buying names in bulk:

We’ve seen that market get soft…. The reason the softness is occurring is that this marketplace is looking at all of these new gTLDs coming into place, there are more options available for people and they’re kind of stepping back away, at least temporarily, to see how things settle out.

He said the company expects the market to come back after the uncertainty has passed.
Web.com yesterday reported third-quarter net income of $33.9 million, up from $29.3 million a year ago, on revenue that was up to $137.4 million from $125.2 million in 2013.
The company, which owns brands including Register.com and Network Solutions, announced a $100 million share repurchase at the same time, to prop up the inevitable hit its stock was to take.
Its shares are trading down 25% at time of publication.

How NetSol opts you in to cybersquatted .xyz names

Clear-cut cases of cybersquatting seem to be among those .xyz domain names that Network Solutions has registered to its customers without their explicit request.
Some of the domains I’ve found registered in .xyz, via NetSol to the registrants of the matching .com or .net names, include my-twitter.xyz, facebook-liker.xyz and googledia.xyz.
Domains including other brands, such as Rolex, Disney, iPhone, Amazon and Pepsi can also be found registered to third parties, via NetSol, in .xyz’s zone today.
They’re all registered via NetSol’s Whois privacy service, which lists the registrant’s “real” name in the Whois record, but substitutes mailing address, email and phone number with NetSol-operated proxies.
I think the chance of these names being paid for by the registrant is slim. It seems probable that many (if not all) of the squatty-looking names were registered via NetSol’s promotional program for .xyz.
As previously reported, NetSol has been giving away domain names in .xyz to owners of the matching .com names. Tens of thousands of .xyz names seem to have been registered this way in the last week.
The “registrants” did not have to explicitly accept the offer. Instead, NetSol gave them the option to “opt-out” of having the name registered on their behalf and placed into their accounts.
The effect of this has been to propel .xyz into the leading spot in the new gTLD league table. It had 82,236 names in today’s zone file. a clear 15,000 names ahead of second-place .club.
But it’s not clear how much, if any, support NetSol has received from the registry, XYZ.com. CEO Daniel Negari told Rick Schwartz, in a coy interview last week:

The Registry Operator is unable to “give away” free domain names. I never even saw the email that the registrar sent to its customers until I discovered it on the blogs.

The opt-out giveaway has also prompted speculation about NetSol’s right to register domains without the explicit consent of the registrant, both under the law and under ICANN contract.
Under the Registrar Accreditation Agreement, in order to register a domain name, registrars “shall require” the registrant “to enter into an electronic or paper registration agreement”.
That agreement requires the registrant to agree to, among many other things, the transfer or suspension of their domains if (for example) they lose a UDRP or URS case.
But that doesn’t seem to be happening with the opt-out names,
Barry Shein, president of The World, had shein.xyz registered on his behalf by NetSol on Saturday. He already owns shein.com, also registered with NetSol.
NetSol’s email informing him of the registration, which Shein forwarded to DI, reads as follows:

Dear Valued Network Solutions Customer,
Congratulations, your complimentary SHEIN.XYZ domain has arrived!
Your new .XYZ domain is now available in your Network Solutions account and ready to use. To go along with your new .XYZ domain, you have also received complimentary access to Professional Email and Private Registration for your .XYZ domain.
If you choose not to use this domain no action is needed and you will not be charged any fees in the future. Should you decide to keep the domain after your complementary first year, simply renew it like any other domain in your account.
We appreciate your business and look forward to serving you again.
Sincerely,
Network Solutions Customer Support
www.networksolutions.com
http://www.networksolutions.com/help/index.jsp

Importantly, a footnote goes on to describe how NetSol will take a refusal to opt out as “continued acceptance” of its registration agreement:

Please note that your use of this .XYZ domain name and/or your refusal to decline the domain shall indicate acceptance of the domain into your account, your continued acceptance of our Service Agreement located online at http://www.networksolutions.com/legal/static-service-agreement.jsp, and its application to the domain.

So, if you’re a NetSol customer who was picked to receive a free .xyz name but for whatever reason you don’t read every marketing email your registrar sends you (who does?) you’ve agreed to the registration agreement without your knowledge or explicit consent, at least according to NetSol.
I am not a lawyer, but I’ve studied enough law to know that this is a dubious way to make a contract. Lawyers I’ve shown this disclaimer to have laughed out loud.
Of course, because each registrant already owns a matching .com, they’ve already accepted NetSol’s registration agreement and terms of service at least once before.
This may allow NetSol to argue that the initial acceptance of the contract also applies to the new .xyz domains.
But there are differences between .com and .xyz.
Chiefly, as a new gTLD, .xyz registrants are subject to policies that do not apply to .com, such as the Uniform Rapid Suspension policy.
URS differs from UDRP in that there’s a “loser pays” model that applies to complaints involving over 15 domains.
So these .xyz registrants have been opted into a policy that could leave them out of pocket, without their explicit consent.
Of course, we’re talking about people who seem to be infringing famous trademarks in their existing .com names, so who gives a damn, right?
But it does raise some interesting questions.
Who’s the registrant here? Is it the person who owns the .com, or is it NetSol? NetSol is the proxy service, but the .com registrant’s name is listed in the Whois.
Who’s liable for cybersquatting here? Who would Twitter file a UDRP or URS against over my-twitter.xyz? Who would it sue, if it decided to opt for the courts instead?

.xyz is now the biggest new gTLD (kinda)

The controversial new gTLD .xyz is now officially the biggest, with 67,504 domains under management.
That’s according to today’s zone files, which see former number ones .club at 65,630 and .guru at 60,480.
Due to what appears to be an ICANN screw-up, there were no zone files available for any new gTLDs via the Centralized Zone Data Service yesterday, so I can’t tell you what the daily growth numbers are.
But .xyz had 36,335 names in its zone on Wednesday. It’s grown by 85% in two days.
That’s a shocking, unprecedented growth spurt.
The question is, of course, how many of these registrations are legit?
.xyz has come under a great deal of fire from domainers the last few days, after it emerged that the majority of its growth in the first days of general availability was questionable.
Network Solutions, it transpired, had seriously inflated .xyz’s numbers by registering .xyz names matching existing .coms on behalf of its customers without their permission and for no charge.
NetSol seems to have paid .xyz a few hundred thousand dollars for domain names its customers have not requested.
Data from today’s .xyz zone file is likely to reinforce the perception that most of .xyz’s apparent popularity is bogus.
I see that 56,019 domain names in .xyz today — 82% of the gTLD’s total — are using register.com name servers.
Those name servers belong to Web.com, NetSol’s parent company.
There were 27,000 such names on Wednesday. While .xyz as a whole has grown by about 31,000 names in two days, NetSol’s .xyz share has grown by about 29,000 names.
Nobody believes that NetSol, with its $40 retail price for .xyz (with a wholesale price I peg at around $6 to $7), could have obtained this market share with actual, paid-for sales.
I believe that the large majority of NetSol’s roughly 56,000 .xyz names are freebies, not reflective of buyer demand.
Many domainers are incandescent about this.
They look to registration numbers as a measurement of demand, which could be a predictor of the resale market for a TLD, so they’re upset at anything that looks like a manipulation of that number.
Daniel Negari, the charismatic CEO of .xyz, has borne the brunt of this criticism, despite the fact that there’s no evidence out there yet that .xyz supported or had prior knowledge NetSol’s mass giveaway.
Negari has so far refused to comment on the situation (he hasn’t responded to several inquiries from yours truly), which has only served to reinforce the suspicion that the registry was somehow complicit in NetSol’s promotion and used the registrar to artificially inflate its numbers.
I have no evidence one way or the other.
NetSol refused to even confirm the existence of the promotion when DI inquired earlier this week.

.xyz launch inflated by massive NetSol giveaway

Network Solutions gave away thousands of .xyz domain names for free to people who hadn’t requested them, artificially inflating the new gTLD’s launch day numbers.
As of last night, there were 36,335 domains in the .xyz zone, with something like 27,000 listed as having name servers belonging to NetSol and its parent, Web.com.
Before .xyz launched, only 1,287 new gTLD domains used NetSol name servers.
What this means is that for some reason thousands upon thousands of .xyz domain names were registered via one of the industry’s more expensive registrars.
That reason, as Mike Berkens at The Domains scooped, is that many names were given away for free to existing NetSol customers.
Not only that, but the giveaway was opt-out — if you were selected for the promotion you had to click a link in an email in order to prevent NetSol registering the .xyz that matches your .com.
So not only did the registrants of a significant portion of .xyz’s new registrations not pay for their names, they didn’t even request them.
A lot of garbage strings — some of which have matching .coms I suspect are being used for nefarious purposes — have therefore made it into .xyz’s zone alongside many decent-enough names.
When I asked NetSol, a spokesperson refused to confirm the giveaway, calling it a “market rumor”. This is apparently the kind of promotion you don’t want anyone hearing about.
It’s not clear how many of these 27,000 names were genuine registrations and which were part of the promotion, but I suspect, given NetSol’s prior performance in new gTLDs, that the vast majority were freebies.
This has happened before.
About 10 years ago, Afilias temporarily dropped its first-year price for .info to zero dollars, hoping to attract more registrations and paying renewals.
Instead, eNom decided to register a million .info names matching its customers’ .com names, put them in its customers’ accounts, and park the lot.
A year later, over 99% of those names were allowed to expire by registrants who hadn’t requested them in the first place.
The difference in this case seems to be that .xyz itself is still getting paid its registry fee for each of the names NetSol gave away.
But if history is any guide, .xyz’s numbers could be in for a big drop 15 months from now.

Here’s why registrars are boycotting .sexy

Will .sexy and .tattoo trip on the starting blocks today due to registrars’ fears about competition and Whois privacy?
Uniregistry went into general availability at 1600 UTC today with the two new gTLDs — its first to market — but it did so without the support of some of the biggest registrars.
Go Daddy — alone responsible for almost half of all new domain registrations — Network Solutions, Register.com and 1&1 are among those that are refusing to carry the new TLDs.
The reason, according to multiple sources, is that Uniregistry’s Registry-Registrar Agreement contains two major provisions that would dilute registrars’ “ownership” of their customer base.
First, Uniregistry wants to know the real identities of all of the registrants in its TLDs, even those who register names using Whois privacy services.
That’s not completely unprecedented; ICM Registry asks the same of .xxx registrars in order to authenticate registrants’ identities.
Second, Uniregistry wants to be able to email or otherwise contact those registrants to tell them about registry services it plans to launch in future. The Uniregistry RRA says:

Uniregistry may from time to time contact the Registered Name Holder directly with information about the Registered Name and related or future registry services.

We gather that registrars are worried that Uniregistry — which will shortly launch its own in-house registrar under ICANN’s new liberal rules on vertical integration — may try to poach their customers.
The difference between ICM and Uniregistry is that ICM does not own its own registrar.
The Uniregistry RRA seems to take account of this worry, however, saying:

Except for circumstances related to a termination under Section 6.7 below, Uniregistry shall never use Personal Data of a Registered Name Holder, acquired under this Agreement, (a) to contact the Registered Name Holder with a communication intended or designed to induce the Registered Name Holder to change Registrars or (b) for the purpose of offering or selling non-registry services to the Registered Name Holder.

Some registrars evidently do not trust this promise, or are concerned that Uniregistry may figure out a way around it, and have voted with their storefronts by refusing to carry these first two gTLDs.
Ownership of the customer relationship is a pretty big deal for registrars, especially when domain names are often a low-margin entry product used to up-sell more lucrative services.
What if a future Uniregistry “registry service” competes with something these registrars already offer? You can see why they’re worried.
A lot of registrars have asserted that with the new influx of TLDs, registrars have more negotiating power over registries than they ever did in a world of 18 gTLDs.
Uniregistry CEO Frank Schilling is basically testing out this proposition on his own multi-million-dollar investment.
But will the absence of these registrars — Go Daddy in particular — hurt the launch numbers for .sexy and .tattoo?
I think there could be some impact, but it might be tempered by the fact that a large number of early registrations are likely to come from domainers, and domainers know that Go Daddy is not the only place to buy domains.
Schilling tweeted at about 1605 UTC today that .sexy was over 1,800 registrations.
Longer term, who knows? This is uncharted territory. Right now Uniregistry seems to be banking on the 40-odd registrars — some of them quite large — that have signed up, along with its own marketing efforts, to make up any shortfall an absence of Go Daddy may cause.
Tomorrow, I’d be surprised if NameCheap, which is the distant number two registrar in new gTLDs right now (judging by name server counts) is not the leader in .sexy and .tattoo names.