Domain world growth despite .com slide

In the fastest-published quarterly Domain Name Industry Brief in many years, Verisign last night reported that the world’s extant domain name registrations increased by 5.8 million in the second quarter.

The report was published to coincide with Verisign’s Q2 earnings report, and came just two weeks after the publication of the Q1 brief.

The trend of the domain universe, hampered by the ongoing decline of Verisign’s own .com and .net, which lost 1.8 million names compared to Q1, being buttressed by ccTLDs and new gTLDs, continued.

New gTLDs were up 1.3 million names sequentially and 6.5 million annually — 4.0% and 23.2% respectively — to 34.6 million, but we sadly have to assume that a great many of these new names are speculative or abusive.

Verisign estimates the “combined renewal percentage estimate” for new gTLDs was 38.0%, about half of where .com’s somewhat depressed number lies.

ccTLD domains were at 140 million at the end of June, up 400,000 (0.3%) sequentially and three million (2.2%) annually, the DNIB states.

Pre-2012 gTLD names were up 122,100 sequentially and 154,200 annually, ending the quarter at 17.2 million.

Verisign predicts more gloom as registrars shun .com growth

Verisign has yet again massively downgraded its expectations for .com growth, after it lost almost two million domains in the second quarter.

The company said it had 170.6 million .com and .net domains at the end of June, down 1.8 million compared to Q1 and a 2.2% decrease compared to a year earlier.

CEO Jim Bidzos said Verisign now expects the domain name base for the full year to be between -2% and -3%. That compares to a range of between +0.25% and -1.75% predicted in April and +1% to -1% predicted in February.

The Q2 renewal rate is expected to be 72.6% compared to 73.4% a year ago and 74.1% in Q1.

Bidzos said he does not expect the base to return to positive growth until the second half of 2025.

Bidzos, talking to analysts, acknowledged that Verisign’s wholesale .com price increases “may have had an impact” but put the blame for the growth shortfall squarely on what he called the “unregulated retail channel” in the US.

American registrars have been cranking up their prices in order to prioritize average revenue per user over volume, he said, meaning retail prices for .com have gone up “more than twice” Verisign’s own price hikes, leading to fewer sales as a result.

“Our research shows that the benefit from our capped wholesale prices is not always passed on to consumers,” he said.

He faced a barrage of questions from analysts about recent calls for the US government to sever its ties with Verisign over .com and put the TLD out for competitive rebidding, but reiterated the company’s position that if the government cuts it off, it still gets to run .com under its contract with ICANN.

Despite the volume woes, Verisign continues to be a high-margin cash-generating machine.

The company reported Q2 net income of $199 million, up from $186 million a year ago, on revenue up 4.1% at $387 million. Operating income was up to $266 million from $249 million and operating cash flow up to $160 million from $145 million.

Republicans quiz NTIA on Verisign .com renewal

Three Republican members of the US House of Representatives have raised the specter of Verisign having to compete to renew its .com deal with the US government.

In a letter to the National Telecommunications and Information Administration, the Congresspeople ask whether NTIA has made any efforts to renegotiate or obtain public feedback on its contract with Verisign.

They also ask whether NTIA has looked at the “effect of the recent price increases implemented by Verisign on the .com domain name marketplace” and “the impact of potential registration price increases on the .com domain name market”.

The Cooperative Agreement between NTIA and Verisign is what allows the company to raise .com wholesale fees. That power was frozen for years under the Obama administration but returned under Trump.

The letter follows missives from three campaign groups a month ago, which called Verisign, NTIA and ICANN a “cartel” that enables Verisign’s monopoly and called for the .com contract to be put out to bid.

The Congresspeople’s letter doesn’t come anywhere close to asking for the same, but it does cite previous instances where legislators and the Department of Justice have called for a competitive bidding process.

Verisign has responded to earlier letters by pointing out that even if NTIA were to cancel the agreement, the .com Registry Agreement with ICANN would still stand.

The letter (pdf) is signed by House Energy and Commerce Committee chair Cathy McMorris Rodgers, Subcommittee on Communications and Technology chair Bob Latta, and Subcommittee on Oversight and Investigations chair Morgan Griffith.

The Cooperative Agreement is set to auto-renew in November. The Congresspeople want answers from NTIA before August 8.

New gTLDs and ccTLDs drive domain universe growth

The seasonally strong first quarter saw growth return to the domain industry, despite .com’s continuing woes, according to the latest edition of Verisign’s Domain Name Industry Brief.

There were 362.4 million domain registrations across all TLDs at the end of March, up by 2.5 million names or 0.7% from the start of the year, according to the report. Growth over 12 months was 7.5 million or 2.1%.

The growth came in spite of continued shrinkage at Verisign’s own .com and .net. The flagship .com was down from 159.6 million to 159.4 million while .net remained flat at 13.1 million, the DNIB states.

The two TLDs combined lost a total of 0.3 million names over the quarter and 2.3 million names over the year, Verisign said.

ccTLD regs were up to 139.5 million, an increase of 1.2 million or 0.9% from the start of the year and 3.7 million from a year earlier.

Russia’s .ru overtook the Netherlands’ .nl to become fourth largest ccTLD. That’s 6.4 million versus 6.3 million, but Verisign’s methodology sees it count some 770,000 Cyrillic .РФ domains as if they were also .ru.

All of the top 10 ccTLD grew apart from .uk and .it.

New gTLDs also performed strongly, with 33.3 million regs at the end of the quarter, up 1.5 million (4.7%) sequentially and six million (22.1%) year over year.

Perhaps because the raw volume numbers have started make Verisign’s TLDs look terrible in comparison over the last few editions, the DNIB has started reporting an estimated renewal rate for many of the TLDs the DNIB tracks.

As you might expect, the renewal numbers for new gTLDs suck. While established TLDs like .com have the usual mid-70s percent renewal rate, that number plummets to the 20s when you look at big 2012-round TLDs such as .xyz, .online and .top.

Verisign: would-be .com contract killers are “wrong”

Verisign has responded to the campaign to have the US government cancel its contract to run .com and open the agreement to competitive bidding, saying it is “wrong” and “based on a fundamental misunderstanding” of the deal.

The American Economic Liberties Project, the Demand Progress Education Fund, and the Revolving Door Project put their names to letters last week calling the .com deal between ICANN and Verisign a “de facto cartel” that competition authorities should dismantle.

But, as others have also pointed out, Verisign says that removing the US government from the trilateral agreement would not have the effect the letter-writers believe it would.

In a regulatory filing, Verisign said:

The campaign, and the letters, assert that the 32-year-old Cooperative Agreement between the Department of Commerce (Department) and Verisign involving the .com top-level domain registry can be terminated by the Department on August 2, 2024, and, if it is, the management of .com can be transferred after a competitive bidding process. This assertion is wrong: If the Department chooses to sunset the Cooperative Agreement, which Verisign does not seek, the .com registry will continue to be managed pursuant to the terms of Verisign’s and the Internet Corporation for Assigned Names and Numbers’ (ICANN) valid, enforceable Registry Agreement

In other words, if the US government butts out, all that’s left to regulate .com pricing is ICANN, and ICANN is institutional averse to regulating pricing, believing it would open it up to genuine concerns about cartel-like behavior.

The Cooperative Agreement (pdf) states:

upon expiration or termination of the Cooperative Agreement, neither party shall have any further obligation to the other and nothing shall prevent Verisign from operating the .com TLD pursuant to an agreement with ICANN or its successor

Groups make flawed case that .com is a cartel

Three pressure groups in the US have called on the government to strip Verisign of its .com contract, saying the company is operating as a “de facto cartel” with ICANN that has allowed its shareholders to milk the public for billions.

But their argument has a pretty significant hole in it, based on an apparent misunderstanding of how Verisign funds ICANN.

The American Economic Liberties Project, the Demand Progress Education Fund, and the Revolving Door Project have written to the Department of Justice and National Telecommunications and Information Administration to demand that they “cut off” Verisign.

The NTIA is the third party in the triumvirate with ICANN and Verisign that controls who gets to run the immensely powerful .com TLD. It’s the NTIA that gets to decide whether Verisign is able to raise its registry fees, how often and by how much.

The Obama administration froze the fee for its last six-year run, but the caps were lifted under Trump, giving Verisign four 7% increase options over the current six-year deal, all of which it has chosen to exercise.

The price of a .com registration or renewal has gone up from $7.85 in 2018 to $10.26 later this year. Verisign enjoys some of the highest profit margins of any public company in the US as a result, with much of its cashflow diverted into share buybacks.

This has to stop, and the .com contract should be open for bidders, the three groups said in their letters:

Ending this contract will force the initiation of a competitive open-bidding process, ultimately bringing down costs for those who must register a domain name. ICANN and VeriSign function as a de facto cartel and the NTIA should stop sanctioning the “incestuous legal triangle” that serves as a shield to deflect overdue antitrust scrutiny into their otherwise likely illegal collusive relationship.

While the letters raise many good points, they’re the same good points that have been raised every few years for the last quarter century. The US government response seems to depend entirely on whether the current occupant of the White House wears a blue tie or a red tie.

Where the argument is flawed is in the statement: “ICANN has a vested interest in VeriSign making as much money as possible, as VeriSign pays ICANN for each annual domain name registration.”

This is not quite correct, as ICANN’s current financial problems can attest.

In reality, while it is true that Verisign is by far the biggest contributor to ICANN’s budget, the dollar value is tied not to how much money Verisign makes, but to how many registrations and renewals it processes.

ICANN gets a quarter for every domain-year, basically, regardless of whether Verisign charges $7.85 or $10.26, so ICANN’s vested interest is in Verisign selling as many domain-years as possible, not its bottom line. If .com shrinks, so does ICANN’s budget.

And that’s exactly what has happened over the last couple of years. As Verisign’s prices have gone up, volume has started to go down, first in China and more recently in the US.

While I don’t believe the company has explicitly linked its volume decline to its price hikes, it’s said that a solution to the problem is new promotional activities later this year, so draw your own conclusions.

ICANN’s budget has taken a hit as a result. The Org said in April that it was looking at an $8 million shortfall and last month said it was laying off 7% of its staff to try to save $10 million.

The fact that it’s just canned 33 staff is pretty decent argument against the cartel claim, and I expect it to form part of ICANN’s response.

The three groups’ letters may be on more solid ground with its claim that ICANN has enjoyed a “$20 million cash bonus” that they describe as a share of Verisign’s “ill-gotten rent to maintain its market power.”

That’s a reference to the $5 million a year for five years additional payment that Verisign agreed to when it renegotiated its registry contract with ICANN in 2020.

Nominally to help fund ICANN’s DNS “security and stability” efforts, the optics of this side deal have always been terrible, the granularity of the accounting transparency has been criticized as lacking, and I’ve frequently referred to the payment as a “bung”.

But that payment is strictly bilateral and not part of Verisign’s deal with NTIA.

The NTIA arrangement has presumptive renewal of six-year terms, but NTIA can revoke it with 120 days notice. That means it will have to act before August 2 if it decides to terminate Verisign’s contract.

You can read the letters in full here.

GoDaddy price increases lead to revenue growth

GoDaddy last night reported domains revenue ahead of forecasts after it raised its prices and sold more higher-priced domains on the aftermarket.

The company’s Core Platform segment, which includes domains and hosting, reported first-quarter revenue up 4% compared to a year ago at $725 million, with domains revenue driving growth, up 7% percent to $532 million.

Domains under management was 84.6 million at the end of March 31.

“Our growth was driven by strong demand for domains in the primary and secondary market, increased pricing in the primary market and a higher average transaction value in the secondary market,” CFO Mark McCaffrey said in prepared remarks.

Aftermarket revenue was up 12% to an unspecified amount.

Including the company’s other revenue streams, GoDaddy reported net income of $401.5 million on revenue up 7% at $1.1 billion.

Verisign, the .com registry, last week reported stagnating .com growth that it blamed in part on US registrars raising their retail prices, leading to lower first-year sales and renewals.

Single-letter .com case back in court

The domainer trying to get his hands on all the remaining single-character .com and .net domain names has re-filed his lawsuit against ICANN.

Bryan Tallman of VerandaGlobal.com (dba First Place Internet) has filed an amended complaint in a California court, after the judge threw out his initial complaint in March. He alleges deceptive trade practices and breach of contract, among other things.

His claim is that he has sole rights to all unregistered single-character .com and .net domains, such as 1.com and a.net, because he’s registered the matching domains in Verisign’s internationalized domain name transliterations, such as the Hebrew קום. or the Korean/Hangul .닷컴.

He paid Verisign, via registrar CSC Global, $25,285 for 1.닷넷 back in 2017 and reckons he was also buying the exclusive rights to 1.com and 1.net. The same arguments applies to the dozens of other ASCII.IDN domains he registered, according to the complaint.

The argument rests almost entirely on a letter (pdf) from Verisign to ICANN in 2013, in which the registry sets out some of its plans for its IDN gTLDs.

The letter is imprecisely worded, to the point where if you squint a bit, drop some acid, and hit your head against the wall a few times, you might be persuaded that Verisign is saying it would be willing to sell the rights to 1.com for 25 grand.

The complaint says this letter is “ICANN policy”, and the rest of its arguments are pretty much based on that incorrect premise.

ICANN has already filed a demurrer, asking the court to throw out the complaint again, largely on the grounds that the letter is not “policy” and ICANN doesn’t have a contract with any of the plaintiffs that it could be accused of breaching anyway.

The latest filings can be found here.

ICANN to slash costs as Verisign’s magic money tree dries up

ICANN is looking for $8 million of cost savings, $3 million more than it expected a quarter ago, amid gloomy predictions about the domain industry’s likely performance this year.

The Org last week told community members that it’s having to revise its expected revenue down by $3 million to $145 million after it became clear domain sales won’t be as good as previously thought. The new budget is due to be approved by the board this coming weekend.

“ICANN faces an inflation of its costs and also happens to face a lack of inflation of its funding,” CFO Xavier Calvez said on one of two conference calls explaining the changes.

ICANN’s bean counters are now predicting a 4% decline in transaction fees from legacy gTLDs — a line item mostly comprising .com — for ICANN’s fiscal 2025, which begins this July. Back in December, when the first draft of the budget was published, the prediction was for 0% growth.

The grim numbers match Verisign’s own growth story for the rest of the calendar year. Company bosses last week predicted .com/.net to grow at between 0.25% and negative 1.75%, a downwards revision on its guidance in February.

Talking to Verisign and other registries and registrars and looking at the monthly transaction data they file is the main way ICANN formulates its budget predictions.

“We gauged very strong expectations of a contraction in domain name registrations,” ICANN programs director Mukesh Chulani said.

Meanwhile, ICANN estimates transaction fees for new gTLDs will increase 7% in FY25, obviously from a much lower base then legacy, compared to the December estimate of 2% growth.

ICANN was already expecting its funding to miss its spending requirements by $5 million, but that figure is now $8 million. But rather than run ops at a loss, ICANN has instead put this number on a line labelled “Cost Savings Initiatives” in order to present a balanced bottom line.

Where these cost savings might come from doesn’t seem to have been figured out yet, and there’s some community worry that services might be affected by cuts.

There was some talk of finding efficiencies in the travel budget or with contractors, but those budgets are $13 million and $24 million respectively, so any cuts there could be swingeing.

By far the largest expenditure line item is staff, which costs $90 million. But there’s been no change to the expected number of ICANN full-timers in the budget, so layoffs don’t seem to be on the cards just yet.

.com still shrinking because of China

Verisign’s .com gTLD shrunk by over a quarter million domains in the first quarter due to softness in China and US registrars’ pesky habit of putting up prices and the pain is likely to continue for the rest of the year, according to Verisign.

There were about 159.4 million .com domains and 13.1 million .net domains at the end of March, down a combined 270,000 from the end of 2023, Verisign said during its first-quarter earnings call on Thursday. Most of the decline appears to be in .com.

Registrations from Chinese registrars, which are about 5% of the total, were down about 360,000 in the period. Not ideal, but a lot less sharp of a drop than the 2.2 million it lost in Q4.

There were 9.5 million new registrations across both zones in the quarter, compared to 10.3 million in the year-ago period.

But CEO Jim Bidzos told analysts that competition from low-priced new gTLDs, some of which sell year one for under a dollar, is likely harming .com’s growth among cost-conscious Chinese registrants.

But he said the company is also seeing “softness” from US registrars, which he said are increasingly focused on increasing average revenue per user and putting up retail prices. This leads to fewer new registrations and renewals.

Bidzos said Verisign expects to introduce new marketing programs in the second half of the year — around the same time as the company’s base .com wholesale fee goes up from $9.59 to $10.26 — to help offset these declines.

The renewal rate for Q1 is expected to be about 74% compared to 75.5% a year ago. Bidzos said the total domain base shrinkage could be worse in Q2 due to the larger number of names coming up for renewal.

The company lowered its guidance for the year to between 0.25% growth and negative 1.75%. In February, it had guided flat, with a 1% swing in either direction.

Verisign’s top and bottom lines continue to grow during the quarter, with revenue up 5.5% at $384 million and net income up from $179 million to $194 million.