.gov TLD quietly changes hands

The .gov TLD used exclusively by governmental entities in the US has quietly changed managers.

On Friday, the IANA records for .gov changed from the General Services Administration to the Cybersecurity and Infrastructure Security Agency.

It was not unexpected. CISA announced the move in March.

But it’s less clear how the change request was handled. The ICANN board of directors certainly didn’t have a formal vote on the matter. IANA has not released a redelegation report as it would with a ccTLD.

CISA intends to make .gov domains more widely available to agencies at the federal, state, city and tribal level, and reduce the price to free or almost free.

Verisign currently manages the technical aspects of the domain, for $400 per domain per year.

Verisign expects huge domain growth in 2021

Verisign tonight significantly upgraded its estimate of how many .com and .net domains it expects to sell this year, citing an improving economy and increased growth in online commerce.

CEO Jim Bidzos told analysts that it’s now expecting its domain base to increase by 4% to 5.5% this year. Three months ago, it had cautiously predicted growth would be between 2.5% and 4.5%.

That’s a minimum of 6.6 million net new domains this year.

The upgrade was inspired by its first-quarter performance, in which .com and .net base grew by 4.6% when compared to Q1 2020, to 168 million names.

That was an increase of 2.8 million names during the quarter, which compares to 1.83 million net new domains in Q1 2020 and 1.46 million in Q4 2020. A pretty damn good showing, in other words.

For Q1, Verisign tonight reported net income of $150 million, down from $334 million in Q1 last year, when it experienced a one-off tax benefit.

Revenue was up 3.6% on last year at $324 million.

Decision on $135 million .web auction expected in weeks

ICANN, Verisign, Donuts, and the other applicants for .web will find out who gets to control the fiercely contested gTLD by the first week of June at the latest, according to Verisign’s CEO.

Jim Bidzos told analysts tonight that the Independent Review Process panel currently handling a complaint filed by Afilias declared its case closed April 7, and said that a decision will come within 60 days.

Afilias, now owned by Donuts, came second in an ICANN “auction of last resort” in which a Verisign-backed company called Nu Dot Co agreed to pay $135 million for the coveted string.

Afilias wants the auction declared invalid because ICANN, it claims, did not sufficiently pursue allegations that NDC was being secretly bankrolled by Verisign, which it says broke ICANN bylaws and new gTLD application rules.

This is denied by ICANN, as well as NDC and Verisign, which have filed legal documents with the IRP panel despite not being parties.

Afilias and others suspect that Verisign wants .web in order to bury it, keeping what could be a strong .com competitor weak, which Verisign also denies.

The IRP panel held a seven-day virtual hearing last August, but has continued to receive briefs from ICANN and Afilias since then.

Verisign says it needs .web because .com is running out of names

Verisign’s affinity for cognitive dissonance has emerged yet again — it’s now claiming that it needs to be awarded the .web gTLD because it’s running out of .com domains to sell.

In legal documents released by ICANN yesterday, Verisign’s lawyers say: “The undisputed evidence is that Verisign needs a TLD like .WEB for growth given the decreased name availability in .COM”.

The admission/claim/lie (delete according to preference) came in a joint post-hearing filing by Verisign and Nu Dot Co, the .web applicant to which Verisign loaned $135 million to bid for the gTLD on its behalf at a record-breaking ICANN auction in 2016.

Afilias, now owned by Donuts, was the second-highest bidder and since November 2018 has been trying to get the auction result cancelled via ICANN’s quasi-judicial Independent Review Process.

The IRP’s final hearing was held over seven days last June, and we’ve been waiting with baited breath for a ruling ever since.

At some point over the last 48 hours, ICANN published three sets of post-hearing arguments — one from itself, one from complainant Afilias and an amicus (non-party, friend of the court) filing from Verisign/NDC.

The Verisign filing (pdf) attempts to rubbish Afilias’ claims across the board, but its rebuttal of the argument that it only wants .web in order to bury it and protect .com’s dominance is particularly interesting:

Verisign Has Every Incentive To Grow .WEB Aggressively. Afilias’ Amended IRP Request asserts without evidence that Verisign seeks to acquire .WEB in order to eliminate a potential competitor for .COM and that Afilias would make a better operator of .WEB. Afilias presented no evidence to support this claim prior to the IRP, and none was presented at the hearing. In fact, the evidence before this Panel refutes Afilias’ claims. The undisputed evidence is that Verisign needs a TLD like .WEB for growth given the decreased name availability in .COM. Even Afilias’ own experts concede that the .COM TLD now has limited name availability. Moreover, the undisputed evidence establishes that Verisign is well-positioned to maximize .WEB’s potential, while Afilias’ recent track record suggests that it would be a less effective operator of .WEB.

In June last year, Verisign had submitted to the IRP panel:

Verisign needs a new TLD like .WEB for growth. Verisign’s growth rate has declined in recent years, largely due to many names in .COM already having been taken and increased competition from new gTLDs and ccTLDs that have superior name availability.

Even Afilias’ own experts concede that the .COM name space effectively is taken. Numerous other industry participants have noted that most of the “good” names in .COM already are taken.

While Verisign had a applied for a few non-English transliterations of .com in the 2012 new gTLD application round, it had avoided getting involved with potential competitors to .com.

But, according to its brief, in 2014 it had just sold off the remainder of its non-domain businesses and, realizing its growth now needed to come from a pure domains strategy, tasked VP Paul Livesay with figuring out how it could worm its way back into the new gTLD program.

Many of the details of Livesay’s research and decision making have been redacted by ICANN (purportedly at Verisign’s request), but it seems he came to the conclusion that the best way to benefit from the program long after the application window closed would be to secretly financially back NDC’s participation in the .web auction, with the provision that the .web contract would be transferred to Verisign should it win.

Quite apart from its regular postings touting .com availability over the last few years, the same year that Verisign was coming to the conclusion that .com was becoming saturated and it needed new growth opportunities in other TLDs, it sued XYZ.com for false advertising for having the gall to suggest that it was hard to find available .com domains. It lost.

Because Verisign apparently enjoys nothing more than holding two diametrically opposed positions simultaneously, its October amicus filing also claims that .web isn’t nearly as awesome as Afilias and others claim.

On the same page that it insists that .web is needed to drive growth, Verisign poo-poos the notion that .web could be a significant competitor to .com, relying on an “expert report” commissioned by Verisign and compiled by University of Chicago economist Kevin Murphy.

(Murphy’s report is redacted in its entirety (pdf) by ICANN, but his 1,119 pages of unredacted exhibits (pdf) prominently include screenshots from this blog, so I feel the need to point out that he’s a different Kevin Murphy — he’s not me, and I’d never even heard of the dude until this morning. On a personal level, the fact that I’m apparently not even the best Kevin Murphy when it comes to the .web story that I’ve been covering for the last two decades is, as you might imagine, as depressing to me as it is presumably amusing to you.)

While his report is redacted, reading around the edges it appears that Murphy reckons .web will not be an exceptional competitor to .com.

Verisign’s October filing states:

.WEB’s Valuation Shows It is Not Particularly Competitively Significant. The Murphy Report models multiple economic scenarios to assess Afilias’ claim that the $135 million price paid for .WEB at the public auction shows that .WEB will be a substantial competitor. None of these scenarios indicate that .WEB is likely to gain a significant market share. Instead, each scenario shows that .WEB is likely to have no more than a 2–3% market share.

Because of the redactions, it’s not clear what market Murphy was referring to, but a 3% market share of the current universe of domain names across all TLDs works out to over 10 million domains. In other words, .web could be a top-five gTLD, up alongside the likes of .org.

But elsewhere in its IRP filings, Verisign cites Murphy to support its argument that .web will have “registrations in the low single digit millions”. That would still be enough to make it one of the best-selling new gTLDs.

This relatively low expected turnout of course begs the question of why Verisign needs .web to grow. It added 4 million net new names across .com and .net last year alone, with .net pretty static, according to its financial filings.

I’m no Kevin Murphy, but here’s a table I’ve thrown together showing Verisign’s domain growth over the last decade.

[table id=64 /]

Its revenue has consistently grown year over year, from $681 million in 2010 to $1.27 billion in 2020. It’s considered one of the most profitable companies in the world, and its share price has tripled since 2011.

And that was without .web.

As .gov changes hands, would Verisign run it for free?

The .gov top-level domain is moving for the first time since 1997, and the new owner is promising some pricing changes from next year.

The US General Services Administration has been running .gov, one of the original gTLDs, for almost a quarter-century, but next month it will be taken over by the Cybersecurity and Infrastructure Security Agency.

No changes have been made at IANA yet, but CISA is talking of the handover as if it is a done deal.

It will be the first time ICANN has been asked to redelegate what is essentially an uncontracted gTLD with some of the characteristics of a ccTLD. To be honest, I’ve no idea what rules even apply here.

The move was mandated by the DOTGOV Act of 2019, which was incorporated in a recently passed US spending bill.

Legislators wanted to improve .gov’s usefulness by increasing its public profile and security.

The bill was quite adamant that .gov domains should be priced at “no cost or a negligible cost”, but there’s a catch — Verisign runs the technical infrastructure for the domain, and currently charges $400 per domain per year.

According to CISA, “The way .gov domains are priced is tied closely with the service contract to operate the TLD, and change in the price of a domain is not expected until next year.”

So we’re looking at either a contract renegotiation or a rebid.

Frankly, given the really rather generous money-printing machine the US government has granted Verisign with its perpetual right to run .com and increase its profit margins in most years, it seems to me the company should be running it for free.

The .gov zone currently has domains measured in the low thousand.

Domain industry shrank in Q4, but as usual there’s a big BUT

The worldwide domain name count shrank in the fourth quarter, according to newly released Verisign data, but as usual the numbers were hugely impacted by big swings in just a few TLDs.

The latest Domain Name Industry Brief (pdf), which is mainly compiled from zone file counts, shows that 2020 ended with 366.3 million names, down by 4.4 million or 1.2% compared to the end of the third quarter.

It’s the free and almost-free TLDs that swung the math.

Remarkably, industry wild-card .tk actually shrank during the quarter. This is highly unusual, as the registry’s business model is based on giving out names for free, never deleting domains, and monetizing the traffic to expired or suspended names.

It saw domains down by 2.8 million names over the quarter, from 27.5 million to 24.7 million.

Another big dipper was .icu, which sells cheap (usually under $1) and appeals to speculators largely in China.

While it slipped out of the top 10 TLDs, meaning the DNIB no longer breaks out its numbers, DI’s own zone file counts show its zone decline from 5.3 million to 3.4 million during Q4, a 1.9 million decline.

Notably spammy new gTLD .top, which also costs next to nothing and is popular in China, also had a role to play. Its zone count was down by about 900,000 between September 30 and December 31.

Those three TLDs alone account for a loss of 5.6 million names, far more than the 4.4 million industry-wide quarterly drop calculated by Verisign.

The impact of .icu’s continued spiral downwards is likely to be felt in Q1 2021 also. It’s lost another 2.4 million zone file names since the start of the year.

Verisign said the the universe of ccTLD domains contracted by 1.7 million of 1% during the quarter, ending the year with 158.9 million names.

The .tk shrinkage of course more than accounts for this dip. Without it, ccTLDs would be up by 1.1 million names or 1.1%. The major, top-10 ccTLDs mostly showed six-figure growth, the DNIB reflects.

New gTLDs were down 4.2 million names or 13.8% sequentially, ending the quarter with 26 million.

In addition to the aforementioned .top and .icu, this figure appears to have been affected by six-figure losses in some of the highest-volume, lowest-priced new gTLDs, including .club, .site .work and .vip.

In the main legacy gTLDs, Verisign’s own .com grew by 1.5 million names, from 151.8 million to 150.3 million, during the quarter. Its .net was again flat at 13.4 million. Public Interest Registry’s .org gained a (rounded) 100,000 names, ending the year at 10.3 million.

The annual numbers across the industry for 2020 have better optics. The DNIB shows that domain volume was up by 4.0 million or 1.1% year over year.

That breaks down into a 6.3 million increase in .com, a 1.3 million increase across the ccTLDs, and a 3.3 million decrease in new gTLDs, not all of which can be explained away by factoring out .icu and .top.

Verisign upgrades its cash-printing machine but warns post-pandemic “could go either way”

Verisign has named the date for its long-anticipated .com prices increases, as it reported another healthy quarter and year of growth.

The company announced that the annual wholesale fee for a .com domain is going up from $7.85 to $8.39, effective September 1. That’s in line with the 7% annual cap reinstated by the Trump administration and rubber-stamped by ICANN.

It’s the first .com price increase since 2012, when reg fee was frozen by the Obama administration’s Department of Commerce under its longstanding contract with the company.

The $0.54 price increase would mean an extra $82.5 million for Verisign’s top line, assuming the .com base remains static at today’s level of 152,883,064 domains. The reality is very probably that registrations will continue to grow, however.

Verisign is allowed to increase prices by 7% three more times under its current ICANN contract. It was allowed to take the Trump bump last year but deferred due to the coronavirus pandemic.

Registrants are able to lock-in their current renewal rates for up to 10 years before the price rise kicks in, assuming registrar fees don’t increase in the meantime.

.com is of course a fabulously successful business, and it received a pandemic-related boost last year, due to a increase in small businesses moving online due to lockdown rules, which was reflected in Verisign’s fourth-quarter and full-year results.

Verisign reported fourth-quarter net income up from $148 million to $157 million, on revenue that was up 3.1% to $320 million.

For the full year, net income was up from $612 million million to $815 million, on revenue that was up 2.7% at $1.23 billion.

Operating margin is always an metric where Verisign shines — I often get phone calls from analysts baffled as to why ICANN allows such blatant profit-taking — but it was down a tad to 65.2%, from 65.5% in 2019.

That’s probably not enough to dislodge its crown as the company with the highest operating margin of the S&P 500.

Speaking to analysts and investors last week, Verisign said it’s projecting 2021 operating margin down again, to be between 64% and 65%, because of increased investment in its infrastructure and the $4 million annual bung it’s agreed to pay ICANN.

While Verisign is only going to see one quarter of higher prices this year, it seems the majority of its increased revenue will trickle down to the bottom line.

The company expects its domain growth to be between 2.5% and 4.5% in 2021. Execs noted continuing pandemic-related uncertainty. CFO George Kilguss said:

when the pandemic subsides and things start opening it up, I think it could probably go either way either it could accelerate or it could slow a little bit. We’re just not sure how the market would react just as we were somewhat uncertain when this whole pandemic started

In other words, while coronavirus proved an unexpected boon, post-pandemic economic recovery may not necessarily be a good thing for the industry.

Verisign drops half a mill on pandemic relief

Verisign has donated over half a million dollars to pandemic-related causes, the company announced last week.

The donations are aimed at relieving economic side-effects of the pandemic such as food poverty and unemployment.

The .com registry operator said in a blog post it has given $275,000 to food banks in Washington DC, Maryland, Virginia, and Delaware where most of its US operations are based, and in Fribourg, Switzerland, its European HQ.

It’s also given $250,000 to Virginia Cares, an initiative dedicated to retraining unemployed Virginians for in-demand jobs in the tech sector.

Verisign was of course an inadvertent beneficiary of the pandemic, as lockdown regimes worldwide led to a boost in domain registrations as businesses such as bars and cafes moved online.

Domain growth dropped off in Q3, says Verisign

The third quarter saw the worldwide domain industry base of registrations increase by 600,000 names over the second quarter, according to Verisign’s latest Domain Name Industry Brief.

September ended with 370.7 million names registered across all TLDs, up 0.2% sequentially and 3% year over year.

Annual growth of 10.8 million names is a sharp drop off from the 15.3 million growth seen in Q2, during which many nations were under coronavirus lockdown.

Breaking it down by sector, it’s a case of .com growth being offset by shrinkages in new gTLDs and ccTLD, at least on an annual basis.

.com ended the quarter with 150.3 million names, up from 148.7 million three months earlier, which .net was flat at 13.4 million.

ccTLDs as a whole were at 160.6 million, up by 500,000 sequentially but down by 1.2 million compared to Q3 2019.

Unusually, the ccTLD numbers were not affected one way or the other by free extension .tk, where domains are never deleted. Verisign reports the TLD flat in Q3, but I suspect that’s due to a lack of fresh data rather than anything else.

In the top 10 largest ccTLDs, most grew or were flat sequentially. The notable standout was .uk, which lost a full million domains compared to Q2 due to the expiry of a million second-level names in September.

New gTLDs declined by 1.5 million names to settle at 30.2 million at the end of the quarter, according to the DNIB.

The report can by downloaded from this page.

Donuts boss discusses shock Afilias deal

Afilias is to spin off its registrar business and also its contested application for the .web gTLD, following its acquisition by Donuts, according to Donuts CEO Akram Atallah.

Speaking to DI last night, Atallah explained a little about how the deal, which creates a registry with about 450 strings under management, came about.

Rather than a straightforward bilateral negotiation, is seems like Afilias was shopping itself around for a buyer. Several companies were invited to bid, and Donuts won. Atallah said he does not know how many, or which, bidders Donuts was competing against.

Afilias was making over $100 million a year in revenue last time its accounts were published in 2017, but its largest gTLDs are in decline and it took a big hit when Public Interest Registry renegotiated its back-end contract for .org in 2018.

The acquisition, the value of which has not been disclosed, does not include Afilias’ registrar or mobile businesses, which Atallah said will be spun off.

He also revealed that the deal does not include Afilias’ .web gTLD application, which came second in an ICANN auction won by a Verisign-backed bidder a few years back.

Afilias is currently waiting for the results of an Independent Review Process case that seeks to overturn the winning $135 million bid and award the potentially lucrative gTLD to Afilias. The case was heard in August and a decision is surely not many months away.

What the deal does include are all of Afilias’ registry assets, including its owned gTLDs and its back-end service provider contracts.

I asked Atallah what the plans are for migrating or integrating the two registry platforms. While Afilias runs its own data centers, Donuts migrated its registry to Amazon’s AWS cloud service earlier this year.

“We have to make sure whatever we do is as painless as possible to our registrar channel and partners,” he said. “We believe that at least on the new gTLDs that they have it will probably be easier for us to move them to our back-end, which is on the cloud already… We’ll probably do that fairly quickly.”

“But remember they have other registries and ccTLDs that don’t own that they run on their back-end, so there’ll be business issues and negotiations there to see what we can do there,” he added.

While he’s not expecting anyone to notice any big changes immediately, Atallah said that over time features such as the companies’ different EPP commands will be merged, and that valued-added services will start to cross-pollinate.

“All of the features we have on our TLDs will migrate to their TLDs and vice versa,” he said.

That means things like the Domain Protected Marks List, a defensive registration service for trademark owners, will start to show up in Afilias gTLDs before long, he said.

I asked about the possibility of layoffs, something that is no doubt worrying staff at both companies right now and seems quite possible given the move to the cloud, but Atallah said it was too early to say. Nothing will change until the deal closes at the end of the year, he said.

“Once we actually close, we’ll sit down with the management of the Afilias registry team and look at all the different assets that we have and try to pick the best in class in technology and services,” he said.

Having seen some mutterings about competition concerns, I put that question to Atallah. He laughed it away, pointing out that, even combined with Afilias, Donuts will have fewer than 15 million domains under management.