Demand Media’s White Paper On New gTLD’s

Demand Media, Inc. published a white paper (pdf) on the new gTLD’s today and I found it an interesting read.

The paper is entitled:

The Opportunity for generic Top Level Domains (gTLDs)

Some of the highlights:

“After years of planning and debate, a big change is coming to the way organizations and individuals identify themselves online. The characters to the right of the last dot — known in the industry as the Top Level Domain (TLD) — are being opened up to accommodate a new way of thinking. Our old friends .com, .net, .org and the like aren’t going away, but they are getting a lot of company. ”

Consumers’ lives online, and the businesses that exist there, will be changed in a substantial way.”

“This whitepaper is designed to help a broad audience understand the changes afoot .

“Domain Name Registration and Top Level Domains

“Twenty-five years after the arrival of .com, it’s now a TLD with more than 100 million registered names. It’s so crowded that new registrants struggle to find a suitable and appropriate string available for their purpose. The situation is also challenging and getting worse in other popular generic TLDs like .net and .org.”
“Recognizing this growing problem, the internet’s governing body of names and addresses, ICANN, unveiled a plan to greatly expand the internet name space. ICANN’s plan, known as the new generic Top Level Domain (gTLD) program, provides for a number of instrumental new capabilities designed to increase choice, registry-level competition and innovation in the domain name industry.”

“Among the largest applicants for generic TLDs were familiar names like Google and Amazon, applying for 101 and 76 gTLDs respectively.”

“Existing registries like Verisign, Afilias, Neustar and ARI applied for new gTLDs, while also helping hundreds of brands apply for their own trademarked names as well. Significantly, several new registry applicants emerged from the domain name industry ecosystem that collectively submitted the largest number of gTLDs.”

“The gTLD expansion represents a significant opportunity for a range of participants in the domain name industry ecosystem. The most direct beneficiaries, of course, are the registries awarded the new ICANN contracts.”

“Historically, registries operating at scale have achieved solid revenue, renewal rates, growth rates and attractive margin levels. For example, Public Interest Registry, the operator for .org, has stated they have more than 10mm registrations, 9.9% annual registration growth and a 76% annual renewal rate. Verisign, the largest registry, announced that it achieved operating margins of 50% in the second quarter of 2012.”

“Other players in the domain name distribution and value added services chain should benefit from new gTLDs. For example, registrars — like GoDaddy and Demand Media’s eNom — are the ICANN-required route to market for gTLD registries. ”

“Registrars should directly benefit from the increase in domain name registration volume and the potentially higher prices that many of these specialized gTLDs (e.g. .doctor, .lawyer, .shop, etc.) are expected to achieve.”

“According to Verisign, the net number of TLD registrations grew at 11% in Q1 2012 — and this number is expected to increase with the advent of new gTLDs.”

“Additionally, there should be expanded opportunities for companies who sell value added services like privacy protection, web hosting and SSL certificates into the domain registration market. It will also create new opportunities for providers of downstream services like domain auctions, premium name sales and monetization.”

2.0 DOMAIN NAME INDUSTRY LANDSCAPE

“The domain name industry is a multi-billion dollar global marketplace served through a complex and multi-channel distribution model. Key aspects of the industry, including the selection, accreditation and operations of registries and registrars, are heavily influenced by ICANN and the outcomes that result from its multi-stakeholder, consensus model.”

Registries

“For each Top Level Domain, ICANN awards one company — the registry — exclusive right and responsibility to maintain the system of record for the registration of domains. For example, in the case of .com and .net, the registry is Verisign. In the case of .org, the registry is Public Interest Registry (PIR).”

“A registry establishes the policies regarding who can register a domain for the applicable TLD and ensures there is a high availability system that supports inquiries about domain name availability, inquiries for registrant information, the registration of unique names and other critical functions. ICANN typically contracts with the registry to provide these services for a period of 10 years.”

Registrars

“The role of the registrar is to register domain names from end users and maintain the information associated with those registrations in the registry databases. The registrar charges registrants an annual fee that is inclusive of the fees that the registrar must pay the registry and ICANN.”

“Registrars must be accredited by ICANN and have equal access to all TLDs. Registrars that sell directly to the customer are often called ‘retail registrars’ in the industry, with GoDaddy being the largest example of this. Some registrars specialize in selling thru resellers and are often called ‘wholesaleregistrars’. Demand Media’s eNom subsidiary is the industry’s largest wholesale registrar.”

Resellers

“Some companies sell certain products and services that lend themselves well to selling domain name registrations to the same customer base. ”

“For example, Google resells domain names to customers who are using Google Apps and BlueHost resells domain names to customers who use their website hosting services. Since the requirement to be a certified ICANN registrar is quite high, these companies resell the registrar’s services and let the registrar manage all of the back-end interactions with the registry.”

Domain Name Aftermarket

There is a large segment of the domain name industry that specializes in the sale of previously registered domain names through public or private auctions or domain listing services. Other players in this segment specialize in helping domain owners monetize their names through advertising services. Companies with extensive aftermarket businesses include Google, Sedo, SnapNames and NameJet, a joint venture between Demand Media and Web.com.”

Supply and Demand for Current TLDs

“With more than 230 million names under registration at the end of Q1 2012, the domain name industry also experienced an annual growth rate of 11% and annual renewal rates higher than 70%. These kinds of statistics indicate that the web address is still a sought after calling card for a large, global audience.”

“The size and consistent growth of the two largest generic TLDs, .com and .net, has made it difficult for new registrants to find desirable names. This in turn has led to the increasing growth of country code TLDs (ccTLDs) and behavioral changes among registrants.”

Limitations of the Current TLD System

“While US customers typically choose domain names from one of the generic TLDs, the scarcity of available names has led registrants in other countries to increasingly turn to one of the 290 country code TLDs like .uk, .de, or .jp.”

“Currently, there are 22 generic TLDs and 290 country code TLDs (ccTLDs). The generic names include .com, .net, .org, .biz, and .info. It also includes more specialized TLDs like .museum, .travel, .aero and .mil that each significantly restrict who can qualify as a registrant. The restrictions have limited the adoption of these TLDs by large numbers of registrants and done little to expand the universe of attractive name spaces for the typical domain name customer.”

“The scarcity of available domain names and lack of choice within the existing generic TLDs are two of the key factors that led ICANN to open up the namespace with its new gTLD program.”

“Given the nature of competition for certain high value gTLDs, auction prices could reach many millions of dollars for a single gTLD. For this reason, it is nearly impossible to predict how many gTLDs any applying entity might actually secure — or the capital necessary to achieve a successful outcome.”

Trend: The Portfolio Applicant

“Whereas registries have typically been contracted to operate just one or two gTLDs, the new program witnessed the emergence of applicants applying for large portfolios of gTLDs ranging from a dozen to more than 300. In the event that the parties can’t work things out, ICANN will run the contending applications through an auction where the top price secures the rights to run the registry for that gTLD.”

“Recognizing that registry operations exhibit significant benefits from operating at scale, well-funded applicants pursued the portfolio approach seeking maximum leverage. This strategy also reflects, in part, the niche nature of many of the applied for gTLDs, wherein it would be hard to economically sustain a single or small number of gTLDs on their own.”
“The largest portfolio applicants include subsidiaries of Afilias, Amazon, Demand Media, Donuts, Google, Famous Four Media, Radix, Top Level Domain Holdings and Uniregistry.”

Trend: Big Generic Plays By Major Brands

“It was expected that consumer brands would secure their trademark names as gTLDs for user convenience and brand extension (e.g. patriots.nfl, golf.nike, etc.). But a surprising number of brands applied for multiple generic TLDs with meaning and purpose well beyond their trademark names.”

“Google and Amazon were the two largest companies pursuing this approach with 101 and 76 applications respectively. Other consumer brands submitting a substantial number of applications for trademark and generic terms were L’Oreal (14), Scripps (13), Richemont (12) and Dish Networks (12).”

“In the case of Google, many of their non-trademarked gTLD names had little to do with their existing business and appeared to be selected purely for their attractiveness from a registration volume perspective.”

“Examples of Google Applications Unconnected to their Core Business”

CPA
FAMILY
LLP
SITE
DDS
GMBH
LOL
SRL
DIY
INC
LOVE
PHD
DOG
LLC
MED
WOW
“Trend: Closing Off High Value Namespaces”

“Since the key objectives of ICANN’s new gTLD program were to expand consumer choice, encourage innovation and increase competition – the ICANN community was surprised to learn that many of the applications for non-trademarked terms proposed closing off or tightly controlling generic terms for the benefit of the applicant.”

“Amazon is the most frequently cited of the applicants pursuing this strategy. All of Amazon’s 76 applications are proposed to be a closed namespace, including many terms associated with multi-billion dollar industries. As this practice would shut out millions of commercial and non-commercial participants, the approach has received a strong backlash from the community.”

“Examples of Amazon Applications for Closed, High Value gTLDs”

APP
CLOUD
MAP
NEWS
AUTHOR
DEAL
MOBILE
SHOP
BOOK
GAME
MOVIE
STORE
BUY
MAIL
MUSIC
VIDEO

Revenue Opportunities from gTLDs

“The advent of more than 1,000 new gTLDs will bring profound change to the domain industry along with intriguing revenue opportunities for new and existing players alike.”

“Looking beyond the obvious revenue opportunities for new gTLD registries, one industry participant with an expanded role is the third party back-end registry operator. While the registry is ultimately responsible for administering the system of record, many registries have chosen to outsource the technical operation and support of the system to a third-party provider. In the new gTLD program several back-end registry operators have signed contracts with hundreds of gTLD applicants. These third-party registry operators could have a substantial financial opportunity if their customer base is successful secur- ing registry contracts from ICANN.”

“The new gTLDs are expected to drive incremental registration volume.

Registrars, for example, would directly benefit from an increase in volume with very little incremental investment required.

Aftermarket services like domain name auction houses and listing services will benefit from increasing inventory of premium domains and from new products they are developing to help registries launch their gTLDs.

Finally, many companies are creating plans to innovate and develop new products and services designed to leverage the emerging name spaces. Certain gTLDs are particularly well suited for new product innovation. One frequently cited example is .map, which could be used to give an intuitive address for an interactive map for every physical place in the world (e.g. carnegiehall.map, nobu. map, hydepark.map, etc.)

“A crowded generic Top Level Domain namespace is being expanded to pro- vide over one thousand new choices, better brand connections and more intuitive information discovery.”

“The opportunity presented by the expanding gTLDs has lured an unlikely cadre of consumer megabrands like Google, Amazon, L’Oreal, Nike and Walmart into the world of domains. Their presence, and the visibility produced by their usage of gTLDs in their online efforts, will rapidly increase consumer awareness and potentially lead to more potentially lead to faster adoption.”

“By the time ICANN’s process concludes and the new gTLDs have been rolled out, online branding and internet navigation will experience remarkable change. In this wake, a number of domain industry companies may emerge as catalysts of this transformation.”

Comments

  1. LindaM says

    “The scarcity of available domain names and lack of choice within the existing generic TLDs are two of the key factors that led ICANN to open up the namespace with its new gTLD program.”
    Another key factor (one might suspect) was the f’ing great fat pile of cash that such a magnanimous gesture would deliver.

  2. says

    ““With more than 230 million names under registration at the end of Q1 2012, the domain name industry also experienced an annual growth rate of 11% and annual renewal rates higher than 70%.”

    If you grow your base at 11% and only have a renewal rate of 70%, wouldn’t that mean the domain space is contracting?

    230 Million + 11% = + 25,300,000
    230 Million – 30% non renewal = -69,000,000
    = net – 43,700,000 names?

    Or are they saying that 69,000,000 names are not renewed leaving 161,000,000 names and that
    94,300,000 new names are registered leaving you with 255,300,000 names an 11% growth rate.

    I find it hard to believe that 94 million new names are registered each year.
    With new GTLD’s you can expect that renewal rate to drop to somewhere closer to 50%

  3. Michael H. Berkens says

    Mike

    They are saying overall the amount of domains from this year to next increased 11%.

    70% renewal rate is typical 73% actually is what .com’s do but don’t forget that a percentage of the non-renewed domains are immediately registered by others, so although lets say 27% of domains are not renewed maybe 10% of the 27% are immediately taken by someone else.

  4. says

    A non-renewed domain that is registered by someone else is still a “new reg”
    So the 94 million new regs each year is somewhat accurate. That works out to 257,500 new regs
    every day. Not sure I’m buying that.

    Also, what happens if a person builds a business on a new gtld, and the applicant for that gtld, folds?
    I am sure more than 1 gtld is not going to make it and I am sure more than 1 business will be built on each of them. Doesn’t ICANN have some sort of obligation to keep the gtld going, or at least warn a potential registrant that this scenario could play out?

  5. Michael H. Berkens says

    Mike

    So all applicants have to have 3 years of operating capital in escrow, so if a new gTLD applicant files it won’t be for at least three years.

    ICANN will try to find a company to take over the extension.

    Some believe there will be an active resale market for new gTLD’s which the then current registry wants to sell or which are not successful for them.

    If its a new gTLD which no other company wants to manage it would be a pretty horrible extension with few registrations in which case users could wind up holding the bag.

  6. aaron says

    so now instead of having X amount of squatters, we’re going to have Y * X.

    lovely.

    There should be more regulation as to pricing and availability.

  7. BrianWick says

    Aaron –
    “The more corrupt the state, the more numerous the laws.” – Tacitus

    Maybe ICANN is trying to avoid the corrupt tag ?

    “in which case users could wind up holding the bag.”
    Many feel the current US government does not understand risk and capitalism – so I am sure the government would bail out that new failed non.com – and maybe put them on some entitlement list as well :)

  8. HELP.org says

    This is called a “white paper”? That is like the lobbyists that go around saying they are part of a “think tank.” Maybe they can build the Domaining Research Institute … right next to the domainer hall of fame.

  9. Grim says

    @Aaron

    With the exception of a small collection of key names, who would really want to be a “squatter” on a new gTLD? Things are only valuable if they are rare. And with all the new combinations of names that will become available after the new gTLDs come out, they will be anything but rare.

  10. Jason says

    @ Grim + @Aaron

    Agreed!

    The empirer is not wearing any clothes and it’s only a matter of time before it becomes obvious that the entire gtld plan is a big .fail

    Just you watch.

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