What Does The New US Administration Mean For The Domain Industry?

A reader suggested I address what effect the new administration may have on the domain industry.

I don’t want this to turn into a political discussion.

I don’t want to hear what could have been, should have been or would have been.

I don’t want to hear about what Bush did or didn’t do.

I don’t want to hear about what McCain would have done.

The election is over, we have a president elect and now all that matters is what the new administration will do and how its policies will effect the domain industry and domainers.

First we can look forward to the establishment of the office of Chief Technology Officer, which will be a cabinet-level position, which will “”help federal agencies implement the latest technology tools and practices and will serve as a link between government IT and the wider tech sector.””

There is plenty of speculation, over who will become the country’s first Chief Technology Officer.

Leading candidates include Google’s CEO (and vocal Obama supporter) Eric Schmidt, Internet guru Vint Cerf, former Federal Communications Commission Chairman Reed Hundt, Amazon CEO Jeff Bezos, Princeton computer science professor Ed Felten, and Microsoft CEO Steve Ballmer.

Whoever becomes Chief Technology Officer, Silicon Valley is expected to have the ear of the president during the coming years. According to he Center For Responsive Politics,  employees at Microsoft and Google were amongst Obama’s top campaign contributors.

Obama’s technology strategy includes making government data easily accessible online, making the research and development tax credit permanent, and extending broadband access to all Americans, including “affordable broadband” and “previously un-served communities”.

More broadband access, especially for those who may not have had any real Internet access, will translate into more Internet users, which is always good for domain holders.

I think it is fair to say that no President has ever had a better understanding of the Internet, and its importance in the world economy.

However, emphasis on technology in the new administration can also hurt domainers.

From Wall Street to Silicone Valley there is going to be a lot more governmental regulation.

We certainly think that CADNA will get the ear of Congress to strengthen the Anti-Cybersquatting Consumer Protection Act (ACPA) (passed during the last Democratic presidency, 1999).  The Snowe Biil that was introduced last year, will make a return in the next Congress as part of an amendment to the ACPA.  Look for trademark holders ask Congress to substantially increase the top fines for violation from the current $100K,  to an amount of in the seven figures.

I also look for an attempt to add criminal penalties for violation of the ACPA.

I also think the definition of terms given protection will try to be broaden to include terms, including those similar to governmental bodies, (IRS.com for example) and stretch the definition of what is trademark infringement.

Following the Snowe bill, you might see other previously non-trademarkable terms gain some protection.

As Hollywood was strongly behind Obama, I think you will see additional strengthening of all intellectual  property including copyrights, music and movies rights, and increased penalties for the sale of “Counterfeit” merchandise.

In a video released in the last days of his campaign, Obama promised to enforce tough antitrust laws “to keep the door open for the next-generation of startups.”

This would mean we would be unlikely to see a Yahoo-Microsoft deal get approved.  As we saw it was highly unlikely, even under the current administration, that a Google-Yahoo deal would get done.

Other combos in the tech field will be subject to much more scrutiny in the new administration.

Secondly taxes are going to increase.

This is going to negatively effect US domainers and give further spending power to those domainers living in tax free jurisdictions.

The question is whether the tax increase will come in the form of letting the current “Bush Tax cuts” expire at the end of 2010, as they are currently scheduled to, or whether the new administration will move for a tax increase effective as soon as July 1, 2009?

My guess is that that we will see a tax increase bill pass congress in early 2009 effective July 1, 2009.

Whenever the tax rate changes it will certainly almost double the capital gains rate from 15% to 28% for those with over $200K adjusted gross.

In the domain business everyone is one good domain sale away from the $200K level.

My guess it that the increased taxes will have a negative effect in the long run, but help increase sales in the short run, as people try to sell before the tax increase.

The top tax rate will rise 4 points and will take a few more bucks out of the top US domain holder pockets, once again leaving less to spend on domains, but that slack will be taken up by those top domainers in the tax free jurisdictions.

However higher taxes will effect all domainers, regardless of their income level.

Almost every parking company is located in the US.

The old saying goes, corporations do not pay taxes, people do.  Will increased tax obligation of parking companies wind up reducing payouts to domainers,  or will these companies simply absorb the tax ramifications?

My guess is higher taxes will be passed on to domainers in the form of reduced payments for traffic.

Moreover, lets not forget that the two companies that all parking companies derive their income from are US based and Google and Yahoo can expect to pay higher taxes in the new administration.

So for all that don’t believe in the “trickle down theory”, you may see it work in the opposite direction.  As taxes increase on corporations in the parking food chain, this will translate into lower revenue to domainers.  Lower revenue and higher taxes to domainers will lead to less cash being available for purchasing new domains.  I predict you will also see a much higher non-renewal rate of domains.

Thirdly, many in the world community have been asking for years that ICANN be moved out of US jurisdiction into control of a  “neutral country” such as Switzerland.

My opinion is that the New administration will not be as opposed to this idea as the current one.

I would say there is a 75% chance that the US will give up control of ICANN within the next 5 years.

Verisign’s current contract to administer the .com and .net registry runs well past the new administration term, through 2012.  So I do not see the central registry moving out of Virgina anytime soon.

However, the administration may cause a big change in the domain new extensions (gTLD’s).

As you may recall the .xxx extension was approved by ICANN and approaching final approval until the current administration blocked it on moral grounds.  The New administration should be much less likely to block a .xxx extension, or any new extensions on moral grounds.

Finally I see:

a.  The federal government supporting more Internet privacy. I don’t think you will see the next administration asking for records of people’s search patterns, as the current one did.

b.  Less enforcement of obscenity laws, which is good for the adult Internet industry.

c.  A strong possibility that Internet Gambling will be allowed in the US.  As you may know the World Trade Orgainzation has fined the US millions of dollars for prohibiting online gambling.  I think the new administration might take a different approach and allow online gambling, along with the rest of most of the world, and look to generate significant tax revenue from it.

This is how I see.

Now its time for you to weigh in.