I didn’t write much leading up to the Verisign (VRSN) acquisition of .Web for $135 Million this week, but I have plenty of thoughts on the subject.
First and foremost it’s a no brainier for Verisign
Forget the $1.9 Billion they have sitting in the bank and focus in on the over $9 Billion dollar valuation the company has which went up over 3% on Friday. This more than made up for the investment in .web.
Since the announcement of the new gTLD program, It has been my contention that .Web has been the only possible new gTLD that could possibly threaten the original Top Level Domain’s market share; .com, .net and.org.
That is not to say that other extensions don’t have value or a market but not the broad appeal that .web has.
So if you were Verisign and could only get one new gTLD, .web would be the one to get.
I would argue Verisign getting .web (which they did not apply for), was simply a brilliant move, I would argue that if they did not get the extension it would have been gross negligence on their part.
As far as the cost of the extension to win .web, it’s really peanuts to Verisign, $100 Million, $135 million, $150 Million or $200 Million, really what is the difference to Verisign?
It could be argued the purchase price was cheap compared to Neustar’s acquisition of .Co two years ago for $109 Million when it only had 1.6 million registrations.
.info has over 5.5 million registrations and there have been over 4 million .info registrations each year for the last 10 years (with a high of almost 8 million).
At $8 wholesale that’s a cool $40 Million a year, Verisign has all the infrastructure in place so most of the income will fall right to the bottom line.
Verisign already has a profit margin of over 61%, pretty incredible for a public company.
The second interesting issue is who was the second highest bidder?
The ICANN auction, which lasted more than a day, was a step auction, which means one or more other applicants were bidding along with Verisign and drove them up to the $135 Million price.
Who was the 2nd place applicant?
What was the business model for the 2nd and 3rd place finisher in the auction? It’s a good bet the business model was a far cry from Verisign’s business model.
Consider that Web.com has a market cap that is less than $900 million, how could they spend $200 Million for one new gTLD extension ?
Donuts offered just $70 Million for all of Rightside’s (NAME) strings, at the time they had already launched 40 of them.
The third interesting issue is how high would Verisign have gone to secure the extension if pushed higher by other bidders ?
I think there was no way that Verisign was going to lose .web. No one could afford it like Verisign; no one needed it like Verisign.
For domain investors who participate in domain name auctions, its common to have losers remorse.
“Hell I lost that auction at $1,100, maybe I should have bid $1,200 and would have won the domain.”
Well IMHO there is no way Verisign was going to lose this auction, and no one else could pay as much as them except for Google. That said .Web has much greater significance for Verisign than it does for Google.
The 4th issue is now what is Rightside (NAME) worth?
Donuts offered $70 Million for all of the strings owned and operated by Rightside which at the time had launched 40 new gTLD’s and had around 550,000 paid registrations, many with premium renewal fees.
Now with Verisign paying $135 Million for one unlaunched string, what does that make Rightside’s new gTLD business worth?
At the time of Donuts offer, I predicted the $70 Million dollars would be rejected.
As of Friday’s close, Rightside has a market cap of $230 million, but that includes not just the new gTLD strings, but the operation of the back-end for its owned and operated strings, and providing the back-end for all of Donuts owned strings which totals over 2.3 million domains.
Rightside also owns Enom, the 2nd largest registrar in the world, they also own Name.com and 1/2 of Namejet.com among other assets.
It seems Verisign paying $135 million for just one string arguably makes Rightside shares look cheap at its close on Friday at $12 a share.
For .com domain investors my guess is that Verisign’s acquisition of .web is the best thing they could have hoped for, Verisign’s .web acquisition is more defensive and another company could have gone after .com aggressively with .Web. Only time will tell.
Will Verisign price .web domains with a premium renewal or not?
We might expect Verisign to use .web to make a play quite different from their contractually obligated pricing of .com and .net. They may roll out premium pricing for registrations and renewals which at the moment they can’t do with .com’s and .net’s
On the other hand Verisign could just basically give away .web addresses as part of a .com/.net/.tv registration package.
In the domain space remember life is long and most of those investing in the new G’s did it for a long-term play (5 years +).
However lets not lose sight of the fact there are just over 23 million new gTLD’s registered, some at great discounted pricing of $1 or under.
All of the new gTLD’s still don’t exceed the number of .net and .org registrations, not to mention .info and .biz.
So .web while it has a ton of potential, lets not forget that Verisign hasn’t exactly set the world on fire with .cc or .tv.
Speaking about .tv my guess is that’s the way that Verisign might price the “premium domains.” A one time premium charge and normal renewal fees, we will just have to see how it plays out.
Verisign has a lot of options of what to do with .web.
Finally what does the $135 Million acquisition of .web mean for future rounds of new gTLD’s?
Combined with .Shop $40+ million auction, Google’s acquisition of .app for $25 Million; the next round of new gTLD’s will not go unnoticed.
As someone who was out on the road telling Fortune 5000 companies about the coming new gTLD opportunity years ago, I was met mostly with rejection. Basically there was no interest, the next round will be an easy sale, especially if the price falls significantly from the $185,000 application fee. You may see 10,000 or more applications submitted next round.
At that point you can make many arguments how it will affect the domain name aftermarket.
It just maybe become a hot mess where most companies that can afford it will go with a .com or a relevant ccTLD. Startups and smaller businesses will operate on a lower priced domain looking to upgrade to a .com when they get funded.
In any event I did tell readers 5+ years ago I had no idea of how the new gTLD’s would affect the domain market and industry at the time. I did however emphasize they were coming and everyone needed to pay attention to it.
I think on that front my thinking was not wrong.