Why Is Verisign Ignoring New Revenue?
Last month saw a much-anticipated decision handed down in the Independent Review Panel (IRP) proceeding examining the controversial 2016 auction for the .web generic top-level domain name registry (gTLD). This decision has been covered by others, including Kevin Murphy’s DomainIncite, and has been the subject of unsurprisingly incongruous statements by Verisign and Afilias, who are both contending for the .web concession privilege.
Questions, doubts, and objections have persisted since before the auction and, given Afilias’ stated intent to continue protesting, these don’t appear likely to be resolved definitively for at least a few more expensive years. Rather than rehash the recent decision or speculate about what comes next, it seems that a better contribution can be made here by exploring some useful context.
For starters, the manner of Verisign’s pursuit of .web is bizarre. The veiled use of the NuDotCo proxy, the outsized $135 million auction bid, and the aggressive behavior being displayed by the company both then and now are notable on their own but seem even more so when considered alongside the rampant speculation that Verisign’s motive for all of this is merely to keep .web tied up and off the market.
The simple mathematical reality is that millions of .web registrations will be necessary just to recoup the nine-figure auction price being paid to ICANN. There also will be costs associated with promoting adoption of a new gTLD in a market already saturated with more than a thousand new gTLDs that are performing anemically, at best, and with countless more on the way.
One posited rationale behind Verisign’s desire to control .web is that it represents a substantial competitive threat to Verisign’s revenues from operating .com. This seems farfetched and it also flies in the face of findings from a 2008 competition review conducted by the U.S. Department of Justice (DOJ). In its analysis, the DOJ concluded that the introduction of new gTLDs would not constrain the exercise of market power by .com and other existing TLDs, stating, in part, that:
First, we found that VeriSign possesses significant market power as the operator of the .com registry because many registrants do not perceive .com and other gTLDs (such as .biz and .info) and country code TLDs (“ccTLDs,” such as .uk and .de) to be substitutes. Instead, registrants frequently purchase domains in TLDs other than .com as complements to .com domains, not as substitutes for them. In other words, registrants of a particular .com domain (e.g. google.com) will frequently also perceive a need to register the same domain in all or most available TLDs (e.g. google.info and google.biz) because of a desire to expand their presence on the Internet and to protect their brands from being exploited by others.” (emphasis included in original)
Given this dynamic identified by the Justice Department in 2008, .web domain names are much more likely to complement .com market share rather than cannibalize it. In any event, there is little to no downside for Verisign if .web remains tied up and unavailable until the contention with Afilias is resolved.
But the question begging to be answered is why Verisign is ignoring the lower-hanging and lucrative fruit that can be harvested by cross-selling domain name variants that it already has the ability to provide to the ocean of registrants holding more than 150 million existing .com domain names in favor of pursuing a new gTLD that will require a strenuous marketing effort into a much smaller — indeed, shrinking — kiddie pool of around 6 million new gTLD registrations?
The .web brouhaha is overshadowing the fact that Verisign already has new gTLDs that it has yet to make available to Internet users. In January 2015, Verisign signed registry agreements for several Internationalized Domain Name (IDN) extensions that are transliterated variants of .com in scripts other than the Latin alphabet. Three of these variants have been released since then — Hebrew, Hangul, and Katakana — but, reminiscent of the final scene from Raiders of the Lost Ark, the others remain warehoused and gathering dust.
Three of the unreleased transliterated .com variants (simplified Chinese, Arabic, and Devanagari) are alphabetic scripts used by more than a quarter of the global population — some 2 billion people worldwide. These scripts are utilized by demographics that are underrepresented in terms of Internet usage and when the United Nations, World Economic Forum, and Bill Gates talk about bringing “the next two billion people online,” these populations are where new Internet users will come from.
Yet, the transliterated .com variants in the native scripts of these multitudinous potential new registrants remain mothballed despite having been approved for release more than six years ago — stalled, apparently, on the side of the information superhighway. Generating net new revenue for shareholders doesn’t appear to be much of a priority for the Internet’s dominant registry operator and neither does leveraging “the power of .com” into a globally accessible, relevant, and inclusive resource. Instead, shareholders and Internet users are paying the high costs of ignoring value as Verisign expends extraordinary time, attention, and resources on other pursuits.
In addition to defending ICANN in the battle for .web, Verisign is putting extraordinary effort into aiding and abetting ICANN’s improper attempt at profiteering by auctioning o.com to the highest bidder. Even considering that Verisign will be raising the price of .com registrations in September of this year, it still cannot earn more than its regulated maximum price from any contemplated auction of a .com domain name. So, why has such a normally fiscally rational company expended more than five dollars pursuing a domain name auction from which it won’t make any more than eight bucks and some change in return?
The expense associated with obtaining a recent questionable letter from the National Institute for Standards and Technology (NIST) — which cost Verisign the time and attention of senior executives and employees as well as associated lobbying and legal expenses — vastly outweighs any apparent return on investment.
It is impossible to conclude other than that much more is going on here than meets the eye. At the very least, Verisign’s shareholders, regulators, and DNS stakeholders — particularly those concerned with global access and inclusion — deserve transparency about what is going on.
Lastly, Verisign has argued that Afilias ought to be disqualified from further complaints in the .web fracas because it no longer operates any registries after selling those business units to Fadi Chehade’s Ethos Capital-owned Donuts. This totally ignores the reality that many registry operators rely on third-party infrastructure providers, such as the back-end registry services that Verisign itself offers, and Afilias would be in plenty of good company by choosing to contract for outsourced infrastructure — possibly even from Verisign.
Much more relevant for consideration is why any registry operator should even be eligible for operating additional registries when it is unable or unwilling to launch the six-year old backlog of those that it already has contracted, warehoused, and waiting to be released.