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Competition Is Sexy - Separation or Integration of the Domain Name Sales Channel?

Back in the early days of the public Internet, Network Solutions had a monopoly on .com, .org., and .net domain registrations and charged $100 per domain for a 2-year registration. Growing complaints about that predatory pricing was one of the factors that led to ICANN’s creation. NetSol established an internal “firewall” in 1998 and its wholesale prices soon dropped to $6 per domain. VeriSign acquired NetSol for $21 billion in 2000, and then sold off the registrar side of the business to private equity in 2003. Along the way, lots of competing registrars arrived on the scene and ICANN adopted a policy of registry-registrar separation. On the whole this expanded retail competition has greatly benefited consumers, including domain investors.

Fast forward to the new gTLD program, where ICANN’s Board insisted that new gTLD registries must be subject to the same separation requirement—until suddenly they reversed position without much in the way of explanation, much to the consternation of some government competition authorities. But those regulators, like generals fighting the last war, may have been too focused on the potential resurrection of a NetSol-like monopoly without fully considering how a thousand-plus new gTLDs fighting for customer recognition and acceptance might enhance the market power of registrar intermediaries.

To ameliorate their concerns, the Code of Conduct for new gTLD registries requires that they treat all registrars on a nondiscriminatory basis. But there is no corresponding requirement for registrars to treat new registries on an equal basis, and that is starting to play out in interesting ways for registries that plan to take advantage of ICANN’s loosening and establish their own affiliated registrar operations (so far, Uniregistry, Top Level Domain Holdings, and DotLatin LLC have opted for that). Large registrars are the big box stores of domain sales, and access to their shelf space is a key to mass market awareness. That’s particularly true for GoDaddy, which so far has sold 40 percent of all new gTLDs. Registrars have the ability—and certainly the economic right—to require registries to pay for listing their domains as well as preferential displays and marketing.

Uniregistry recently launched its first two gTLDs, .sexy and .tattoo, and initial sales were less than spectacular. That could well be due to lack of market demand for the extensions, although CEO Frank Schilling has an impressive record in connecting names with traffic. It also could have been due to the fact that 6,500 second level .sexy names, many quite saleable, are blocked for the moment due to ICANN restrictions designed to prevent “name collisions”. But it is also attributable in part to the fact that GoDaddy, Network Solutions, and some other leading registrars are not stocking Uniregistry domains as of now.

We have no reason to think this is the result of any deliberate boycott that might raise antitrust concerns. And, indeed, it appears that a key stumbling block to gaining access to those channels is Uniregistry’s request that third party registrars provide it with the name and contact information of all registrants in its domains, even those who have requested privacy protection—although its registrar agreement pledges that it will only use this data for terminations and never use it to try to entice the registrant to switch to its registrar, or to upsell non-registry services. New gTLDs have plenty of registrant information to begin with, as all must maintain “thick WHOIS” files. Nonetheless, some have commented that what is going on here is a skirmish over who will “own” the customer relationship.

We live in an age where once-powerful companies are being disruptively disintermediated. Borders is gone and Radio Shack is closing one-quarter of its stores as Amazon continues its march to global retail dominance. Auto dealers are invoking protective state laws passed decades ago to try to block Tesla’s direct sales of its all-electric autos to customers. In the United States, we now have the curious situation that retail sales of marijuana are legal in Colorado and Washington while retail sales of Teslas are illegal in New Jersey, Texas and Arizona.

That’s the 21st century context in which observers can watch how the registry-registrar separation versus integration competition plays out. Whatever the near-term result, we are probably a long way from any conceivable scenario in which a single unified registry/registrar could exercise Amazon-style market dominance. Indeed, the proliferation of new registry operators would mitigate against that.

The marketplace has been invigorated and consumers have clearly benefited from vigorous registrar competition. It’s becoming just as clear that large registrars can play a significant role in determining the degree to which specific new gTLDs are successful, especially at launch. And all parties seem to agree that—no surprise—ICANN’s rules on this subject are somewhat vague, contradictory and subject to varying interpretations.

In the end, the best outcome would be one in which consumer choice and competitive pricing are an integral part of both marketplace models. Registrant consumers should be the “owners” of their retail relationship, and face minimal friction in switching to whichever competitor they believe offers the most compelling combination of pricing and service.

By Philip S. Corwin, Senior Director and Policy Counsel at Verisign

He also serves as Of Counsel to the IP-centric law firm of Greenberg & Lieberman. Views expressed in this article are solely his own.

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