The success of the new gTLDs program depends on the actions of the winning registries and on ICANN’s allocation policies for the second round of applications. A successful landscape would be dominated by only a few registries but would be less confusing for users.

The major players: businesses and Internet users who drive the demand for the gTLDs; the registries who own and run the gTLDs; and ICANN, which sets the rules for determining a winner for each new gTLD. In order to survive, registries will have to generate enough returns to compensate for the associated business risk; otherwise they won’t have any incentive to satisfy potential demand.

The success of the program will depend, on users becoming less confused about their value-adding role, and on ICANN’s actions taken for the second round by businesses. Competitive bidding, with the highest-bidding registry winning the gTLD, can drive excess return—that is, returns above a competitive market’s—to zero. Under such an allocation regime, as under round one, success would be driven primarily by luck because all applicants would have access to the same information and resources. Such as allocation mechanism may be called allocation myopia, which is an example of the downside of competition. Of course, having adequate funding is dictated by ICANN so that underfunded applicants won’t be qualified.

In round two, incumbents from round one have several advantages over new entrants, including economies of scale and scope, their learning experience and distribution channels, and the potential to diversify their business model risk. An example of the last factor would be owning a portfolio of location/geography gTLDs, whose performances do not move in sync. Thus, for its part, to avoid allocation myopia, ICANN must investigate the allocation through lotteries for gTLDs that receive multiple bids instead of holding auctions. Such an allocation mechanism may not maximize ICANN’s profits in the short term, but in the long term it can help ICANN by leading to stable economic viability for the winners, ICANN’s customers.

The implications of the success factors are that we will end up with a concentration of registries and fewer near-substitute gTLDs. The latter will lead to less user confusion, which benefits the entire ecosystem.