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2nd Round gTLDs: the Good, the Bad, and the Ugly

This post outlines the advantages (good) and threats (bad) that can make or break a gTLD, and the eternal fact that some applications will doom themselves to failure (ugly).

The Good

Waiting until the second round to apply for a gTLD may end up being a virtue for the following reasons:

  1. Better decision making. More public information about demand and prices would be available.
  2. Existing registries can leverage their position due to:
    1. Economies of scale and scope from owning a portfolio of gTLDs
    2. Experience from the first round
    3. Established distribution channels.

The Bad

The following are the major threats to having a profitable new gTLD:

  1. Bidding competition for a new gTLD can drive excess returns—those above a competitive market’s—to zero. This environment was also prevalent in round one. It makes success chiefly a matter of luck, not ability, because all applicants 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. For the second round, ICANN should think about switching from auctions to lotteries receiving multiple bids. Such an allocation mechanism may not maximize ICANN’s profits in the short term, but in the long term it can help the group by leading to stable economic viability for the winners, ICANN’s customers.
  2. Innovation can chip into the demand for domain names.
  3. The emergence of successful niche platforms for certain products, such as kayak for travel, can destroy a product-related gTLD.
  4. Success of .Brand would put a damper on the demand for new gTLDs. Is a BMW.London needed when there’s already a London.BMW?
  5. The exact timing of the round two launch schedule has not yet been determined by ICANN. The cost of waiting can be heavy for the registries and can reduce users’ faith in the program.
  6. Consumers’ stickiness in favor of .com can prove to be insurmountable, as many industry members have warned.
  7. Some of the existing registry tactics are faulty and need to be avoided.

The Ugly

Remember, a gTLD is like any business: It can cost more than it makes. But there will always be registrants who think they have found themselves a sure thing because they are smarter than everyone else. Such gTLDs are doomed from the beginning.

By Alex Tajirian, CEO at DomainMart

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