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Back to the Future Part IV: The Price-Fixing Paradox of the DNS

Today’s TechLash should focus on causes rather than effects.

GenX-ers may remember spending a summer afternoon at the movie theater and seeing the somewhat corny but beloved antics of Marty McFly and Doc as they used a souped-up Delorean to travel the space-time continuum. In Back to the Future Part II, Doc and Marty travel into the future, where the bullying, boorish Biff causes a time-travel paradox when he steals the Delorean and takes a joyride into the past to give his younger self a sports almanac containing the final scores of decades worth of sporting events.

When Marty and Doc return to their present time, the younger Biff has used the almanac to amass a fortune from sports betting and, in this altered reality, he’s rich and powerful, runs the town with an iron fist and has married Marty’s mom after McFly peré died under suspicious circumstances. Basically, it’s a circa-1989 Hollywood vision of dystopia that results when the space-time continuum is warped by interference?—?and what results is something that looks suspiciously similar to the Las Vegas Strip.

This warped reality that Marty and Doc arrive in when they come back from the future is not unlike where we find ourselves today with regards to Silicon Valley’s Tech Titans, who have developed into absurdly wealthy behemoths that have sparked a backlash with boorish, if not outright bullying, behavior. They have managed to get a stranglehold on the global economy and their core product decisions now determine the extent that humanity enjoys fundamental rights such as privacy. For many, their experience of being “on the Internet” is through these companies’ products.

However, this scenario was not inevitable?—? it is a consequence of a decision made just a few years after Back to the Future Part II was on the silver screen.

During the 1990s, the Clinton Administration was busily engaged with building an information superhighway. Part of this effort was the privatization of the addressing system of the Internet and the outsourcing of the Domain Name System’s first domain name registries ?—? .com, .net, .org, .gov, .mil, and .edu.

At some point, the U.S. Government decided domain name registries would offer domain names for annual registration with uniform and non-discriminatory pricing. Interestingly, neither the National Telecommunications and Information Administration or the National Science Foundation (which had jurisdiction over the DNS prior to it being handed to NTIA) have been able, or willing, to produce the original Cooperative Agreement between Network Solutions and the NSF, making any assessment of the decisions taken during this time period incomplete. But, it is plausible that the U.S. Government desired budget predictability for .gov domain name registrations due to annual Congressional appropriations and ?—? for purposes of contract simplicity ?—? this approach was replicated across all of the initial registries.

Whatever the motive, this approach would prove to be fateful. Substituting convenience for common sense, the government strayed from free-market principles and enshrined a price-fixing scheme into the root zone of the Internet that disconnected the price of acquiring and maintaining a domain name from the actual costs of resolving DNS queries associated with that domain name. Instead, every registrant of a domain name paid the same registration price regardless of the volume of resolutions that were performed for a specific domain name. In practice, this meant?—?and means?—?that the annual wholesale registration price for google.com is the same as a parked domain.

This had a few practical effects.

First, it insulated high-volume, web-based businesses from the actual costs of acquiring their customers since companies like Google, Facebook, Amazon, and others weren’t paying an annual registration fee that accounted for the resolution services that were being used by these wildly popular domain names that were generating millions and billions of DNS queries a day as people typed google.com into their browser bar. A parallel that might be illustrative is to consider this like a retailer being excused from having to pay rent, electric and other costs associated with maintaining a brick-and-mortar storefront, and, instead, must pay only for an annual magazine subscription to Sports Illustrated for the lobby in order to enjoy the full use of the leased space and have it available for massive numbers of customers to visit.

These platforms avoided the actual costs associated with customer acquisition because they benefitted from a DNS that is subsidized by the total volume of domain names. Some readers may be scratching their heads and thinking that this disconnect between cost and resource usage is unideal, but it resulted in a massive explosion of technological innovation, wealth creation and human progress, not to mention that even if they had been on the hook for the true costs of their resolutions services, it wouldn’t have been material enough to slay the Tech Titans—? so what’s the big deal?

Well, Google and the Tech Titans weren’t gestating in a vacuum. This uniform, predictable, non-volatile pricing model was attractive to another segment of the population who began registering large volumes of domain names for speculative purposes. In the wildcatting early days, it was a land rush and not every speculator had scruples. The less scrupulous domainers, as domain investors came to be known, snapped up domain names similar or identical to trademarks, company names, slogans, service marks, and all manners of intellectual property and then ever-so-helpfully offered them for sale to the individuals or companies which held the rights to the intellectual property ?—? at an extortionate premium.

Thus the world was introduced to a new take on an old crime ?—? cybersquatting ?—? and corporations and individuals began proactively acquiring huge volumes of domain names ?—? what is called defensive registration ?—? in the hopes of securing their intellectual property and protecting their brand identity without having to engage in costly enforcement actions that were, oftentimes and especially during the infancy and pre-teen years of the privatized Internet, of questionable efficacy.

Not all domain investors acted in bad faith, however, and many had accrued substantial portfolios of domain names, particularly in .com, and were realizing that maximizing the return on their investment in good faith ?—? i.e. refraining from extorting exorbitant sums by selling companies their own intellectual property back to them ?—? would require a strategic approach to managing their portfolios of long-term domain name investments.

The initial focus on “hunting” in cyberspace made way for “gathering” or monetizing domain name portfolios, primarily through (initially) lucrative pay-per-click advertising. PPC ads would generate more wealth than most people ever imagined?—?for both the domain name investors who monetized their portfolios, but especially for companies that controlled the market for online advertising. With hindsight, which is always 20/20, it’s easy to see that, inevitably, this would metastasize into exactly what it did ?—? a corrupt, self-perpetuating system.

Remember what pay-per-click ads were like in the late 1990s and early 2000s? They were those chintzy little text-only ads that were plastered on a website and usually indicated that whoever was driving the mouse had taken the wrong exit ramp off the information superhighway. They were especially prevalent on websites with domain names that were remarkably similar to that of the intended destination website, but nothing ever looked quite right, the content was a little garish, two-sizes-too-big, and practically leaped off of the page while imploring you to CLICK HERE!

A lot of people CLICKED.

Efforts to diversify ?—? with censorious software, autonomous vehicles, broadband-bearing balloons, and probably a prototype or two of the T-9000 ?—? remain, effectively, a sideshow to the main act and Google still makes a massive amount of money off of those ads every year.
But, suppose that, instead, domain name registrations had been based on actual resolution network traffic in the DNS ?—? so that annual registration prices were calculated to reflect actual queries made as people sought, or were driven to, websites by clicking or typing a domain name into the browser’s address bar. Not just the Tech Titans would have developed under a vastly different set of economics:

Is it all that difficult to imagine that domain investors might not have found it so economically rational to pursue PPC revenues across large portfolios of domain names if, instead of a regulated uniform annual registration price they were faced with pricing that varied by domain name and was based upon usage of DNS resolution services?—?i.e. the number of times that a domain name must be looked up by the network to ascertain the corresponding machine-readable numerical IP address?

If there wasn’t a pool of domain investors motivated to monetize long-term assets for Google to tap into, might it have decided on a different direction for revenue generation that didn’t rely so heavily on developing and driving users towards freeware “honeypots” in order to shear the herd’s personal information to be packaged in ever-increasingly complex, clever and invasive fleeces to be sold to the highest bidder?

If you’re old enough to remember the 1990’s and early 2000s, think back to the early days when the Tech Titan was Big Blue owning the mainframe or Microsoft ?—? the Evil Empire ?—? sparking outrage and protests because a .doc wouldn’t open up in Lotus or WordPerfect.
Remember Back to the Future 2, and our heroes Marty McFly and Doc who returned home to a vastly different reality because one bully pwned the sports book with a literal cheat sheet.

Is it really that difficult to consider that our dystopia today stems partly from the adoption of a false economic model where price bears no material relation to actual cost and which ?—? by generating wealth at the expense of value ?—? encouraged all sorts of undesirable downstream behavior?

Anybody got a Delorean?

By Greg Thomas, Founder of DNSDecrypt

Greg Thomas is founder of DNSDecrypt and author of How to Save the Internet in Three Simple Steps: The Netizen’s Guide to Reboot the Root. The views expressed in this article are solely those of Greg Thomas and and are not made on behalf of or for any other individual or organization.

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But does price really not correspond with Todd Knarr  –  May 24, 2019 3:59 AM

But does price really not correspond with cost? Registering a domain costs a fixed flat rate (at least at the wholesale level), but that won’t get DNS queries for it resolved. That takes a DNS hosting provider who typically will charge based on the volume of queries, or running your own DNS resolvers which also costs more as traffic increases. For many desirable domain names you can’t buy at the wholesale level either, you have to buy from a domainer and the cost there is going to increase rapidly with the perceived popularity of the domain.

I think it’s more that the actual cost of operating a domain (including not just DNS but any other servers/services required) is significantly less than the revenue you can generate with that domain. I don’t see how that can be fixed at the registry level without turning the registries themselves into domainers auctioning off domains to the highest bidder.

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