The ICANN Board resolutions adopted during the retreat in Trondheim, Norway on the 25th of September, 2010, painted yet another question mark for new Top-Level Domains (TLDs), despite its positive outlook. While the Board seems dedicated to resolve all the outstanding issues, applicants were still left in the dark in regards to some key issues that affect the economics of launching new TLDs.

Vertical Integration for New Registry Entrants Still Unresolved

Once again, a decision on Vertical Integration was delayed:

“The Board will send a letter to the GNSO requesting that the GNSO send to the Board, by no later than 8 October 2010, a letter (a) indicating that no consensus on vertical integration issues has been reached to date, or (b) indicating its documented consensus position. If no response is received by 8 October 2010, then the Board will deem lack of consensus and make determinations around these issues as necessary. At the time a policy conclusion is reached by the GNSO, it can be included in the applicant guidebook for future application rounds.”

The ICANN community and ICANN Board knows that there will never be consensus, but still the issue was handed down to the GNSO to send a letter to ICANN citing consensus or lack thereof. Seems like the ICANN Board is buying time on this important issue. The Vertical Integration working group soon responded to the GNSO with the expected outcome: no consensus.

Rod Beckstrom re-affirmed the ICANN Board’s commitment to moving new TLDs forward:

“ICANN is prepared to implement this important new offering to increase consumer choice and to promote competition.”

New entrants and applicants are beginning to doubt whether these statements hold true. If ICANN truly wants to abandon the status quo and the oligopolistic power of the big registries and registrars, why is it still hesitating on voting for free trade Vertical Integration for new entrants, the most popular option voted for in the most recent VI Working Group? The economic principles that surround competition, innovation and increased consumer choice are based on the notion of allowing new players to be able to offer new products/services/bundles and to choose their business partners. Why should Canon be forced to use registrars for their distribution when it is not necessary? Why should communities such as .music be forced into business relationships with registrars who are more concerned about volume selling to domainers than quality, highly-qualified registrants?

The current DAG limits registry and registrar cross-ownership to 2% and excludes existing registrars from applying to run new TLD registries. The Board will need to act swiftly to implement policies that will be aligned with the reason new TLDs will be launched: competition and innovation. If the Board decides to include maximum caps on number of total registrations allowed or not give new entrants the opportunity to vertically integrate to innovate their product offerings, the whole new TLD launch will be compromised and the Board’s credibility will suffer a serious blow. I would not be surprised if anti-trust discussions come into the equation. It remains to be seen.

I expect the ICANN Board to try to level the playing field and vote to give new entrants exceptions for vertical integration on a case-by-case scenario. Not many new TLD initiatives would take this route though, since most will be opting to take advantage of existing registrar distribution channels given that their TLD will be open and business model be based on selling as many domains as possible (volume-centric).

TLD Application Fee on Translated Strings Under Same Application Unresolved

I have asked Kurt Pritz of ICANN during Public Comments at the Brussels ICANN meeting whether ICANN will reduce the additional application fees for applicants wishing to apply for translated strings under the same TLD application. His answer was he would look into it. The concept is quite simple. We will be applying for the .music TLD and since we want to cater a truly international community, we are interested in applying for exact translations (in different languages or IDNs: .musik, .musique and IDN equivalents in other scripts) under the same application. Charging $185k per translated TLD falling under the same application umbrella will reduce ICANN’s processing costs, since equivalent, translated strings would not require the whole application to be processed in its entirety due to redundancy.

Putting all the translated strings (multiple-TLDs with equivalent string translations) under one community application will make ICANN’s life easier because it only needs to process the application once, excluding the string script technical requirements. All the information, community criteria, registry technical requirements and financial information will only have to be verified once. The only part that needs to be verified and additional cost allocated is whether the equivalent translated string meets the technical script requirements set forth by ICANN. Given that IDN ccTLDs only cost governments $26k (or free if governments could not pay), significant savings for TLD application integration of equivalent strings should be reflected in the total fee. Kurt Pritz justified the $185k price to take into consideration ICANN’s liability, but in this case the liability is the same or shared, given that the actual application falls under one unified umbrella with the only factor changing being the translated string.

TLD Application Fee on Synonym or Defensive Strings Under Same Application Unresolved

This issue of Synonym or Defensive Strings has not been discussed extensively by ICANN. However the financial burden on the applicants as well as anyone contending is obvious. ICANN benefits financially to avoid making such changes that would reduce their income from new TLD applicants or anyone contending a string. However, ICANN’s non-for profit status and charter dictates otherwise, so ICANN needs to look into this issue more closely.

An example to illustrate my point is .music. While all the lobbying to gather community for .music has been in full swing for years now, what happens to the synonyms? There are 4 in question: .band, .song, .musician and .artist. Would we be forced to defensively apply for those strings as well to prevent confusion in the marketplace? If we do not, would we be forced to contend any other applications made for those strings that will create confusion in the marketplace? These costs certainly add up and the only real winner from this is ICANN.

One of the .sport initiatives claimed that no-one should be able to apply for subcategories of the term “sport” such as .football or .soccer. However, the difference is their argument did not involve synonyms. A lot is at stake for protecting artist trademarks and the possibilities of cybersquatting and confusion increase with the availability of synonyms in the TLD market. This means added costs for trademark holders to protect their names or to defensively apply for a TLD to prevent abuse.

DAG has not addressed these issues and leaves applicants with two choices: pay the full $185k per synonym if you want to run the TLD under the same umbrella of the primary TLD (e.g .music) or pay money to contend it so no-one gets the TLD. In both cases, it is a win-win for ICANN’s bank account and a lose-lose for the applicants involved, especially if community has been established for the TLD term/synonym in question. ICANN should look into the issue of significantly reducing costs for applicants that might be forced to apply for synonym strings that will fall under the same application or community umbrella as their primary TLD. This echoes the same cost reduction issues highlighted under TLD translations falling under one application. Furthermore, the prospect of gaming is another element that can impact applicants who might be forced to pay others to leave than endure an auction or further delays in the application processing.

Conclusion

I am convinced that ICANN certainly is focused on introducing competition and innovation in the domain marketplace. Its commitment to moving on with the process is an illustration of this point. However, the Applicant Guidebook does not offer any protections to new entrants, neither does it allow applicants to be flexible with their distribution and product offerings given the current vertical separation of registries/registrars situation that affects competition and innovation. Consistency is key for ICANN. Aligning its goals (introducing competition and innovation) to be consistent with its policy making (Vertical Integration) will be significant going forward with new TLDs. Any decision that stifles both innovation and does not give the opportunity for new entrants to attempt to somewhat level the playing field will not be seen under a favorable light and anti-competitive repercussions would most likely ensue. This would also confirm many ICANN critic beliefs that new TLDs are a moneygrab for ICANN and nothing else. I choose to believe that ICANN is launching new TLDs for the right reasons and quite excited with the opportunity to silence the critics.

Another area of concern is for ICANN to develop a sound application fee structure that would be consistent with the actual costs that ICANN would incur processing the applications, including liability consideration. This include multi-applications of translated strings or synonyms. This means if one application encompasses equivalent translations or synonyms under one community umbrella, then the appropriate savings be transferred to the applicant.

I am concerned about the whole ICANN process because there has not been a single ICANN staff member working on DAG who has reached out to new applicants and conducted any research beyond receiving comments that seldom look into how new TLDs will innovate the domain space. Furthermore, only a few ICANN Board members have shown interest in what new applicants are planning to do to increase competition and bring innovation to the space. My question to ICANN is how can they be voting on issues such as Vertical Integration when they have not at least researched what their potential applicant customers are doing, what they will be offering and how they will be making a difference that matters in the domain space and beyond?

Most new applicants are discouraged by the whole ICANN process because their opinion has not been very fruitful in regards to policy-making. While the trademark community has been overheard and policies incorporated to address their concerns, the actual businesses (applicants) that will be running new TLDs are to a great extent left in the wilderness. ICANN’s bottom-up process is great hypothetically-speaking. However, in the end, the ones with the most impact are groups such as the Business Constituency or the GNSO. The underlying concern is that they are biased and dominated by huge conflicts of interest, political agendas and economic gain. For example, a Business Constituency representing businesses that votes against free trade for new entrants and keeping the status quo goes against the essence of business.

We hope ICANN is wise enough to recognize that protecting applicants will alleviate any additional liability concerns that might arise. The high $185k application fee was designed to address litigation matters that might arise. To decrease any possibility of potential problems, ICANN should ensure that their process protects the interests of applicants and not take applicants for granted. Most applicants just want the process to start and avoid any issues that would delay the process. Fair treatment in representation, equality and transparency in the fee structure are all essential traits to making the new gTLD launch a success.

Launching 1000 TLDs a year translates to an extraordinarily large amount of income for ICANN, especially when compared to their previous years’ income. As a result, ICANN will become more powerful and rich. ICANN will benefit financially and gain more power since they will be managing more registry contracts than ever before. However, this translates to increased responsibility and accountability. While many might complain that ICANN executives will be paid higher salaries, the real truth of the matter lies in having the top talent and team to accommodate the heightened responsibility and accountability that the influx of money and influence will bring. Top executive talent and a top-notch leadership team has a high price tag attached to it. This applies to any industry.

There is nothing wrong with a more influential ICANN with additional financial resources that can be used to benefit Internet users and the web. Let us hope for everyone’s sake that ICANN makes the right decisions for the Web’s sake and proves the critics claiming that new TLDs are merely moneygrabbing schemes. While Chris Anderson from Wired Magazine has pronounced the web dead, ICANN and all the new TLD entrants can prove him wrong with TLD innovations. The web is still alive. The web is all about openness and not about closed ecosystems powered by the likes of Apple or Google, who control their environments. A lot is at stake. It is certainly up to us to make sure things are done right, we create value and make a difference that truly matters. The web as we know it depends on it.