The move by the National Telecommunications and Information Administration, which was not unexpected, came at the end of a long and controversial approval process that saw some of VeriSign’s largest resellers lobby against the deal.
Approval of the new .com contract between VeriSign and ICANN, the Internet Corp for Assigned Names and Numbers, means VeriSign gets to run .com until at least 2012, and very probably indefinitely.
In four of the next six years, the company will be able to unilaterally raise the wholesale price of a .com by 7%. If it wanted the 7% in the other two years too, it would have to prove to ICANN that there is a pressing security matter it needs to invest in.
This framework holds operators accountable for their performance, promotes the continued investment of tens of millions of dollars in the infrastructure and provides important safeguards for consumers, VeriSign executive vice president Mark McLaughlin said in a statement.
The safeguards in question would allow domain buyers to lock themselves into the price they are currently paying for their domains by taking out a multi-year registration of up to ten years. VeriSign has to give six months notice before it increases prices.
VeriSign spokesperson Tom Galvin said that the company currently has no plans to raise prices, but added pricing flexibility is important so registry operators have the means to invest in their infrastructure.
He noted that the company added $10m of extra capacity to its .com infrastructure following the outbreak of a new type of large denial-of-service attack in January. There are also plans afoot to put .com resolvers in 200 locations globally by 2008, he said.
The .com infrastructure handles 13 billion resolutions a day, he said, which is up from 1 billion five or six years ago. VeriSign expects this could increase by ten times in the next few years, Galvin said.
There are roughly 60 million .com domains registered today. VeriSign gets $6 a year for each. That’s $360m. A 7% increase would add up to $25m a year extra, assuming the .com namespace stays the same size, rather than continuing to add more than a million new domains each month.
For the average domain buyer, compound 7% increases doesn’t add up to much. Domains tend to sell for about $9 to $30, so if VeriSign’s registrars pass on the increases to their customers, which is likely in most cases, it will still unlikely be much of a barrier.
The area of e-commerce most likely to be affected by even moderate price increases would be domain speculation and monetizations.
Over the last couple of years, many businesses have emerged dedicated to registering meaningful generic domains and filling them with low-value content and targeted advertising. The businesses simply need to make more than $6 a year on each domain in order to have a profitable site. With enough domains, it adds up.
Nasdaq-listed Marchex Inc is perhaps the most prominent domain monetization firm, with over 200,000 domains in its portfolio, such as newyorkdining.com and seattleautorepair.com. That company doesn’t see a material affect in VeriSign price increases.
Our portfolio of domains is high quality in nature, and we think that the top line of today’s news does not materially affect Marchex, vice president Mark Peterson said. The pricing increases being discussed would be more than offset by improved monetization.
Some of the largest registrars, notably Network Solutions Inc and Go Daddy Inc, lobbied heavily against the new .com contract since it was announced late last year. They managed to get Congressional hearings scheduled, but their campaign proved ultimately fruitless.
Go Daddy general counsel Christine Jones said: We are profoundly disappointed the NTIA would approve an agreement that allows an unregulated monopoly to have permanent presumptive renewal of its monopoly contract with built-in, non-justified price increases every year.
NSI said that the agreement creates a perpetual de facto monopoly, fails to provide sufficient checks and balances through competition and adequate oversight, and is fundamentally flawed from a national cyber-security perspective.
NSI had pointed out that, despite VeriSign’s claims that the additional revenue was needed to reinvest in infrastructure, the .com contract contains no requirements for such investment.
This, NSI reckoned, was a security and stability concern, in much the same way as VeriSign claimed that not having the ability to raise prices was a security and stability concern because it discouraged investment.
The argument could also be framed as a business dispute between a wholesaler that wants to fatten its already significant profit margins and a collection of retailers than don’t want to pass price increases on to consumers and/or feel their own margin squeeze.
There’s also a power struggle here. The new .com contract means that VeriSign will be providing much of ICANN’s funding in future, instead of the registrars. When registrars provided most of the funding, and de facto budget approval powers, they could be perceived to have a deal of control over ICANN’s priorities.
