Don’t worry about Verisign unjustifiably increasing .com prices.
There’s been a lot of concern about the .com contract extension and what it means for .com prices going forward.
The concern is that Verisign (NYSE:VRSN) can decide to not renew its Cooperative Agreement with the NTIA once the U.S. government gets out of its role in basic internet functions. Because the Cooperative Agreement includes pricing, people are worried Verisign can jack up its prices.
I never thought I’d say this, but I have Ted Cruz to thank for getting a clear answer on why Verisign won’t be able to increase .com prices at will.
He sent a letter to the DOJ asking about this. The DOJ has responded (pdf), and now it makes sense:
Moreover, if NTIA were to approve an extension of the .com Registry Agreement, it would have the right in its sole discretion to extend the term of the Cooperative Agreement with the current price cap in place until 2024 at any time prior to November 30, 2018, the date on which the Cooperative Agreement is currently scheduled to expire. If this occurs, the $7.85 fee cap would be extended another six years to 2024.
In other words: The Cooperative Agreement is currently in effect. NTIA gets to approve the .com contract extension. When it does, it can also force the extension of the Cooperative Agreement. This will give the U.S. government the ability to control .com prices going forward.
John Kenney says
“Don’t worry about Verisign unjustifiably increasing .com prices.”
Perhaps I’m not reading this right, I’m not sure this follows from what you’ve presented here. Maybe there is more in the pdf (which I didn’t read).
The possiblity to extend the price agreement is not the same as a commitment to do so. I don’t know the details of this as you do, but is there reason to believe that the US Gov’t would be likely to force the pricing extension?
If the Feds are keen to relinquish control generally, why wouldn’t they also intend to relinquish control of pricing and simply opt not to extend the Pricing Agreement?
Andrew Allemann says
John,
Indeed, the US Gov does not have to keep the prices down at 7.85. The letter merely means they have the power to do so.
I think the Gov would face a lot of pressure if it allowed .com prices to increase significantly. That’s not to say they won’t increase some, but I wouldn’t expect them to lift price controls any time soon.
suzmot says
Surely they’ll point to the regular increases in other TLD’s and suggest that .com as a more global standard needs to keep pace in pricing, at the very least.
It’s nice that they’ve got the option, but I don’t see them turning down the opportunity.
scrivener3 says
I think com prices should be much higher, perhaps $1,000 a year to the registry or more. The gov can tax much of the revenue if it is an issue of monopoly Verisign getting unjustly enriched.
The way com’s are used is totally wasteful. Hundreds of thousands of com domains are parked by domain investors. Anyone would agree that a resource used is better than a resource put on the shelf. The cost of putting com’s on the shelf is way too low. Many, many registrations are speculation. If com’s cost more each user would put each com to a better use. It is a real resource and if it was put top use or turned over to new owners to put to use we would all be better off.
Jane Doe says
That’s nice dear
C.S. Watch says
@scrivener3
When we make emotional declarations without knowing the history or the facts, we open the door to ruin. And we swiftly become the tools of opportunists. If you would be good, you must be wise, and if you would be wise, you must love data:
The first domain hoarder was Procter & Gamble in 8/95. Thousands reg’d in a day. So two weeks later a panicked NSF attempted to head off corporations by charging $100 each. The NSF quickly learned that P&G (and Kraft, etc.) could handily afford that, and were hoarding just as voraciously. Unlike the myriad little guys, who stalled out. So the NSF made domains free, on the down low, to speculators. And that’s how they stopped the bleeding. We lived on ramen for a decade. You’re welcome.
If you want domains available to small business, protect broad based domain speculation. Kraft isn’t taking your calls or selling jack for $1500-5K. Market competition, motivated individual domain sellers: this is how options are kept open for startups.
One can’t legislate for corporations or people ‘as you wish them to be.’ One must legislate for people ‘as they are.’ Otherwise you end up a confused Bolshevist wondering how he got from playing acoustic guitar, prating on about his deep sensitivities, to shoveling dirt over a Jenga stack of little Romanov girls. Naivete is the life blood of oligarchs, and they never sleep.
Donald says
In the most recent Q2 2016 earnings call, VeriSign announced highest ever gross margins and operating margins of 83.6% and 65.4% respectively.
Substantially, all of VeriSign’s revenues and income are generated from the operation of the .COM and .NET namespace.
When you analyze on a per domain basis, the numbers are staggering. VeriSign charges $7.85 for each .COM registration and renewal. As a result, VeriSign realizes:
– Gross Margins of $6.56 per .COM domain name
– Operating Margins of $5.13 per .COM domain name
VeriSign will generate almost $700 million in free cash flow in 2016. If the proposed early RA extension between ICANN and VeriSign is approved through 2024, this means VeriSign will generate at minimum $6 BILLION in free cash flow from the no-bid contract.
Why is this happening?
– Economies of scale (base of .COM domains is now up to 127 million domains) – but it does not cost any more money to operate the registry
– Automatic Built-in Renewal rate of 74% (94 million domains will automatically renew without any effort and a simple database command)
– Decline in cost of technology, computing power, infrastructure, hardware, bandwidth, etc.
– VeriSign spending less on marketing and R&D (2015 was the lowest dollar amount spent in a single year)
.COM pricing made sense 10-years ago, but it is now 2016 and it is simply not right that one company is able to generate so much profits from a no-bid contract. Do you really want to enrich VeriSign and its shareholders with so much more profits and free cash flow over the next 8 years?
Bottom line – VeriSign is not investing into its infrastructure anymore and putting all of its cash into stock repurchases. VeriSign repurchased $3.867 billion in stock over the past 5 years. VeriSign also remains very well capitalized with $2.0 billion in cash on its balance sheet. Why should all of this money from the .COM contract be funneled into VeriSign stock buybacks, which only benefits VeriSign?
Does the DOJ truly understand what is happening with all of this money?
Why is the NTIA and Larence Strickling not forcing the reduction of .COM prices?
– Don
Optical says
Can the DOJ freeze .NET and .ORG prices? 🙂
John says
“An Internet Giveaway to the U.N.
If the U.S. abdicates internet stewardship, the United Nations might take control.”
wsj . com/articles/an-internet-giveaway-to-the-u-n-1472421165
>”Congress still has time to extend its ban on the Obama administration giving up protection of the internet. Icann has given it every reason to do so.”