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Domain Companies Need to Increase “Switching Costs”

The road to profits lies in an integrated approach to domain management.

In the domain business there are low “switching costs”. A switching cost is the time and money you incur to change service providers.

Consider domain parking, where you can move 1,000 domains from one parking company to another in about 15 minutes. Even switching registrars is relatively painless compared to many other service provider changes you do in the “offline” world.

To see an industry that has mastered switching costs, look at banks. People don’t close out one bank account and switch to another bank just because they can earn a half point more interest. Switching banks is a pain, and banks have made it that way by offering value added services like free bill pay. After setting up ten payees in bill pay it’s a lot of effort to redo that at a different bank. This is part of the reason banks offer bonuses if you set up direct deposit. Who wants to go through the hassle of changing banks if you have to fill out direct deposit forms again?

My point isn’t that domain companies should create barriers to you changing service providers. That will earn a company a bad will (see GoDaddy’s 60 day hold on whois changes or Register.com requiring you to call in to get a transfer out code). Instead, domain companies need to offer integrated services that create more value than just domain registration or parking. These value added services make it more costly — or at least inconvenient — for you to change companies.

One company that is doing well at this is Oversee.net. Between Moniker, DomainSponsor, and SnapNames they have a trifecta. Park your domains at DomainSponsor and earn bonuses you can use to buy domains at SnapNames or register them at Moniker. Keep a certain number of domains parked at DomainSponsor to earn more bonuses. Register your domains at Moniker in order to be able to sell them on SnapNames or live auctions.

Even before its acquisitions, Oversee understood how easy it is to switch providers. That’s part of the reason it started a leasing program for DomainSponsor, which allowed it to lock in parking portfolios for 6 to 12 months. They created a benefit for domain owners, too, in the form of upfront payments.

Other companies are also trying to create an ecosystem of services that add benefits to customers and makes them less likely to switch. I suspect Thought Covergence’s acquisition of Name Intelligence had a lot to do with that.

Even if a company doesn’t have a suite of domain services it can still increase switching costs. When I have a domain forwarded at a registrar I’m unlikely to transfer that domain. Doing so would probably create downtime as I set up forwarding at the new registrar. Domain privacy also makes it more difficult to transfer a domain name. A domain registrar can give these services away for free to lock in more customers.

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  1. Bill says

    Don’t you feel that Godaddy tries to accomplish this with all the freebies they throw in with every domain registration?

    I prefer Moniker but there are a few domains I’ve left with Godaddy due to the pain it would be to change email systems, etc.

    -Bill
    AvailableDomainNames.com

  2. Andrew says

    Bill, that’s right. That’s one of the reasons I still have a few domains at Godaddy since I don’t want to change the forwarding.

  3. Kevin Ohashi says

    I don’t really think that should be a policy recommended in the interest of customers. I would much rather see them competing on the quality of their service. I don’t simply transfer on a whim, it’s a pain to get all those EPP codes. I transfer new domains I win at auction to one of my main registrar accounts, but I am guessing I am like most people where I use a few main registrars. Seeing places like oversee offering me bonuses for parking them makes me wonder why I wasn’t getting that money in the first place.

    Time and time again I see places like RichardK’s namecheap get recommended over and over despite not being close to cheapest places because service he provides is simply the best (along with maybe Fabulous in my experience). That is what they should be competing on.

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