Threat of a “run on the bank” scenario at domain registrar exists.
In November 2007 I wrote an article “A Run on the (Domain Name) Bank“. I discussed the potential for rumors about a domain registrar’s demise to cause a panic. Domain registrants would transfer their domains out in droves, further deteriorating the registrar’s business and pushing it under.
Earlier this year I wrote an article “The Danger of a Domain Registrar “Run on the Bank–, which discussed an ICANN measure akin to FDIC insurance: putting domain owner information into escrow to make transferring domains to another registrar easier in the case of a meltdown.
The irony is that the original article was precipitated by rumors that brokerage ETrade was going under. Fast forward a year and ETrade is alive, whereas companies that no one thought would fail, such as Merrill Lynch, are no longer.
You shouldn’t feel too comfortable about any domain registrar. With few exceptions, no one on the outside knows the financial state of their registrar. So what happens if one goes in the red and people start pulling domains out? It would likely cause the registrar to fail.
But there are a few things that make a run on a domain registrar less painful than a run on the bank:
1. There’s a switching cost. People who want to transfer out 1,000 domains from a failing registrar will have to come up with $8,000 to transfer the domains. It also takes a lot of time to transfer.
2. “FDIC” insurance doesn’t have a cap. If you view the escrow stopgap ICANN implemented as insurance, it covers all of your domains with no cap like FDIC.
3. Most registrars are diversified. In fact, they make little money on domain registration and lots on selling add-on products. Thankfully, none of these add-on products are mortgages.
4. You won’t find any Senators spreading false rumors about a domain registrar’s imminent demise.
But if you’re really worried, you can always start your own domain registrar.
Rob Sequin says
Man. You are really pumping out the great articles today.
What about a run on a parking company?
Now I don’t wish that on any parking company but aren’t all of them “fragile” in the sense that if a handful of large portfolio owners and/or a large group of small portfolio owners decide to simply switch nameservers because of a news story, rumor or other catalyst, a domain parking company could theoretically loose 100% of their revenue literally overnight.
That’s scary. Thing is no one would know until the parking company made some announcement or they lost their upstream provider and revenues tanked.
Andrew says
Rob, it depends on how fast the parking company went south. There have actually been some parking companies that didn’t pay their customers, haven’t there? Smaller ones I think.
I don’t think it’s as likely, but you can mitigate it by going with a company that has other businesses and thus wants to make sure not to get badwill: DomainSponsor, Parked, Sedo, NameMedia, et al.
Andrew says
And thanks, Rob. Writing articles helps me keep my mind off the stock market.
Rob Sequin says
I understand but don’t miss this HUGE buying opportunity. I bought some stock today and I’m already up… now tomorrow is another day 🙁
Best time to buy is when everyone else is selling so long as you have a long term positive outlook. (stocks, real estate and domains are all here to stay, just a matter of picking which ones, what to pay and when to buy)
I half expect a 1000 point rally at some point. Not out of the question.
Andrew says
Yeah, I was kind of laughing to myself when the stock market closed. If someone just saw the headline “Dow drops 370 points” they’ll be upset. But if you tuned in when the market hit bottom, you’d be saying “wow, the market was up 430 points today!”