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VeriSign Isn’t Stupid. That’s Why It’s Raising .Com Prices

VeriSign price increase makes sense for the company.

VeriSignThere has been a collective whine from the domainer community over the past 12 hours after news broke that VeriSign is increasing .com prices again.

I’m whining, too. But this is an expected and smart move by VeriSign.

VeriSign’s contract with ICANN allows it to raise prices 7% in any four years of its current six year contract. It raised prices in the first two years, bringing VeriSign’s take of a .com registration from $6.00 to $6.86. The assumption was that VeriSign would increase the price each year for the first four years to maximize its revenue. After all, not raising it in one year meant the registry would lose out on that increase every year until it hit its four price increases, and the compounding effect would also be lost.

In the third year (this year), VeriSign didn’t raise rates. Although the economy may have played a factor, the real reason was politics. VeriSign was being trotted in front of congress this year to testify about ICANN and the end of its Memorandum of Understanding with the U.S. government. It was a politically untenable environment to jack up rates again.

In fact, during VeriSign’s first quarter conference call this year President and COO Mark McLaughlin said:

So far we’ve taken two of these increases. And the patentees’ have been thoughtful about the timing of the increases, and I think we should be continuing to do so particularly in life as the impact of an increase could have on sales in this weak economy, as well as some uncertainty in the multiple constituencies that are involved in this industry.

This decision to not raise rates in 2009 will cost VeriSign over $75 million in pure profit over the next two years. If VeriSign raises rates again next year it will have “caught up” to its maximum pricing under the contract, so its loss from not increasing rates in 2009 is two years worth of revenue at the higher prices, not to mention the compounding effect of missing a seven percent increase.

With this year’s legislative focus on domain names behind us, there won’t be as much scrutiny of VeriSign in 2010.

The current wholesale price of .com domains is $7.04 including an 18 cent ICANN fee. The new price will be $7.52 including the ICANN fee, effective July 1, 2010.

The argument that registrations will decrease as a result of this price increase is largely a fallacy. It’s true that people will drop domain names making between $7.04 and $7.51 if they have no potential of future sale. But that’s limited mostly to typos, and the increase in revenue more than makes up for losing these domains.

This increase will affect professional domainers with large portfolios more than other consumers. And no one on Capitol Hill cares about domainers. ICANN’s take, at least when I talked to them about VeriSign price increases a couple years ago, was that we shouldn’t complain. After all, registering a .com domain name cost $35 a year just a decade ago.

But the move will also build political pressure increase over time, and it may backfire as VeriSign attempts to get the business of people wishing to release new TLDs. The true cost of managing the .com registry is perhaps a dollar or two a domain. That’s what some registries will offer as pricing to new TLD operators. How will VeriSign be able to offer lower prices to new TLD operators with a straight face? Won’t people start to question its costs for .com? The answer is probably that VeriSign won’t risk the heat on .com at the expense of picking up some small new TLD contracts.

Then there’s also a lawsuit that could force ICANN to open the .com registry up to competitive bid. But that won’t be settled any time soon.

So we can go ahead and whine about .com prices increasing. I know I’m going to. But I also know that, if I were in VeriSign’s shoes, I’d do the exact same thing.

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  1. Tommy

    I love when people talk about how much there names are worth and how they are like real estate, but complain about a $7 to $10 per year maintenance charge. Does anyone pay $7 to $10 a year in property tax for a piece of real estate?

    I hope prices double or triple to flush out some domains from the big portfolios.

    One person’s problem just might be another person’s opportunity.

  2. Seb

    The blame is on ICANN to have allowed Verisign 4 increases in 6 years just to settle their dispute about Site Finder.

    Verisign is just using the privilege it was kindly “offered” at our expense.

    Can’t wait for the contract renewal when companies like Neustar or Denic are allowed to bid for the dotcom contract and charge only $1 or $2 per domain name.

    • Andrew Allemann

      @ Seb – don’t forget that the contract renewal has the presumptive right of renewal. In other words, unless VeriSign doesn’t cure a major breach, it will get the renewal.

  3. M. Menius

    And therein lies the unfair element. Awarding Verisign an exclusive monopoly in perpetuity does not give the consumer a choice. Most anyone would like to see competitive bids allowed for that contract so that .com/.net domain prices would be subject to market forces instead of Verisign’s monopoly position.

    The chief criticism is that ICANN bypassed typical free market processes and locked consumers into an arrangement that seems to defy conventional standards of business.

    If Neustar could provide the same service for $2.50 per domain, why would ICANN not want consumers to have that benefit?

  4. Seb

    Yes Andrew, unless the CFit lawsuit forces ICANN to rewrite the contract in order to allow other companies to bid.

    Xmas is coming soon, please let me dream Andrew !

  5. Dumas Go Daddie

    All the insider talk aside, let’s bring back the real Andrew, before the Verisign demon invaded his body. Maybe he or someone can answer this simple question:

    “The acceptable reason for Verisign’s allowed 7% increase in domain prices are…”

    Potential answers:

    – “ICANN says it’s okay, so let’s get to it!”
    – Verisign’s overhead is so overwhelming that they MUST raise their prices to stay afloat
    – “Dang! Look at those domainers making money on domains that only cost them $10 or less a year to own. Let’s get in on that, because we know there are domainers with combined totals of MILLIONS of domains! What are domainers going to do, let their domains expire because they can’t afford the extra $.50 per domain, which is only a minimal $5,000 a year for a domainer with 10k domains? And the average consumer won’t complain, they’re just scared they might lose their domain. Perfect scenario for raising prices!”

    You know what, I’d like someone to tell me why domains don’t cost only $2 to register and renew. In other words, how does Verisign determine its operating costs and then apply it to fair market price increases, since it IS A MONOPOLY. Why don’t domains cost $.25 to register? What factor “sets” the bottom redline price point? Seriously.

    I’m sorry… I was unduly influenced by randomly walking into my first Dollar Tree store today (next to my fav sushi spot). Buying stuff for a dollar or less on items that cost five times more at the supermarket, well, that freaked me out. And I don’t need to shop there, but smart is smart, and buying low for identical products IS possible… and Verisign could be included in “price comparison shopping”, IF THEY WEREN’T A MONOPOLY (Congress, you listening?).

    I can’t wait for the “this guy shops at Dollar Tree comments. 😉

    Sorry for the dumb questions. I’m new to the business.

  6. Matt

    Tommy,

    Its not that people are whining about a 7 – 10$ maintenance charge,

    DNS Is a government run service which I ask who controls the root servers? ICANN and the us government has the most sway, its a government service.

    And its real costs are $1 – 2$ to run… ok give them all bonuses…take $3 per domain but for them to arbitrarilty price .coms based on their whim is greed and not American.

    You say who cares? Well, if you only own a handful of domains..goodie for you. Otherwise it will hurt..a lot.

    You think im whining? Hey why not jack up postage stamp rates (another gov service) Tell me you wouldnt pay $7.51 to the USPS if the government only awarded the postal delivery contract to ONE organization to run and they are the only game in town and you need mail sent out.

    Ohhh but thats different Matt… uh huh. Sure.

  7. Howard

    Where were all the whiners when the World Association of Domain Name Developers, Inc. (WADND) sued Verisign to void the contract with ICANN and was seeking funds from Domainers to keep the law suit going and only a handful responded?????

  8. M. Menius

    Howard – Many probably weren’t plugged in at the time. Point well taken though about supporting just cause.

    The major issue being skimmed over is ICANN … moreso than Verisign. Verisign’s just another soul-less corporate giant. However, ICANN are the supposed “neutral” overseer who obviously are anything but neutral. The Verisign award exemplified ICANN’s lack of regard for the business community. And shows their inner circle, profit-oriented back-scratching MO.

    As is often the case with ICANN, there are prevailing & simple principles at stake which they expertly avoid dealing with. Verisign monopoly just another example.

  9. Dumas Go Daddie

    @ Howard

    Half of the domaining community were banned from Rick’s forum in 2006, and WADND was basically a meeting place for what was next for TRAFFIC conferences. Many domainers locked into your site for months watching your posted “Board meetings”, and WADND wasn’t reaching out to the hundreds of new domainers. They were shunning them, as TRAFFIC “exclusive invites” consistently scared away new people, who today would be Elliot Silver, Bruce Marler, and even Chef Patrick. (If they were involved back in 2005)

    If you wanted support from the domain community, don’t claim “exclusivity” from the “noise” and expect everyone outside the “Schwartz Circle” to jump in when you need them, even if it is to their best interest. I stated this 100 times in 2006.

    Today, The King is more respected because he has a completely open blog and that is what brings in the best of the best, and the worst of the worst. The game at that point is to sort it all out, but that’s how history is made, don’t you agree?

    Censorship and “Exclusivity” creates a stagnant pool of increasingly incestuous inbreeding that goes nowhere for everyone in the “accepted” group. Thank God you don’t hold to that theory anymore. I’d check out the book “EXPLOITING CHAOS”. My favorite!

    Cheers and Happy Holidays!

  10. Jeremy Hitchcock

    I think there have been efforts in previous rounds to offer lower prices for domain registrations but that is not the primary evaluation criteria. Maybe nicer for consumers if it was included? ICANN has a consensus-based, bottoms-up process. Make your comments heard and organize others who want lower prices (not at the expense of stability though).

  11. Domain Investor

    It sounds like some of the arguments with my wife. There is the main point of the argument and then everything else thrown on the pile as a distraction or built up frustration.

    I applaud that a few of the major domainers were willing to “charge the hill” hoping that we would follow.
    Unfortunately, the masses did not follow. But, a few did which is a good start.
    Hopefully, more will join the charge.

    The last thing we need is fighting among ourselves.

    Lets stay focused on who wants to directly or indirectly weaken us.
    They are –
    Verisign, Icann, Google, IP community, just to name a few.

  12. den

    Haha, I’ll just dump a number of domains that i keep for ‘just in case’. they will eventually own all of our domains, this is called renting, not owning. and the landLORDs can charge as much as want. and this is the plan.

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