Last Friday, Donuts CEO Paul Stahura posted on CircleID an argument for strong renewal rates in new top level domain names.
He even put a number on it: “…we conservatively predict an initial renewal rate of greater than 80% for Donuts gTLDs.”
First of all, kuddos to Donuts for sticking its neck out there with a prediction. It might have its own motivations for doing so, but a lot of TLD registries are backing off of public predictions of any kind after their initial registration predictions were way off.
I’ve had many conversations over the past few months about what renewal rates for new TLDs will be. I’ve talked to domainers, registries and registrars.
I think I can make an intelligent argument for all three scenarios: renewal rates below existing TLDs, renewal rates comparable, and renewal rates higher.
Stahura makes a pretty good case for the latter, and you should read it in its entirety before reading on.
One of the arguments Stahura makes is one that I haven’t heard before, and it really turns a key assumption on its head.
If you look at renewal rates of existing TLDs, the longer a domain has been registered, the more likely it will be renewed. I’ve always considered this as a negative for new TLDs; every domain that comes up for renewal next year will have been registered for just one year.
Stahura looks at it differently. He looks at the registration date compared to the birth date of the TLD. Domains registered within the first year of .com availability are almost always renewed, perhaps because they are better names. Domains registered many years after TLD availability are less frequently renewed because they are worse names.
I’m not sure if I buy it, but it’s an interesting argument I haven’t heard before.
Stahura takes it further to point out that the bigger the registration numbers for a TLD, the lower the renewal rate of the later-renewed domains. It makes sense that the first 10,000 names registered are better than the next 10,000 names.
Having reviewed the zone files of some larger TLDs, such as Donuts’ own .guru (77,000), I can say that some of the more later registrations seem like they fit better on Donuts’ .WTF.
Another key argument from Stahura that I’ve heard from the “high renewal rate camp” is that higher prices means higher renewal rates.
It’s a bit counter-intuitive. He bases this on the idea that lower-priced domains are bought for their traffic (that’s the case for some, anyway), and the idea that people are stupid.
OK, he doesn’t say people are stupid, but he writes:
A buyer paying $20 for a name has a sunk cost incentive to renew when it comes time for renewal. Registrants think twice about deleting names that cost them $20 and think three times if they cost $200, but don’t think twice about deleting a name they got for $1 or free.
Of course, it is completely irrational to consider the sunk cost of a domain, or really any investment. But people are irrational. They’re stupid when it comes to sunk costs.
Show of hands: how many people reading this consider how much they’ve sunk into a domain before deciding to renew it?
I’m raising my hand, even though I know it’s completely irrational.
The only consideration that should come into the decision to renew a domain name is if it makes sense to pay the future costs of owning the domain, not the past costs.
Yet I, and many others, consider sunk costs all the time. It clouds our decision making.
It’s this exact irrationality that can be used as a counter-argument to Stahura’s point about sunk costs.
When it comes to renewing domain names, we’re more likely to renew domains that we’ve owned for a longer time. We look at the sunk costs of owning them over the years. “I’ve owned this domain for ten years, there’s no way I’m giving up on it now!”
Yes, the initial cost of most new TLDs was higher than .com, but they’ve only been registered for one year. The investment-to-date for many new TLDs is less than many .com’s. This could make renewal rates lower.
I don’t have many new TLD registrations, but I know this: I’ll scrutinize the more expensive ones much more closely than the cheap ones when it comes time to renew.
At least I think I will. Only time will tell.