The domain name registration business has some similarities to rebate policies in the grocery business.
I read an article in The Economist over the weekend about grocery chains and supplier rebates, and it had a number of parallels to the domain name industry.
Grocery stores make profits in two ways other than from the margin on selling food. First, they get slotting fees from food manufacturers that want shelf space, with higher prices for better space. As an example, Hostess might pay a grocery chain to position Twinkies and Ding Dongs at eye level while competing products are lower on the shelf.
This is akin to registries paying registrars to place their extensions higher in search results.
Second, manufacturers pay rebates to grocers when they boost sales by running promotional offers on their products.
This is a common practice in the domain name business as well. Verisign offers rebates to registrars if they hit certain sales growth numbers on its domains, such as .com. These marketing programs sometimes require the registrar to use certain .com branding and to include .com high up in search results.
Another parallel: The FTC requires food suppliers to offer comparable rebates to all retailers. Registry contracts with ICANN also require that registry programs offer the same deals to all registrars*.
Yet many registrars probably feel like these deals aren’t “equal” when it comes to domain names.
First, some programs have minimum requirements that limit the number of registrars that can actually qualify.
Second, it sure seems that many of the special offers registries are making to registrars right now are specially designed for the registrar. I’ve heard complaints about one registrar getting a better or unique deal compared to another.
Finally, with vertical integration, a registrar owned by a registry can charge whatever it wants for the registry’s domains and still get 100% margin.
I found the grocery rebate story very interesting as it relates to domain name industry practices.
[* Although I’ve thought it common knowledge that registries have to offer the same pricing, rebates and marketing programs to each registrar, I’m starting to question if the requirement is in place for all TLDs. I read through the new TLD contracts and the only thing related to this I can find is in Spec 9, which says that registries can’t:
“directly or indirectly show any preference or provide any special consideration to any registrar with respect to operational access to registry systems and related registry services, unless comparable opportunities to qualify for such preferences or considerations are made available to all registrars on substantially similar terms and subject to substantially similar conditions;”
Note that this says “operational access”. It doesn’t say anything about pricing. Compare this to the Verisign contract for .com, which has a specific clause related to price discrimination:
“(e) No price discrimination. Registry Operator shall charge the same price for Registry Services subject to this Section 7.3, not to exceed the Maximum Price, to all ICANN-accredited registrars (provided that volume discounts and marketing support and incentive programs may be made if the same opportunities to qualify for those discounts and marketing support and incentive programs is available to all ICANN-accredited registrars).”
It seems to me that registries for new TLDs might be able to set up different pricing and rebates for each registrar, but I’d appreciate feedback from anyone with additional knowledge about this.]
To continue your analogy. In the domain industry there are too many Ding Dongs and no “shelf space” to place them all.