[Editor’s note: this is a guest post by Francesco Cetraro, Head of Registry Operations for .Cloud.]
Last week I had the honour of being invited to speak at the first edition of DomainersMeet in Dubai. The main focus of the event was to drive awareness in the Gulf/Middle-East region about the opportunities related to investing in domain names, and the organizers managed to bring to Dubai a number of well-known domain industry experts, filling the agenda with a broad spectrum of information and opinions on the subject.
Not being a domainer myself, at first I had my doubts as to whether this event would be a good fit for me, but in the end I am very happy I went. Preparing my talk about “A day in the life of a Registry” gave me a great opportunity to reflect about the work that new TLD Registry Operators have to do to promote their extension and the role that domain investors can play in actively supporting the development of the industry.
Domain investors often like to compare domain names to virtual real estate: getting your hands on a great domain name is the virtual equivalent of acquring a luxury condo in the center of a bustling city like Dubai, an investment that is very likely to keep growing in value and bring back a very solid return when sold on.
The obvious reason for that is the fact that Dubai is a major hub and a place that has been successful in attracting a growing number of businesses and people that want to operate and live there.
But just a few decades ago the same location looked very different and not particularly attractive.
When we see what cities like Dubai are today, we often forget that it did not all appear overnight as a result of a simple stroke on a magical lantern. It took time and a lot of investment, vision and effort from the local rulers to make a small village in the desert into the city of lights we see today.
The same is clearly true when we look at the domain market: the “legacy” TLDs like .org or .com have established themselves slowly over several decades. They have been there from the time when the whole idea of “getting an online presence” seemed like an outlandish fad to the present day of superconnected devices and always-on internet.
With this in mind, it seems clearly shortsighted to judge the impact that new TLDs have on the market after just a couple of years of existence, just as it was probably naïve of some applicants to look at the millions of domains registered in legacy TLDs and expect their new TLDs to provide immediate returns and make them filthy rich and famous without any effort.
The way I like to describe the new TLDs is as the modern equivalent of an unexplored, new world: full of possibilities and great opportunities, but still wild and in need of a lot of work and effort before a shiny new city will start to appear and become prosperous and famous like the great cities of today.
Every business owner, startup or individual that adopts a new domain extension is to a certain extent the modern equivalent of the settlers that went to America in the late 1800s and early 1900s.
As a Southern Italian with relatives all over the world, this is a dynamic that I am extremely familiar with. When the first emigrants left the “old country” to try and build a better future in the US or Argentina, many called them crazy as they headed for the unknown and unexplored. But as the stories of their success on the other side of the ocean started to make their way to relatives and friends back home, the old fears were quickly replaced by dreams of better opportunities. More and more people quickly followed their examples and ultimately helped turning small outposts of civilization into rich and famous cities like San Francisco and Buenos Aires.
While choosing a domain name is not as dramatic as moving to the other side of the planet, the mindset is the same. Today the majority of prospective registrants still prefer the comfort of staying in the flock and buying their domains in familiar extensions like everybody else always did, even if it can mean settling for a longer domain in a traditional extension. The new TLD early adopters are instead choosing the road less traveled and taking a chance to build something potentially better for themselves in these new digital territories.
Each and everyone of these “settlers” is the most precious resource for a newly started TLD. The only way to establish solid foundations to build a strong Registry business is to find a way to attract the best and the brightest early adopters. I personally see it as my top priority to put every effort I can into making .cloud as attractive and welcoming as possible, so that hopefully many of them will see the opportunity to use it to make it their new home and build their fortunes on it.
A few Registries in the past have succeeded in building a strong sense of community around their extensions, and probably the best inspiration on how to do this properly is the .ME Registry.
Their example is a clear indication that if I genuinely care and take an active interest in the success of my registrants, the higher the return will be for me as well. Not only because they will be more likely to renew their own names, but most importantly because the better off and the happier they are with their domains, the more likely are other potential “settlers” to notice their achievements and see the opportunity to build their home in my ””ittle corner of (digital) paradise”.
I am personally very proud of running .cloud: I am convinced we have a great extension that appeals to a broad audience also well-beyond the cloud industry itself. It is a great ”new territory” where many settlers can come and help build a great new “city of lights” we can all call home and benefit from.
As a Registry Operator we do our best to keep it affordable and easy to register and use, and I personally spend a lot of time talking and writing about the “opportunity” offered by new domain extensions and .cloud in particular.
I however don’t claim to be “the best for everything and everyone”, and I try to refrain from comparing ourselves (or worse, bashing) the established extensions or the other new TLDs. I feel we have a strong product that can stand on its own merits, and in the fight for consumers’ attention I prefer to focus on what .cloud is and what it can do to help those that choose it to achieve their purposes.
To be honest, I find claims of “being the new .com” and attempts at bashing the legacy TLDs quite sad and a sign of lack of imagination. The goal of the new TLD program is to offer consumers more choice (not to create “get rich fast” schemes for a small group of insiders), and the value of new extensions is not in the simple fact that they are new, but in the opportunity that they offer consumers to find a good domain that really fits their brand and their goals.
While there are quite a few terrible new extensions out there that have me scratching my head as I wonder “what the hell were they thinking”, we luckily also have plenty of great ones that do serve their purpose very well. I am happy to see that many fellow Registry operators are in this for the long term and are really making a big effort in engaging with end-users, highlighting the value of choice and ultimately explaining how a relevant domain can be an important stepping stone in building a successful online presence.
But what does this all mean for domain investors? As with any virgin new territory to explore and colonize, new TLDs offer many opportunities to invest and prospectives of great returns as they become more popular. There is clearly an advantage in being an early entrant in a new market, but it also does take vision and a long-term perspective to cut through all the noise surrounding new TLDs and make the best of it.
As the organic growth in registrations in new TLDs has been slower than many anticipated (and budgeted for), many Registries have been raising the pressure on investors (established and wannabes alike) to get into the game and stake their claim on the best bits of “prime (virtual) real estate” before someone else does, and with promises that their investments will increase in value steadily over the coming years.
However, just like with real-life investments in something like a luxury condo, ultimately even as the asset changes hands and is sold on (hopefully with a profit), its value remains dependent on how likely it is to attract the interest of a buyer who would eventually use it for its intended purpose, i.e. live in it. In other words, a luxury condo in Dubai can only grow in value as long as more and more people want to live in Dubai and are willing to pay the price the market commands to do so.
From an investor perspective, there is however no worse nightmare than spending a lot of money into something presented as “prime real estate”, only to discover that it happens to be in a neighborhood where nobody lives nor would ever want to live.
And what better way to illustrate this point than with an image of a Chinese ghost town?
Speculation from China has been fueling the explosive growth of the domain market in the last few months, to the point that over 50% of the domains registered in the new TLDs are currently in the hands of Chinese Registrants. While it is undeniable that a market comprising a sixth of the world’s population should have an important role in any Registry’s business, the fact remains that the overwhelming majority of these domains are not bought to be actively used.
Regardless of whether this impressive level of interest is really due to small investors looking for alternative placement options away from the high fluctuations of the Chinese stock market as some suggest, it is ultimately only sustainable as long as more money gets pumped in the system and as long as buyers have faith that the value of their domains as assets will keep growing, which is all dependent on whether the market still believes that eventually someone will want to use the domain in question and be ready to pay a premium price for it.
As the number of new domains added to the pool keeps growing faster than the number of real people looking to create a website, it is only a matter of time before reality catches up with the Chinese investors and the bubble bursts.
For the time being, while we obviously don’t turn away Chinese investors that want to register .cloud domains, we do not actively seek their attention either. Our energy and our efforts remain focused on reaching real prospective users, make sure they know that .cloud exists and that a growing number of companies and individuals are using it, so that when the time they will need a domain comes they will hopefully consider .cloud their best option too.
Selling a few premium names to investors can be an excellent short-term strategy to raise cash to reinvest in the Registry’s operations and most importantly into driving user adoption and ultimately building a sustainable business.
Reality is that building a quality zone is an extremely time-consuming process that requires patience, resources and passion as one struggles an uphill battle for consumer’s attention. However, it still remains a better strategy than just keep dropping the price trying to convince the market that empty volume can ever be an acceptable substitute for real adoption. Ultimately, if I were a domain investor I would ask some serious questions about a Registry operator that spends more time pitching its TLD to investors than to prospective real users.
In conclusion, there are certainly great opportunities in new TLDs for domainers that have a long-term perspective and that choose their investments carefully. What is even better, the wide variety of new extensions on the market provide an excellent opportunity to build better portfolios in specific verticals based on one’s personal interests and areas of expertise.
New TLDs are however still very young and barely starting to get visibility and traction in the mass market. There is a real risk that excessive and irresponsible speculation might end up damaging the good work that many Registries, Registrars and domain enthusiasts are doing to build real value and gain the trust of prospective Registrants.
I do believe that serious investors have an important role to play in helping new TLDs succeed, by being selective about where they decide to invest and by becoming ambassadors for the extensions they support, helping to spread the word about this new opportunity for domain owners. Ultimately, that is also the best way for them to protect their investment and help it grow in value.