Two of Donuts’ co-founders discuss the company’s results, strategy, and plans for the future.
The last time I visited new top level domain company Donuts’ office in Bellevue, WA, the company had zero revenue from new TLDs.
It was mid-2013, and it wouldn’t be until the next year that Donuts would launch its first batch of domains such as .guru, .bike and .ventures.
185 launches later, the company now has 1.7 million domain names under management and about 40 employees.
Last week in Bellevue I sat down with two of Donuts’ founders, CEO Paul Stahura and COO Richard Tindal, for an update.
One of the more interesting aspects of new TLDs is the premium pricing model.
This model, in which registrants pay a higher-than-normal annual fee for domains deemed of higher quality, isn’t new. .TV did it for many years.
But many new TLD companies, including Donuts, have made premium domains a big part of their strategies.
By all accounts, the premium model is working for Donuts. The company has eight tiers of premium domain names, with each tier selling for different prices based on the top level domain.
The company has about 72,000 premium names currently registered that retailed for $100 or more. (Many other premium domains retail for under $100.)
Donuts has roughly 325,000 premiums retailing for over $100, so about 20% are currently registered.
(Compare this to Rightside, which has about 600,000 unregistered premiums over $100 across about 40 TLDs. Donuts has four times the number of TLDs but a lot fewer priced as premiums).
At a wholesale level, these 72,000 names generate $9 million in annual recurring revenue. Premium domains represent under 5% of volume but 15% of sales.
Donuts predicted very high initial renewal rates of about 80%. While this number was optimistic, Tindal said that renewal rates are coming in at around 70%.
Competitor (and partner) Rightside, which is just down the road in Kirkland, is reporting renewal rates closer to 60%. I suspect the difference has to do with two factors.
First, Donuts’ domains have been out longer and have the benefit of second-time renewals, which tend to renew at higher rates than first-time renewals.
Second, Donuts hasn’t engaged in much discounting on first-year registrations.
Tindal said the renewal rates for premium domains are in line with the larger base of domains.
When I visited Donuts’ headquarters three years ago, the company said that it viewed itself as having one product to market: new TLDs as a whole.
It didn’t view each TLD as a separate product to market and didn’t plan to promote the domains individually.
“That thinking has evolved,” explained Tindal. “Certainly, we are now doing marketing around categories.”
An example might be the company’s promotion of .camera, .equipment, .gallery, .photos, .lighting, and .photography at a photography tradeshow a couple years ago.
Donuts recently hired Tim Favia as VP of Corporate Development.
Favia is overseeing Donuts Labs, which announced its first investment earlier this month.
The Donuts Labs program will invest in companies that have different ways of using DNS or can promote new uses for domain names.
Favia is also leading efforts to acquire other top level domain names.
When will we see more consolidation in the top level domain space?
“When prices become more sane,” Stahura said.
Favia added, “Right before consolidation you have a disparity between owner perceived value and market value.”
Favia said struggling companies looking for an exit still have the perception that their asset is worth more than it probably is.
Donuts acquired .Reise in an auction, and we might learn of another TLD acquisition soon.
But for now, Donuts believes the asking prices for TLDs on the resale market are too high.
Would Donuts ever sell a domain from its portfolio?
“Hell, Yeah!” Stahura said. If the right strategic buyer comes along, the company will certainly consider divesting one of its TLDs.
Last week Rightside forecasted $50-$75 million on annual registry revenue in 2019-2021. This is much more than the $8.4 million it generated last year.
Donuts also forecasts rapid growth.
“Awareness will improve, channel presentment will improve and our marketing efforts will get more efficient over time,” Stahura predicted.
I’ve marked this date three years from now to travel back to Bellevue again. We’ll see if this prediction comes true.