Verisign is the big winner as consumers face higher bills for .com domain names.
The U.S. Department of Commerce’s National Telecommunications and Information Administration (NTIA) has extended the Cooperative Agreement between it and Verisign (NASDAQ: VRSN). This agreement governs how Verisign is able to operate .com, which has a contract with ICANN to run.
The biggest element of the agreement is pricing. Previously, the agreement froze the wholesale price that Verisign could charge for .com domains. The new agreement still has pricing restrictions but allows for 7% price hikes in four out of every six years. Actual pricing must be negotiated with ICANN.
Those 7% price increases mean the price registrars pay for a .com could increase up to 31% every six years. They pass these costs on to their customers.
I’m still struggling to understand what NTIA chief David Redl got from Verisign in return for these price increases. The NTIA release states that Verisign has agreed to “operate the .com registry in a content neutral manner”, which might be a pat on the back to Ted Cruz, who was upset about the NTIA giving up a key contract to ICANN that gave it some theoretical additional control over the internet. But nothing changes here; Verisign has always run .com in a content-neutral manner.
Here’s who wins and who loses from the agreement:
Big Winner: Verisign – This is the most obvious. Nearly all of Verisign’s business is maintaining its monopoly contract to run .com. Every cent it raises prices drops directly to the bottom line. I have to hand it to Verisign; this deal will be a boon for investors. They have a contract to run .com that’s already well above market prices, and they will likely get to increase prices even further. Its stock is up 18% today.
Winner: Other Registries -When Verisign increases .com prices, it makes other TLDs seem more appealing. Other domains can be priced lower, and even those that are priced higher will be able to justify their prices to the marketplace.
Winner: ICANN – ICANN wants more cash in the bank, and what better way to do this than to renegotiate its contract with Verisign. ICANN will grant Verisign price increases in return for Verisign giving a bigger kickback to ICANN’s coffers.
Winner: Phil Corwin – The outspoken critic of Verisign laid out excellent reasons Verisign shouldn’t be able to increase .com prices when he worked for an advocacy group that represents domain owners. Then Verisign hired him, silencing a key critic. Think he gets a bonus?
Depends: Domain Registrars -This might seem counterintuitive, but some domain registrars stand to benefit from the wholesale price increases. Whenever Verisign has increased fees in the past, these registrars have used it as an excuse to raise their prices and blame someone else. History tells us that they tend to hike their prices more than the 7% that’s being assessed to them.
Other registrars will be hurt, especially ones that offer low-cost services or have customers with large domain portfolios. GoDaddy will be one of the hardest hit. It’s looking at millions of dollars a year in extra fees based on its portfolio alone, plus passing along fee hikes to all of its customers.
Big Losers: Consumers – Consumers will pay more for their .com domains. A very small business that has one or two domains won’t feel the sting, but in aggregate there will be a large hit to SMBs. Larger corporations, domain investors, and businesses that rely on lots of domains to make their business hum will directly feel the pain.