GoDaddy goes vertical with Neustar registry acquisition

GoDaddy buys its first registry, implements governance model for conflicts of interest, and promises to keep domain prices in check.

GoDaddy (NYSE: GDDY) is acquiring Neustar’s domain name registry services business and renaming it GoDaddy Registry, the company announced today.

Neustar directly manages .biz, .us, and several other domains, and provides technical registry services for other companies’ top level domains, such as .club. There are 12 million domains on its platform. GoDaddy is not acquiring Neustar’s DNS and DDoS businesses.

The deal marks the first time that GoDaddy will own a registry. A registry is like a wholesaler of domain names while a registrar is like a retailer. When someone registers a domain name at a retail registrar, the registrar reserves the domain with the wholesale registry and pays a fee to the registry.

Now, for some domains, GoDaddy will act as both the wholesaler and retailer when a consumer registers a domain at GoDaddy. When a consumer registers one of these domains at a competing registrar, such as Network Solutions, the competitor will pay GoDaddy the wholesale fee.

This may cause concern of conflicts of interest, which GoDaddy plans to address with a governance model.

Andrew Low Ah Kee, Chief Operating Officer of GoDaddy, told Domain Name Wire that the governance structure will include four core pillars:

1. GoDaddy’s Registry and Registrar will not share any information with each other that gives (or appears to give) unfair competitive advantage.
2. GoDaddy Registry cannot show preference to GoDaddy Registrar.
3. GoDaddy will set up functions inside legal and audit areas to ensure compliance.
4. The company will look at business performance of the Registry and Registrar separately.

Paul Bindel, VP Domains, GoDaddy Registrar, said that it wouldn’t make sense for the registrar to treat GoDaddy Registry domains differently than competitors’ domains.

“As a registrar, giving preferential treatment to [GoDaddy Registry] TLDs doesn’t make sense,” said Bindel. “The objective is to make sure our customers find the perfect domain. We want to get the right domain into our customers’ hands.”

Other companies own both registries and registrars. For example, Rightside (now part of Donuts) was a top level domain registry that owned domain registrars Enom and Name.com. The company used its registrars as a testing ground for new tools and campaigns, and then shared some of the technology it developed with other registrars. Donuts, the largest domain name registry in terms of number of top level domains, currently owns Name.com.

Registries frequently test new marketing initiatives through registrars. Low Ah Kee pointed out that having a registry and registrar under one roof will make it easier to run tests without lengthy negotiations between the registry and registrar.

There’s precedent for GoDaddy managing conflicts of interest. It acquired domain name aftermarket company Afternic in 2013. The acquisition initially concerned domain investors and other registrars. Domain investors were worried that sales commissions might increase, and registrars were concerned about having aftermarket partnerships with a competitor.

Since the acquisition, Afternic has actually reduced commissions and many registrars have increased their aftermarket business with GoDaddy by partnering with it to sell expired domains.

Consumers might benefit from this deal, too.

“We will not be raising prices, full stop,” said Nicolai Bezsonoff, who led Neustar Registry Services and will run GoDaddy Registry. In fact, his unit will try to lower prices for some top level domains.

Last year, ICANN granted Neustar the ability to raise prices as much as it wants for the .biz top level domain. Under Neustar’s private equity ownership, the company took advantage of the maximum price increases that ICANN allowed. It seems that, under GoDaddy’s umbrella, prices will be kept in check.

“GoDaddy and the entire domain name industry will lose if consumers feel that domains are becoming too expensive or aren’t available,” said Bezsonoff.

The acquisition announcement comes just one business day after the Colombian government announced a five-year extension with Neustar to operate the .co top level domain. Low Ah Kee said that GoDaddy waited to announce the deal because it didn’t want to be perceived as influencing or meddling in the contract process.

GoDaddy has been discussing a potential acquisition of Neustar’s registry services for over a year, which predates the arrival of new GoDaddy CEO Aman Bhutani.

The company did not reveal financial terms of the acquisition but Low Ah Kee noted that GoDaddy has ample liquidity to pursue other acquisitions.

The deal is expected to close in Q2.