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Should GoDaddy acquire .Org?

by Andrew Allemann — December 10, 2019 Domain Registrars 8 Comments

Other companies should now circle .org, and GoDaddy is one of them.

Picture of person examining financial analysis and the words 'should godaddy buy .org'

There’s a lot of consternation about Ethos Capital’s proposed takeover of the .org registry. It will move from a non-profit entity that’s out to help organizations to one that is profit-motivated.

It’s also clouded by the involvement of former ICANN CEO Fadi Chehadé in Ethos’ bid.

The door is open for a white knight. A company with deep pockets can come in and offer terms that are better than Ethos’. The terms would be better in two ways:

1. More money.
2. Setting up a contractual price limitation with ICANN.

Several businesses would pay more than what Ethos’ is paying. Based on what Internet Society CEO Andrew Sullivan said on this webcast last week, it seems that Ethos put strict time constraints on Internet Society to get this deal through, making it difficult to shop it. I also assume ISOC didn’t want the fact that it was selling .org to go public before a deal was consummated, giving further advantage to Ethos.

I’ve talked to multiple private equity groups that were disappointed that they weren’t invited to the table.

But another private equity company swooping in to buy .org doesn’t alleviate the community’s concerns, especially when it comes to pricing. Someone needs to do more than offer its assurances that it won’t jack up prices.

Enter GoDaddy (NYSE: GDDY).

GoDaddy has avoided becoming a registry, preferring to stick to the registrar side. It has flirted with becoming a registry, though. It unsuccessfully bid for the .Us contract. It applied for .home and .casa, only to later withdraw.

Now could be the time to reconsider. Here’s why.

First, GoDaddy wants to make sure that it doesn’t have to jack up prices on domains from one year to the next. It halted selling Uniregistry domains after the registry significantly increased wholesale prices.

Mike McLaughlin, who was GM of the GoDaddy’s domain business at the time, said:

GoDaddy works to deliver a great customer experience. We now have customers who will be paying up to 3,000 percent more for their renewal. That’s an extremely poor customer experience and does not reflect well on the domain name industry in general.

Drastic price increases definitely lead to a poor customer experience and hurt the domain industry.

Ethos Capital says it’s not going to raise .org prices a lot. But so far that’s just talk. Even if it’s true to its word, someone could come to Ethos next year and offers it $2 billion for .org. The new owner could increase prices substantially.

That would be bad for .org registrants. Bad for GoDaddy. Bad for domain names in general.

GoDaddy accounts for nearly 40% of all registered .org domain names, so it has a lot to lose if .org prices shoot through the roof. (It also has a lot to gain by owning 100% of the sale!)

Second, GoDaddy’s valuation is currently very high. It is valued at over $11 billion. That’s on forecasted 2019 revenue of about $3 billion and unlevered free cash flow of $730 million to $740 million.

The markets would like to see another $100 million in revenue with almost all of it falling to the bottom line.

GoDaddy’s cost of capital is cheap right now, too.

Third, owning a major registry could put pressure on .com and .net registry Verisign (NASDAQ: VRSN) to keep prices in check. In the short term, I expect .org to continue to cost more than .com. But if the U.S. government lifts the lid further on .com prices, GoDaddy would have another domain it could promote as an alternative.

(Note that Verisign’s new agreement with the U.S. government clarifies that Verisign can also become a retailer for non-.com domains.)

Would GoDaddy’s competitors be concerned about it owning .org? Probably. It could also be referred to the competition authorities.

But GoDaddy could assuage these concerns. It could keep .org’s management separate. It could limit its price increases contractually with ICANN. And it could state a minimum price at which it would offer .org as a registrar, ensuring it doesn’t undercut rivals.

A lot of groups could swoop in and offer better terms than Ethos. They can offer ISOC more money, which, in and of itself, should force ISOC to rethink its deal. They can also offer to contractually restrict pricing, which would eliminate much of the blowback ISOC is getting over its deal.

One of those bidders should be GoDaddy.

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8 Comments Tags: .org, Ethos Capital, GoDaddy, Internet Society, ISOC, NYSE: GDDY, topstory

Video: watch the Q&A with Ethos, Internet Society and PIR

by Andrew Allemann — December 10, 2019 Policy & Law 8 Comments

Ethos tries to assuage concerns, but non-profits have more questions.

Logo for .org domain, featuring a blue circle with white letters spelling ORG

Last week NTEN, a group that helps non-profits use technology, held a Q&A with the three parties involved with the sale of .org: Private equity firm Ethos, Internet Society (ISOC), and Public Interest Registry.

It was an interesting call and the first time we’ve really heard from Ethos, other than carefully worded statements on its website.

Questions related to: why ISOC didn’t put the .org contract out to bid, why the rush to complete the detal, how long Ethos plans to hold its investment, how Ethos can assure the community that it won’t raise prices much, and several other topics.

You can watch the full session here:

 

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8 Comments Tags: .org, Ethos Capital, Internet Society, NTEN, public interest registry

ISOC is leaving money on the table with .org, but…

by Andrew Allemann — December 3, 2019 Policy & Law 12 Comments

A secretive deal was the only way ISOC could get a deal done.

Picture of two men holding cash in secret back room

I’ve written a lot about how Internet Society’s (ISOC) deal to sell the .org registry to a private equity company impacts the internet’s users and non-profits. From a credibility standpoint, it’s a bad deal for ISOC.

But from a financial standpoint, it makes sense for ISOC to sell the registry.

The registry throws off cash to ISOC each year but there is risk. There’s risk that the importance of domain names changes over time. There’s risk that the base of .org domains declines.

By selling the registry and creating an endowment, ISOC secures its future. And a $1.135 billion endowment is nice security.

The way the process played out, however, means that ISOC is leaving money on the table.

I’ve heard from multiple people who would have paid more. These are people who have the capability to acquire companies for over a billion dollars. A competitive bidding process would have led to a greater windfall for ISOC.

So why was the deal done without public consultation and not put out to bid? I suspect that if people caught wind of what ISOC was up to, the blowback would have been so big that the deal would have never gone through. This was a deal that needed to be consummated in secret.

From ISOC’s perspective, $1.135 billion is enough. Getting a few hundred million dollars more at the risk of not getting anything was too great.

 

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12 Comments Tags: .org, Internet Society, ISOC

Ethos paid $1.135 billion for .Org

by Andrew Allemann — November 29, 2019 Policy & Law 22 Comments

Internet Society reveals the price it is selling out for.

Picture of U.S. currency falling from the sky

On a webinar today, Internet Society has purportedly disclosed that Ethos Capital will pay $1.135 billion to acquire the .org registry from it:

#Internetsociety offered 1b and 135mil$USD for #.ORG from Ethos Capital, disclosed only now at a special webinar

— Desiree (@Des) November 29, 2019

This was a savvy investment for former ICANN CEO Fadi Chehadé and Ethos Capital. Had .org been sold in a competitive process, it surely would have sold for much more.

At the same time, the deal makes financial sense for ISOC. It should earn a solid $50 million+ per year from its endowment, giving it stability without concerns to what might happen to its golden goose in the future.

The current wholesale price for .org is $9.93, bringing in around $100 million in revenue per year. Costs are approximately $25 million but can be dramatically reduced. If Ethos doubles the price, it will lose very few registrations and bring in nearly $200 million a year in revenue.

Let’s take Ethos at its word that it might, possibly, “potentially” just raise prices 10% per year. That’s more than what Public Interest Registry has done in the past, but it’s also what was allowed in the contract before price caps were removed.

At the end of ten years, that puts the wholesale price at $25.75. Assuming it still has 10 million domains under management, that’s $257.5 million in revenue and around $235 million in profit.

Per year.

Roll Donuts into it, take it public, and you get a nice payday.

More .Org Coverage:

Private Equity company acquires .Org registry

The interesting connection between the .Org deal and ICANN

The economics of .org domain names

 

 

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22 Comments Tags: .org, Ethos Capital, icann, Internet Society, ISOC, public interest registry, topstory

ISOC chapter breaks ranks, criticizes deal to sell .Org

by Andrew Allemann — November 27, 2019 Policy & Law 13 Comments

Netherlands chapter calls on others to join it in denouncing sale.

Logo for Internet Society Netherlands

Shortly after Internet Society (ISOC) announced a deal to sell Public Interest Registry (which runs .org) to a private equity company, ISOC sent a notice to its local chapters telling them not to talk to the press about the sale:

…You can address any questions you are asked directly by saying that this transaction is between Internet Society (global), PIR, and Ethos Capital, and that as a Chapter of the Internet Society you are not in a position to comment on the news. Instead, please refer these questions to your main contact at the Internet Society…

Some ISOC members still privately denounced the transaction, and now one affiliate has publicly broken ranks.

The Netherlands chapter of ISOC released a statement objecting to the sale.

It states (in part):

We believe that the 2019 decision of ISOC Global to sell PIR to private equity firm Ethos Capital is not in line with ICANN’s criteria from 2002 and the subsequent promise from ISOC Global. Despite ISOC Global’s assurances to the contrary, we share the misgivings of the international community about giving a single privately owned entity the power to raise tariffs, implement rights protection mechanisms possibly leading to censorship, and suspend domains at the request of local governments. We also fear that ISOC Global’s reputation has been severely harmed by even contemplating this transaction.

We therefore call on ISOC Global’s leadership to reverse this decision immediately, and do its utmost to restore faith in ISOC as the one global organisation that through its many professionals and dedicated volunteers sincerely strives for an internet for everyone.

The statement calls on other ISOC chapters to join it in publicly denouncing the sale.

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13 Comments Tags: .org, Internet Society, ISOC, pir, public interest registry, topstory

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Top Stories

  • 01.

    Should GoDaddy acquire .Org?

    POSTED UNDER Domain Registrars

  • 02.

    ICANN delays .Org sale approval, calls for more transparency

    POSTED UNDER Policy & Law

  • 03.

    Ethos paid $1.135 billion for .Org

    POSTED UNDER Policy & Law

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