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6 lawmakers urge ICANN to reject .Org sale

by — Policy & Law 9 Comments

Warren, Wyden formally ask ICANN to reject sale.

Photo of Elizabeth Warren

Elizabeth Warren is one of the lawmakers asking ICANN to reject the .org sale. Photo from ElizabethWarren.com.

Six U.S. lawmakers have asked (pdf) ICANN to reject the sale of .Org to Ethos Capital, a private equity company.

The lawmakers include presidential candidate Elizabeth Warren, Rony Wyden, Richard Blumenthal, Edward Markey, Anna Eshoo, and Mark Pocan.

In a letter to ICANN, they provide a litany of reasons that ICANN should reject the deal. One is that they believe the new owners will raise prices and cut costs as a way to pay down debt and return funds to investors.

They point out that, even if Ethos raises prices 10% a year on average, this is three times how much PIR has traditionally raised prices.

The letter concludes:

The proposed sale of .ORG is against the public interest and would violate ICANN’s commitment to “preserve and enhance .. . the operational stability, reliability, security … and
openness of the DNS and the Internet.

ICANN has previously said that it doesn’t have authority over the deal. While it can technically not consent to the transfer, its approval can’t be “unreasonably withheld”. What that means is open to interpretation.

Surprisingly, Republican Ted Cruz has not chimed in on the matter. Given his stance about the U.S. controlling ICANN, you’d think he’d be all over this issue.

Vint Cerf and Mike Godwin follow bad talking points for .Org deal

by — Policy & Law 22 Comments

Pricing and investment arguments are wrong.

Logo for .org domain, featuring a blue circle with white letters spelling ORG
Ethos Capital and Internet Society are working overtime to spin the deal to sell .org for $1.35 billion as a good thing. There are certainly some good things about it, but I cringe when I read certain talking points.

One is around pricing. Yesterday, from ISOC board member Mike Godwin:

But could it be at the public’s expense? What about the argument that the prices for domain-name renewals will soar? This argument ignores common sense — you don’t take over a successful business and price most of your customers out of the market or spur a mass migration to an alternative product. Not only would that permanently destroy any faith in .ORG — the business you just bought — but it also would undermine TLDs generally. (I’ve suggested, not entirely jokingly, that the proper response if anybody tries to extort huge renewal fees for .ORG is to launch a mass one-time conversion to the .WTF top-level domain. I’d happily lead any charge in the .WTF Resistance.) In any case, demand for TLDs isn’t inelastic, despite what the deal’s critics say — there are hundreds of TLDs and customers aren’t locked in. It takes only a few minutes of studying PIR’s year-by-year financials to see that jacking up domain-name renewal prices in the way the critics fear would be suicidal for PIR or any other registry that depends primarily on predictable renewal rates, and it would destroy the value of .ORG as well. I don’t think any of the companies that sought to buy PIR were dumb enough to invest a billion dollars in buying the .ORG business in order to destroy it.

And from Vint Cerf:

Moreover, as a for-profit company, PIR has a clear rationale for not driving away its customer base by any excessive raising of prices. Given current .org pricing, a 10% increase in price would be less than $1. Even if an organization had registered a dozen .org domain names, it is hard to believe that such an increase would be viewed as unsustainable for most non-profits. Of course, companies that hold domain names in the tens of thousands for speculative purposes might find such increases more troubling, but I don’t have much sympathy for that business model in the context of the organizations the .org brand is intended to serve.

This thinking ignores the economics of domain names. Godwin suggests that .org customers aren’t locked in. OK, then ISOC should figure out what would be involved with switching from InternetSociety.org to InternetSociety.charity. It would cost lots of money and time, and the headaches from switching email would last for years. True, there is price elasticity to domain demand. But for renewals, it takes a huge price increase to change demand.

Cerf is correct that most charities won’t blink an eye at a $1 increase in the cost of renewing their domain name, at least in the first world. But this assumes that Ethos and whoever owns .org in the future won’t raise prices more than 10% per year. Calling on Godwin’s words, jacking up .org renewal prices would not be ‘suicidal’ to .org. Even if renewals were $100 a year, it wouldn’t be worth the pain for most non-profits to switch.

The other issue I have is with the idea that Ethos can invest in .org to create new products and services for non-profits. It certainly can, but there’s no reason PIR can’t under the current arrangement. Cerf writes:

Second, when the operation of .org was transferred to the Internet Society, it created the non-profit called Public Interest Registry, or PIR. PIR’s primary objectives were, first, to operate .org and, second, to provide significant support for the Internet Society by essentially allocating any surplus from the operation of PIR to fund the Internet Society’s work in promoting a more accessible and secure Internet. This amounted to about $50 million a year, which was hugely helpful to the Internet Society but limited PIR’s ability to invest in improvements to the operation of .org or even the creation of new products and services for the non-profit community.

The idea that Public Interest Registry is cash-strapped because it has to send its profits to ISOC doesn’t hold water. PIR has been able to increase prices 10% per year for the past decade but hasn’t always done so. If it raises prices 10% this year, it gets another $10 million in its bank account that ISOC isn’t depending on. That’s not enough to invest in new products or services?

This isn’t to say the deal isn’t good for ISOC. Godwin does a good job explaining that domain name revenues aren’t certain, and this endowment gives ISOC certainty. That’s a selling point for ISOC and its constituents. But let’s be honest about possible ramifications of this deal.

My thoughts on .Org

by — Uncategorized 20 Comments

ICANN made it possible for this transaction to happen. There’s only so much the internet community can do now.

Pink background with grey/white thought bubble and the words "Thoughts on .org"

It has been two months since Internet Society (ISOC) announced that it was selling Public Interest Registry (PIR), which runs .org, to private equity company Ethos Capital.

There have been many revelations since then, including that former ICANN CEO Fadi Chehadé is advising Ethos, Ethos is run by the same person who led Abry Partners’ deal to acquire Donuts, and that Ethos is paying $1.35 billion for the assets. The deal comes on the heels of ICANN removing price caps on .org domains, meaning that PIR can raise prices as high as it wants for .org registrations and renewals.

I’ve written numerous articles about the deal, and I imagine my bias shows in these pieces. But I haven’t summarized my thoughts on the deal until now, including my two main concerns about the transaction.

This deal is going to happen

In my annual predictions podcast, I said that I believe the Ethos deal will go through. At this point, the only thing I think that could trip up the deal is delay. Some Senators say they plan to step in, and ICANN is asking questions. But assuming the deal is good enough for Ethos (and I believe it’s a great deal), I expect it to outlast any delays and complete the transaction.

Even if ICANN doesn’t like the deal, there’s not much it can do to stop it. Can it reasonably withhold consent, per the contract? I’m not sure on what grounds it can do so.

Recently, a group formed and asked ICANN to hand the reins of managing .org to it. But there’s no provision in the .org registry agreement that would allow ICANN to do this unless ISOC were to proceed with the transaction without ICANN’s blessing, which it wouldn’t do.

Should ICANN not give its consent to the transaction, I imagine there would be a legal battle. If it goes ICANN’s way, then it just means that ISOC continues to own PIR and the .org registry contract, not some other party.

If ICANN were to find grounds to transfer the registry contract to someone else, then all of ICANN’s registry contracts have a problem.

Blame ISOC or ICANN?

If you don’t like this deal, you might blame ISOC. After all, it’s the one that agreed to the transaction. It is exchanging $50-$75 million of cash each year in perpetuity (not guaranteed) into a lump sum of $1.135 billion. It probably makes financial sense for the non-profit, although you can make a good argument that it threw internet users under the bus to make it happen.

At the same time, it’s ICANN that made this deal possible in the first place.

I believe that the registry operator for .org and other legacy extensions should be looked at as a steward for the extension, not the owner of the extension. But that’s not what the contract states and ICANN has moved from the stewardship to ownership model over the past 10-20 years. Granting presumptive renewal, removing price caps, and making it easy to sell the contract to someone else has turned the stewardship of these top level domains into ownership.

ICANN awarded the .org contract to ISOC in a competitive process. But its contracts never required .org to be run by a non-profit. It also designed its agreements so that the registry contract could be sold to another entity. This was made more clear when ICANN decided to use its new top level domain name base agreement for .org. This agreement was built with transferability in mind.

So it’s easy to be angry with Ethos. Or ISOC. But if anyone is to blame, it’s probably ICANN.

It’s a savvy deal

I suspect there’s a bit of jealousy of Ethos. When I told some friends about the deal and how it was structured, they were shocked that no one else thought of it earlier. Perhaps no one thought of it sooner because they didn’t have former ICANN CEO Fadi Chehadé’s background. He’s advising on the deal.

It seems that Ethos did the deal in a way that ISOC couldn’t reveal it until it was inked. It knew that, if it were made public beforehand, the pushback would have imploded the deal. Ethos also put time constraints on the deal that made it difficult for ISOC to shop it.

Any way you look at it, this deal should be a home run for Ethos.

My issues with the deal

There are two things I don’t like about the transaction.

First, it raises greater concerns about the lack of price caps on .org. After ICANN removed the price caps this summer, PIR noted that it didn’t always raise prices 10% a year anyway, even though it was contractually allowed to. Now, Ethos is giving assurances that it won’t raise prices more than 10% per year on average. Even if it’s true to its word, prices will increase more in the future than they did in the past. And once Ethos sells the registry to someone else, what will they do?

You can argue that my reason for wanting price caps is selfish. I own only about 10-20 .org domains, and I will pay more for the domains in the future.

That’s not too much money, though. Although my reasons are “selfish,” it is for the domain name ecosystem at large. My concern is what the lack of price caps does to domain names as a neutral way to publish on the web. Domain names are the great equalizer; Facebook can charge people to reach their audience on Facebook, but anyone can publish what they want on a website connected to their domain name.

If registries significantly increase renewal fees, people will be forced to switch domain names or shut down. Switching domains is very time consuming and difficult. This could make domain names lose their luster and role as an equalizer in the future.

Frankly, I don’t care if ISOC or Ethos or someone else gets the money from registry fees. I just want price certainty for the good of the entire domain ecosystem and the World Wide Web.

My second concern is that this deal makes the domain name industry look bad. We have the former CEO of ICANN advising a private equity company on taking over a top level domain that was entrusted to a non-profit. That makes excellent fodder for the public to say something fishy is going on in the domain name world.

What can be done

Even though I view the deal as a certainty, there is one thing that internet users or ICANN can push for: price certainty.

Ethos could agree with ICANN to reinstate contractual price caps. I don’t think there’s any way for ICANN to force this, but it would show that Ethos is serious about keeping prices in check. If nothing else, renewal fees must have certainty.

An alternative would be for PIR to amend its registry-registrar agreements to include price controls in perpetuity.

As for the domain industry looking bad? That ship has sailed. Thanks, ICANN.

 

Top Domain Name Stories

by — Uncategorized 0 Comments

A look back at 2019, including December’s top stories.

Top 5 etched into a rubber stamp

The domain name industry finished 2019 with a bang, and it’s off to the races in this new decade. What will be in store? Listen to the 2020 Predictions Podcast for forecasts from 15 different people.

Over the holiday break, I published analyses of some of the top stories in the domain name business last year.

Of course, the big news was a private equity company announcing plans to acquire .org after ICANN lifted all price caps.

Other top stories include Alpnames shutting down and a  record-smashing domain sale. On the lighter side, a lot of dead people got domain names in 2019.

Also, I hope you are enjoying having Kassey Lee cover the Chinese angle on domain names for Domain Name Wire. It seems that people like his stories; 2 were among the top five in December!

China can be mystifying to people like me, so it’s great to have Kassey breaking down why specific domain names are worth more than you think. He’s also analyzing the market for certain TLDs in China and much more. You can read all of his stories here.

Here are the top five stories from last month, as ranked by pageviews:

1. A four character domain for $16,500? Here’s why – Kassey Lee breaks down why 23ZW has meaning to this Chinese company.

2. Namecheap adds cool new feature to domain search – It could help domain name investors.

3. This elite startup uses a long numeric domain – Another story about a Chinese company’s domain name was popular this month.

4. This is how thieves trick customers into wiring money to them – Thieves use typo domain names to trick people into wiring money that is due to another party.

5. A fractional domain ownership idea – Aron Meystedt offered shares in his domain NNR.com. Expect more fractional domain ownership opportunities in 2020.

Miss a podcast? Listen now

2020 Predictions episode – hear predictions about the domain industry from 15 people.

Sending out the Bat-signal – Learn how to get someone’s attention to do a domain deal.

Last year’s predictions – Listen to the 2019 predictions episode to see who was right and who was wrong. One of my predictions just came true: Verisign will pay ICANN as part of a deal to raise prices on .com domains.

Doron Vermaat – The Efty co-founder talks about domain sales trends and landing pages.

Top Stories: Private equity company acquires .Org

by — Policy & Law 4 Comments

Ethos Capital acquires .org for $1.135 billion.

Graphic rectangle with blue and black background and the words "PE Company Acquires .org" and "Top Stories"

The biggest shock to many people in the domain industry in 2019 was Ethos Capital acquiring the .org registry contract from Internet Society for $1.135 billion.

The deal was announced soon after ICANN removed price caps on .org domains, meaning that Ethos can charge whatever it wants when people register or renew a .org domain.

Non-profits, including some of Internet Society’s own chapters, are obviously upset about this. So are registrars and registrants.

The deal was put in motion by former ICANN Fadi Chehadé. He left ICANN and joined private equity company Abry Partners as an advisor. He advised the company on its acquisition of Donuts. On the Abry side, partner Erik Brooks worked on the Donuts deal and became a board member. Then Fadi advised Brooks on acquiring .org, which Brooks is running through Ethos.

That the former ICANN CEO is now profiting from the industry he oversaw (and some of the things he put in place) leaves a bad taste in many peoples’ mouths.

For its part, Ethos has said what it needs to say to get the deal done. It will maintain reasonable prices. It will work with the community on their concerns about censorship. It plans to hold this investment for a long time.

But, so far, none of this is contractual. Once ICANN gives the green light, Ethos can do whatever it wants. It can flip the registry in a year for more money. It can raise prices as high as it wants to.

ICANN has postponed its approval, but I expect this deal to ultimately go through.

It won’t be the end of the world as long as Ethos and subsequent owners keeps prices in check. If it doesn’t, the stability of the DNS will be impacted.