Is the domain name industry ready for radical inovation?

30-04-2014

Andy Churley

Encouraging novelty is one of the driving forces behind the new gTLD programme, but that doesn’t mean the domain industry is ready for dramatic change just yet. Andy Churley investigates.

Growing up in the south west of the UK, I was always surrounded by prodigious feats of engineering. If you visit Bristol, you will be amazed at the Clifton Suspension Bridge. Designed by one of my engineering heroes, Isambard Kingdom Brunel, and hanging 250 feet above the River Avon, it is an awe-inspiring sight. 

Why is Brunel one of my heroes? It’s not just that he could turn his hand to almost anything (he built bridges, tunnels and ships, among other things)—it is that almost every engineering project he undertook involved radical innovation, solving longstanding engineering problems in unique ways. He introduced ‘broad gauge’ rails on his railways, he built the first tunnel under a navigable river, to name but two of his feats.

Innovation on the internet

Years later, working in the domain name industry, I find myself looking at innovation from a different viewpoint.

There is a quiet revolution on the internet: a new naming convention where websites can end in almost any letters rather than the old style .com, .net or .org. This change, known as the generic top-level domain (gTLD) programme, has been seen by many as a playground for fresh thinking and innovation online.

ICANN, which regulates domain names, cites the capacity for innovation as one of the reasons for expanding the number of gTLDs.

If ICANN is to be believed, new gTLDs should provide fertile ground for internet innovation—but is that what the majority of domain name consumers (especially corporations) or those that advise and support them need, or even want?

While many have described the internet as the new ‘Wild West’, the truth is different. The underlying internet is an ultra-stable and resilient technology platform that allows people the freedom to innovate on it. Without the internet’s stable technology, there would be no Wikipedia, Facebook or Twitter. And without a regulated domain name system (DNS), there would be no online banking or internet commerce. Instead of having a Facebook profile, you might have a ‘173.252.110.27’ profile, which is not quite so snappy.

Keeping the internet’s root zone completely stable is the overriding principle of the new gTLD programme. Thousands of technical and non-technical issues, some serious and many others trivial, have been raised to the appropriate committee for action and, where no such committee existed, special committees have been formed. It has taken nearly 10 years to get to the stage where the first new gTLDs are now launching on the internet.

Types of innovation

What kind of innovation are we seeing and how will it alter your advice to clients on their domain name registration strategies? According to management textbooks, there are many types of innovation, but I have listed four:

•  Product innovation: changes in things, such as reversing sensors in cars;

•  Process innovation: changes in the way in which things are created or delivered, such as movie downloads to your television;

•  Position innovation: changes in the context in which things are perceived or communicated. Jeans, for example, are no longer work wear—they are now fashion items; and

•  Paradigm innovation: changes in the essence or nature of what a business or sector does, such as mobile phone manufactures no longer manufacture phones, they manufacture ‘smart lifestyle devices’.

With the introduction of new gTLDs, the temptation for radical and disruptive business process and sales innovation by registries and registrars has been overwhelming for some people. What types of innovation are we seeing?

Product innovation

A number of registry operators are allowing trademark owners to pay to ‘block’ domain names from being registered if they contain their trademark terms. The domain name term will not resolve or be in the DNS, so is  therefore  not a domain name.

For trademark owners, this may seem an interesting type of innovation, since registering domain names defensively is a costly and complicated business. However, blocking a name isn’t quite as final as its title implies. For example, another trademark owner with the same mark in a different market sector can register a blocked domain, overriding the block. Once the name is registered, the trademark owner that issued the block loses all control over how the domain name is used, potentially forever.

In addition, a blocked name is a non-producing asset. Registrars cannot provide supporting products (such as web hosting), there is no economic activity associated with the brand behind that domain name, and the trademark owner loses any chance to drive traffic and create asset value from a website using the domain name.

My advice to brand owners is straightforward: if your goal is to increase the value of your trademark online then register your marks in sunrise periods and use them to create value. If your goal is simply to prevent others from using your mark on the internet, blocking may possibly meet your short-term requirements.

Process innovation 

The domain name industry has an accepted registry launch protocol. First comes the sunrise period (typically 30 to 60 days), which affords rights owners preferential access to register their marks as domain names. A landrush phase (usually 30 days), during which domain names are registered by early adopters (usually at a premium price), follows. Finally, comes general availability, when domain names are registered on a first-come, first-served basis.

One example of process innovation by some registries is what is known as ‘early access’, where a short landrush phase is introduced (usually seven days or less) with a premium price of, for example, $12,500 per name on day one, $3,000 on day two, $1,200 on day three, etc.

It is a bit early to say whether this novel landrush model will gain enough traction with brand owners and domain name speculators to become the norm, but it doesn’t look likely.

Position innovation

A .com domain typically costs around $10 per year. New gTLDs are more expensive, in the region of $25. However, a few registries have annual domain name renewal prices of around $1,000 to try to uphold the exclusive nature of the TLD. One new gTLD has an even more innovative positioning. It has registration and renewal fees for the first two years comparable to the average new gTLD, but in year three the renewal fee shoots up to above $30,000 in order to encourage the recycling of domain names.

How well has this innovation gone down with the domain name industry? To date, only two of the 1,000 ICANN-accredited registrars have signed up to market the gTLD. Maybe the restricted route to market will support such a novel business model, but only time will tell.

Paradigm innovation

Some registries have spent a huge amount of time, effort and resources building their own back-end registry systems. Others have been making similar efforts to provide registrants with a ‘soup-to-nuts’ experience by bypassing the registrar channel entirely and allowing them to benefit from undiluted revenues and lower operating costs. For example, some registries have set up their own ICANN-accredited registrars to promote their gTLDs directly to consumers as their own registrar. 

Only the very large portfolio gTLD applicants may have the momentum and funds to make this approach work. However, the registrar channel is very well established and it will be an uphill struggle for registries adopting this approach. Not being supported by the registrar channel will seriously impact the early success of any new gTLD, no matter how great it is.

This may mean we will see some gTLDs run out of steam sooner rather than later. Some registrars are already being very picky about which registries to support. These ‘unadopted’ strings are more likely to be absorbed by large portfolio applicants or simply fade away. When advising on a registration strategy, it is important to pick the gTLDs that look as though they will maintain or increase their value over time.

One of the often-overlooked indicators is not just whether the gTLD is a ‘strong’ term and a match with a brand owner’s business, but who is operating the gTLD. Large portfolio applicants typically have the resources as well as the expertise to build stronger gTLDs than single applicants in the long term. Strong registries, with a strong distribution channel, are a good indicator of long-term success. 

It’s about timing

Undoubtedly we will see a whole host of innovations in the domain name industry over the coming years, benefiting registries, registrars and registrants. However, the challenge with innovation is as much about timing as it is about the innovation itself.

I regularly ask myself: “Is now the right time for radical innovation in this industry?” Invariably, I find myself answering in the negative. I believe there will be a time for fundamental innovation in the domain name industry, but I do not believe that time is now.     

Andy Churley is chief marketing officer at Famous Four Media. He can be contacted at:
achurley@famousfourmedia.com  

gTLDs, domain name registries, trademark, branding

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