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A Pragmatic View on the .org Sale
I’ve been reading with interest about the sale of the .org registry by the Public Interest Registry (PIR) to Ethos Capital. The value of the deal is just shy over $1.1 billion and if you are to believe some people, the deal was done in a cesspool of corruption and scandal.
What's in it for PIR? They are now funded to do good for the Internet in the long,long,long-term future without having to worry about running a registry. Could you imagine being on the board of PIR, facing the prospect of another round of extensions being released by ICANN and then having a billion-dollar opportunity fall out of the sky and into your lap? You would be crazy not to seriously look at it!
Now let’s think about the numbers for a second. A typical .org domain sells for $10 (to make the maths easy) and since they have roughly 10 million domains in the registry then .org generates a top line revenue of $100 million per year. Of course, this is shared with the registrar in a variety of different agreement structures but let’s imagine that it wasn’t.
By paying $1.1 billion for the business either Ethos Capital is possibly going to be looking for a long-term hold (ie. north of 11 years) of the business, plan on growing the number of domains or there is some other reason they purchased it.
Growing the registry is a long, hard road. The entire domain space grows by about 5% per year and .org is a small percentage of that. If they managed to grow by 200,000 domains (ie. 2% per year) it would be a miracle. This would only add $2 million to the top line revenue and doesn’t really change the ROI economics that much for Ethos Capital.
If I had a spare $1.1 billion, I would need more reasons to invest it into a domain registry than what appears on the surface. This got me thinking…..what else does a long-established domain registry have? And then it hit me….they have data.
If you ask me, the untapped value of a domain registry is all the DNS requests. These requests provide a snapshot of real human behaviour and the last time I checked; human behaviour influences all commerce. So maybe the Ethos Capital strategy is to mine the data and then flip .org to a hedge fund? Just a thought…..
If you read online, amongst all the machinations of a big deal like this are juicy conspiracy theories and gossip. Some are so far fetched that they would even shame an episode of "Gossip Girl" in their confounding audacity!
Such as the founder of Ethos Capital is Erik Brooks and he left Abry Partners earlier this year, which is the same firm that purchased the domain registry business Donuts. Also, the .org deal involved the former CEO of ICANN, Fadi Chehadé….how shocking!
I’m sorry but who cares? If you leave an investment company to start your own firm, then of course you’ll go after opportunities that you know about! Likewise, Fadi knows about the domain industry so why wouldn’t he try and earn a dollar by working in an industry that he knows?
Besides this, does anyone honestly believe that wealthy investors and institutions would fund a deal like this if there was any level of impropriety? If they did then it will come out in the end and everyone can tell me I was wrong but for now these two individuals haven’t done anything wrong…..so my advice is to stop all the conspiracy theories and speculation.
The one tangible fear that domain investors have is that .org will suddenly increase their prices. If your business depends entirely upon someone else not doing something, then you haven’t mitigated your risk far enough. There are many, many other extensions (with more on the way) that investors can buy into if they honestly believe that a .org price increase will threaten their livelihood.
From a number’s perspective, increasing the price by as much as 30% will hardly budge the ROI for Ethos Capital. I wouldn’t be surprised if they still didn’t do it though….it’s free money with little downside risk. I don’t imagine that many not for profits will drop their domain because of a few dollars added to the annual price.
If you have big, well-funded players stomping up lots of cash to purchase assets in our industry then it’s a great endorsement of its health. In my opinion, this is a deal that each of us should be excited about rather than bemoan…..you never know, some of the cash may splash in your direction.
Comments
"The one tangible fear that domain investors have is that .org will suddenly increase their prices. If your business depends entirely upon someone else not doing something, then you haven’t mitigated your risk far enough. There are many, many other extensions (with more on the way) that investors can buy into if they honestly believe that a .org price increase will threaten their livelihood."
That is not just a fear to domain investors. Now price caps have been removed, while ICANN completely ignored the community feedback, the .ORG registry is in the hands of a private equity firm. There are no registrant protections in place.
This firm has many obvious shady connections to former ICANN leadership and insiders. It is clearly a revolving door here. ICANN is subject to regulatory capture.
Is there anything stopping the registry from charging thousands of dollars a year if they wanted to?
Is there anything stopping them from charging individual premiums?
Is there anything from stopping the registry from being flipped to another company that might have different polices when it comes to pricing or censorship?
"Trust us" is not a protection.
ORG is a legacy extension have have been around since the dawn of the internet.
.ORG predates the new gTLD's and should not be shoved into that box.
What has happened here is simply not right. It is placing one stakeholder above the other millions.
There is no secondary option for registrants. An .ORG registrant with many years of history can't just easily switch to some other extension. It is silly to even suggest that.
While technology costs are driving operating costs down, the cost for registrants are going up thanks to a de facto monopoly. That is not right.
Brad
I tried to write this article with a very pragmatic perspective. I didn't say whether I liked the outcome or not....only that I was being pragmatic about the various aspects of what has happened.
This means, I viewed how the sale would potentially impact my own business and unless .org was goingt to do something really silly with the pricing then I came to the conclusion that it would have little impact.
That being said, pricing based upon metrics such as perceived success of an online business would be VERY BAD for the Internet. For instance, what is google.com actually worth? $10/year or would they pay millions per year?
Definitely agree with you that "trust us" is not a protection.
pragmatic???
i think you lose the concept Vinf Cerf gave .org to the Internet Society, then said we should cash out.
Now we've we lost a Verisign competitor to show registry prices are less than what they were, lower .org prices, reasonable stewardship. and moves to make the standard registry agreement better for registrants..
they are a society doing whats best for them, then telling us what's best for the internet
the phrase is dont piss down my back and tell me its raining...
Page
The question is whether the Internet Society should run any registry....or whether they should use a war chest to promote the Internet and defend the rights of ALL registrants.
I never saw .org as a Verisign competitor. I'm also a firm believer that if a legislated monopoly raised prices or dramatically changed payment terms (see comment above on google.com) then there are appropriate legal ways of dealing with the problem.
Well thought out and fair enough assessment.
But couldn't Ethos just as easily reduce prices by a few dollars, put some marketing effort into bringing more users online, growing internationally, our industry, making the Internet more diverse, inclusive and vibrant. Everyone would thrive, not just Ethos Capital. Grow the pie, not just slice it up for themselves to hog up.
That is the dot org spirit. The dot org/nonprofit spirit is not to raise prices as high as the market will afford and then milk dot org like a cash cow.
How is that good for the registrants? For the prospective registrants overseas for whom $15 or $25 really does make an impact financially? Won't it just chase them away from domain names and on to stand-alone platforms such as Facebook.
Do you think that is good for the domain industry as a whole?
Change is always a trying time.....and we all get a little nervous.
I don't think .org will reduce prices but I also don't think they will massively increase prices either. To get the ROI on the acquisition then need to keep the traffic flowing to the DNS and look for a more innovative exit.
At this stage I'm not sure if it's good for the domain industry as a whole. I think there are two main aspects to the domain industry.....investors and consumers. Consumers won't really care if there is a 30% increase in the price of a .org....investors will. The challenge for the registry is that around 30-40% of domains are held by investors....so it's a juggling act of how much they get the investors offside while still extracting the maximum amoun of profit.
The problem is injecting additional costs destroys the fabric of the DNS. People who want to simply share their passion and contribute to global knowledge will be deterred. They will either not bother at all or simply use one of the dominant Internet Companies walled platforms for their message. (And this problem is compounded in countries with low wages and/or a poor exchange rate for their local currency against a strong USD.)
Injecting unnecessary costs is like taxation it dampens activity. There is only one thing worse than a public monopoly – that’s a private monopoly.
Good points.....about privately monopolies.....
I personally don't think changing the price of a .org by X% will alter whether an individual will buy the domain to express themselves. Individuals may instead purchase one of the other options. The domain space is now HIGHLY competitive and there are many, many other options in the new gTLD world to purchase if you wanted to have your own domain rather than be a part of a walled garden.
"The question is whether the Internet Society should run any registry.."
i think again that discounts the reason Vint Cerf used to give .org to the "trusted" Internet Society, over lower and better bids.
One of ICANN roles is to promote competition, and putting .org out to non verisign owner showed exactly what it should have, that registries, especially as they grow, should have decreasing costs.
BY instead allocated those spread between revenue and expenses o itself, and now proving a template for .com to do the same, this money grab hurts all registrants.
Thats why it stings they are using the gift to profit..at the expenses of .org registrants... and all registrants.
Furthermore they do add a new player in the cost or .orgs, the private equity company and its need to repay the billions.
So its like parents give their kids money to go to the movies, they get to the theater and the movie is free. For my money when the parents pick them up, they shoudl give the money back to their parents, but here they kept it.
and now, In this case, its as if they get to the theater, and sell the ticket to a scalper and keep the additional money.
The economic profits for managing .org weren't the Internet Society's to give.....
Thats why their is a change of control 30 day window, but ICANN assumes it will abdicate its duty.
And furthermore, the lack of following process on the price increases, (disregarding public comment) means that ICANN itself is now a threat to the safety and security of the internet... because it enforces agreements on everyone in the ICANN sphere,, except itself.
My question to the Internet Society members is does their group stand for the principles of fairness and the good of registrants.. or of themselves. I think in this one transaction they lose their supposed moral high ground in any and all matters going forward... because when they had the chance they didnt ask according to their charter.
Page Howe
What will be interesting is whether the price of a .org actually does go up.....I think it will but there isn't any facts around this situation at the moment.
This transaction is hitting close to the nerve for a lot of people. To many people with longstanding experience in the industry, it does not look or feel right. Not just domain investors, but folks at ISOC too.
And just look at the tons of negative mainstream press covering this story. Look at any of the articles and the same shady issues are raised in every one, and the comments show the skepticism of disappointed and doubting readers. Trust in the domain industry - both from inside and outside the industry - is taking a big hit from what has transpired since this secretive deal was dropped on us all like a bombshell.
The price hike issue is one of the problematic aspects of the transaction, but it's almost beside the point.
The proposed sale is dividing the tight-knit dot org community; opening eyes to the injustices being heaped upon registrants by - among others - ICANN; causing people to look deeply at how things got the way they are and whether it is truly right (see Page Howe's comments on how ISOC managed to receive the rights to operate dot org from ICANN and please research more on your own whether ISOC has the right to sell dot org and pocket all the cash); and sowing deep doubts in ICANN's ability to fairly administer oversight of the domain industry.
It is sad to see the domain community so divided by a simple transaction. Unfortunately, the fault lines have been active for quite awhile, and the in the dark of night style of this dot org grab, orchestrated by a former head of ICANN head in conjunction with a little known private equity firm making unsubstantiated promises while avoiding putting any in a contract is setting off some pretty serious tremors.
People are right to be concerned.
This transaction needs to be reviewed and debated before it can be allowed proceed. Most importantly - it needs to be ACCEPTED by the community.
Otherwise there will be lingering resentments that threaten the cohesiveness of the domain community for many years to come. Not to speak of the distrust toward one of the "purest" extensions our industry has managed to grow over the years. Much damage has already been done.
You raise some very valid considerations and some of them I also have but here's where I believe they come undone.
1. How much is this issue actually impacting me personally?
2. Am I prepared to take personal action?
3. If I do take action will it make a difference?
If I can't answer the third question in the affirmative then I find myself taking a big gulp and then pushing onwards to making decisions that will directly impact my business for the positive. This is a pragmatic approach.....but here's the flip side of this approach.
Unless people of good conscious stand up and say "No" then evil people will continue to get away with bad behaviour......which in this case means that maybe more domain investors should get involved in ICANN. At this point most investors would rather do anything else than that.....sigh....
Many thanks for your input....it was very thought provoking.