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Logical Deduction on Why New TLDs Will Not Increase Costs for Trademark Holders

Bhavin Turakhia

Paul Stahura published a great report demonstrating that trademark holders have historically not been blocking their names across multiple Top-Level Domains (TLDs). I have always been a fan of number crunching — "numbers never lie".

Since Paul has already done a remarkable job of statistical analysis, I am going to wear my theorist hat and prove a reworded form of the Hypothesis using logical deduction and common sense.

Hypothesis – Introduction of new TLDs will not increase the sum total registration cost that trademark holders need to spend on domain names.

Methodology – Logical deduction.

Fact:
There are currently over 280 TLDs of which a little over 250 are ccTLDs in the IANA root zone.

Assumptions:
Individuals and companies spend money for economic gain. Therefore whether a registrant is an organization, a speculator, a cyber squatter, or a phisher, their purpose in registering a domain name is to derive economic gain that outweighs the cost of the domain name.

Description:
Let us start by analyzing why one would want to register a domain name in each additional TLD outside of the primary TLD that they use for their business. Lets take the example of a company — Extra Cautious Inc. — who uses the domain name extracautious.com. They now need to evaluate whether it makes sense for them to register the string extracautious in other TLDs. Here is the reasoning that the CFO of Extra Cautious Inc. would go through.

Traffic expectation:
It makes sense for the CFO to register extracautious.biz or extracautious.info in case an adequate number of people are expected to type in extracautious.biz in their browser directly. The number of type-ins needed to make it worthwhile to register this domain name is negligible given that .biz and .info domains cost substantially under $10 per year. If there is a clear traffic value to be derived, then as Paul has pointed out in his elaborate report, the registration of this additional domain name is not a cost but rather a revenue generation opportunity for Extra Cautious Inc, who otherwise would have missed out on the hits. Therefore in case of a Traffic Expectancy the hypothesis above holds true.

Source of traffic:
A typical website gets traffic in two ways. Either through direct type-ins, or via hyperlinks. Both the former and the latter are primarily a function of the domain name that an organization promotes. When Extra Cautious Inc. promotes extracautious.com as its website on its stationery, advertising etc., it expects people to type in that domain name to reach their website. It also expects search engines to index that domain name, and other directories and websites to link to that domain name. In other words traffic through type-ins and hyperlinks would directly end up on their website.

Next let's explore the possibility of direct type-in traffic on other TLDs. Users on the Internet type-in a domain name directly if they expect to find the website or information they were looking for. The most common case of this is appending a .com to a company/product name. It is common behavior on the Internet to append a ".com" to the end of a company name to look for its website. In some cases people even append a .net or a .org. However, given Google magic, that is the limit of a user's patience. One does not have to be Einstein to conclude that no users are trying out 280+ TLD combinations to get to a company's website. It can therefore be assumed that if 50 new TLDs, each quite different sounding from the other, were to be launched, that users on the internet would not begin to iterate through those 50 TLDs to find a company.

ccTLDs type-ins:
In fact the only other type of domain that tends to get type-in traffic is ccTLD equivalents. This is based on two behavior patterns. Users seeking for a company that they know is based in India, could try to reach that company's website by appending ".in" to the company name as a last resort after attempting a .com / .net / .org search. Similarly, users from India, who are used to seeing ".in" domains may append ".in" to a company name (e.g. dell.in) to find its local website. By this logic, many companies should ideally have registered their domain names in several ccTLDs, especially those of highly populated countries like India and China. Yet the TLD Zones of these ccTLDs have little overlap with the global trademark registry as well as with the .com zone, barring generics and some fortune 500 companies.

Many new TLDs have a specific purpose:
Add to this the fact that many of the proposed new TLDs have varying creative purposes. We have heard of business models such as .wiki, .blog etc. which have such specific purposes. Type-in traffic on those TLDs for a specific trademark such as Extra Cautious Inc, is highly unlikely, since users would not expect Extra Cautious' website to be available at extracautious.wiki.

No traffic expectation:
Going back to our first point — in case no one is expected to type in extracautious.newTLD, it makes little sense for Extra Cautious Inc. themselves to register extracautious.newTLD. This for instance applies to specific TLDs like .aero. Since extracautious is in the business of making fireworks ;) ... they do not expect any of their existing or potential customers to type in extracautious.aero. Similarly since Extra Cautious Inc. largely operates in the US, it may block extracautious.us but chooses not to block extracautious.in. The likelihood of individuals typing in extracautious.biz and extracautious.info ad-hoc is ZERO so they do not need to block those domains. If there is a traffic expectancy on any TLD option, it is a no brainer to block those domains since the potential revenue would outweigh the cost.

What about cybersquatters:
The next argument typically made by IP constituencies is that if a speculator / cybersquatter / phisher were to register extracautious.newTLD then they could create nuisance value and the company may be prompted to block their domain name (defensive registrations) to prevent this nuisance value.

It is important to understand that CyberSquatters / Speculators / Phishers register non-generic trademark domain names for specific economic reasons. Let's explore these.

Type-in traffic on trademark names:
If a trademarked domain gets type-in traffic, a speculator maybe prompted to register this domain to monetize the traffic. However in this case, as we have discussed before, a trademark holder themselves would wish to register it prior to a speculator since the revenue outweighs the cost. If a speculator can earn more than the cost of the domain name by simply monetizing traffic to that domain name, then it is assumed that the actual trademark holder can earn significantly higher revenue and therefore is not bearing any cost by registering his domain name in that TLD. Therefore Extra Cautious Inc. chooses to register extracautious.au since it has an office in Australia and expects type-in traffic from Australia. This is not an extra cost for them since through this additional domain they get traffic that they would have otherwise not received.

Defensive registrations to prevent misrepresentation or blackmail:
Some folks argue that even if a domain name has no traffic potential, speculators can choose to register the same to either fraudulently pretend to be the trademark holder (phishing etc.) or otherwise to try and sell the domain name to the trademark holder for a premium. Let's analyze both these arguments.

Mr Scrupulous registers extracautious.info and puts up a website on it to sell fireworks. He intends to spam thousands of users, pretending to be Extra Cautious Inc. and leverage on the advertising campaign of Extra Cautious Inc. to earn money. It can be argued that if Extra Cautious Inc. had registered their .info domain name this could have been prevented. However this argument is flawed, since Mr. Scrupulous could have registered extracautiousweb.com, extracautiousonline.com, extracautiousfireworks.com, extracautiouscrackers.com, extracautiousoffers.com, extracautiousshop.com and a gazillion other variants within the .com space itself. By this logic the CFO of Extra Cautious Inc. would need to register every combination of extracautious in the .com and .net and .org TLD spaces. Therefore new TLDs are no more expensive than existing TLDs when it comes to protecting one's trademark from identity theft/phishing. In fact I would go so far as to submit that phishers and spammers would rather register <company>online.com or <company>web.com or some such variant in the .com TLD space in order to commit identity theft, than to register a .info / .biz domain name, since .com domain names are easier to relate to for users. While I have conducted no statistical analysis, gut feeling tells me that one will find more variants of Fortune 500 company brand names in the .com TLD than defensive registrations of those trademarks in all other TLDs.

Let's take a look at the second argument, wherein Mr. Scrupulous registers extracautious.info with the sole purpose of reselling it to Extra Cautious Inc. for a profit. This has already been covered in our previous assertion. The CFO of Extra Cautious Inc. would only buy extracautious.info at a certain price if the expected profit from the purchase was higher, in which case the purchase does not result in a cost increase. Additionally, Extra Cautious always has the option of filing a dispute, instead of purchasing the domain from Mr. Scrupulous, and this knowledge is by itself sufficient to prevent widespread blackmail of this form. If extracautious.info is getting no traffic, then Extra Cautious Inc. has no reason to purchase extracautious.info either directly or from Mr. Scrupulous

Conclusions:
•  Trademark holders have no reason to register a domain name in a newTLD if the domain name is not going to get any traffic

•  Speculators have no reason to register a domain name in a newTLD if the domain name is not going to get any traffic, since they will be unable to generate revenue from it or sell it to the trademark holder

•  Spammers and phishers have adequate options for registering similar sounding domain names in existing TLDs without having to bother with new TLDs

•  Thus, it can be concluded that the Introduction of new TLDs is not increasing the sum total registration cost that trademark holders need to spend on domain names

By Bhavin Turakhia, CEO, Directi
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Who tells the truth to the trademark holder? Dirk Krischenowski  –  Feb 04, 2009 5:24 AM PDT

Pretty condensed analysis, Bhavin, I love this style!

But how to confront the trademark stakeholders with all the recently published articles. My idea would be to persuade them by numbers while they only have some arguments which are not based on any profound analysis.

@Dirk: Thanks for your kind remark. I Bhavin Turakhia  –  Feb 04, 2009 5:47 AM PDT

@Dirk: Thanks for your kind remark. I would rather focus our attention towards ICANN and the decision makers as opposed to the IP constituencies. ICANN is supposed to take into account all comments and make an informed decision. They can most certainly determine the rationality of arguments laid out before them.

Amusing George Kirikos  –  Feb 04, 2009 8:26 AM PDT

I find these multiple attempts to suggest that new gTLDs aren't milking defensive registrations very amusing. Indeed, some people openly factor that into their calculations:

I have to think you could bump into a couple thousand of those just from big companies protecting their brands.

Why don't you spin the analysis around, and look at why prospective registry operators want to run new gTLDs in the first place? Take that first assumption that you made "Individuals and companies spend money for economic gain." That statement applies just as well for prospective registry operators. This is why they lobby to reduce their own operating costs and application fees to negligible levels, levels that do not outweigh the negative externalities imposed upon the rest of the internet from those new gTLDs. And why they lobby to eliminate price caps, so that they could maximize profits.

Take a look at all the free .info domains, for example. Would you honestly try to argue that they've not increased the amount of spam, cybersquatting and other domain name abuse that companies have to pay to monitor and cleanup? Or, add up the total expenditures in sunrise periods for domains that simply redirect to the .com? Those are millions and millions of dollars, easily, if not tens of millions in aggregate.

The statement "Spammers and phishers have adequate options for registering similar sounding domain names in existing TLDs without having to bother with new TLDs." could also be applied to new business registrants, not just spammers. Certainly a new business looking for a domain can also register domains that are "similar sounding" to their business name, without having to bother with new TLDs?

Also, if you eliminated new gTLDs, as each of the domains for "Defensive registrations to prevent misrepresentation or blackmail" is taken down/registered in .com, there's one less "good" domain for a cybersquatter/spammer to use, especially in regards to typosquatting, SEO, etc.

So, essentially, prospective registry operators want to get cheap access to the 194,325 domains that get registered in any new gTLD (as per Paul Stahura's own numbers), and then auction them off in sunrise periods or landrush periods for more than what the ICANN annual fees plus application costs are, period. Basically a form of arbitrage, which any rational business would want to partake in. They "spend money for economic gain." Notice how they decry any attempts to impose price caps, because that would ruin the arbitrage, as all the benefits would then flow to consumers/registrants, rather than the new gTLD operator.

As per the DOJ letter, the way to maximize benefits for consumers is for the entire community to decide which new gTLDs, if any, should be added to the root zone. Then, operation of the registry can be tendered out to the lowest bidder for fixed periods of time. For example, if the entire community decided it would be nice to add .sports to the root, there would be a tender where Afilias, Neustar, VeriSign and other prospective new gTLD operators could bid to see who would run it at lowest cost. The "winner" would be the most efficient operator, and those economic benefits would thus flow to consumers who would pay a lower price. So, we might see Afilias bid $3/yr per domain, Neustar $2.50/yr per domain, and VeriSign $3.25/yr per domain, and some new entrant might be aggressive and bid $1.75/yr per domain. Repeat the process, and bidders would compete, lowering their prices on the next new gTLD, or in 5 years when the tender is reopened for the same gTLD.

I am not arguing for or against Alex Tajirian  –  Feb 04, 2009 12:40 PM PDT

I am not arguing for or against new TLDs. I too love modeling and statistics. I am only commenting on your analyses.

I have always been a fan of number crunching-"numbers never lie".

Since Paul has already done a remarkable job of statistical analysis,

I guess you are not familiar with the book How to Lie With Statistics by Darrell Huff. You also seem to be incorrectly using numbers and statistics interchangeably.

Individuals and companies spend money for economic gain.

You are missing the word "expected" economic gain. Thus, you need to go beyond numbers and into statistics.

In your traffic discussion, you are forgetting branding/signaling effects, as well as other sources of navigation such as major search engines, social network sites, Wikipedia, and domain name marketing in games.

If a speculator can earn more than the cost of the domain name by simply monetizing traffic to that domain name, then it is assumed that the actual trademark holder can earn significantly higher revenue

Not necessarily true. A brand-sharing domain name, even when it does not have offensive language or create brand confusion, may be worth more to a speculator than to the brand owner. Otherwise, the brand owner would buy it from the speculator for a win-win transaction.

• Trademark holders have no reason to register a domain name in a newTLD if the domain name is not going to get any traffic

• Speculators have no reason to register a domain name in a newTLD if the domain name is not going to get any traffic, since they will be unable to generate revenue from it or sell it to the trademark holder

These two conclusions are true by definition of value, ie, have nothing to do with your analysis. Moreover, they do not imply that some of the new TLDs are not expected to produce viable traffic. One example of a viable TLD is location-related. Nevertheless, your conclusion also goes against the erroneous popular argument that the value of a domain name is what the buyer is willing to pay for it, ie, if there is one person who thinks a new TLD is worth it, he/she will register it. (This statement is descriptive of a possible action, but not predictive of the viability of a new TLD.)

Here's a Puzzler John Berryhill  –  Feb 04, 2009 6:23 PM PDT

I spent much of the afternoon reflecting on this comment in a CADNA press release:

Vice President of the Corporate Internet Department for CADNA member New York Life Insurance Company, Ken Hittel, questioned the need for such a move. "ICANN has yet to prove a market demand for more extensions, and there seems to be overwhelming evidence to the contrary. Most brands already own hundreds, and some own thousands, of domain names in dot-COM, dot-NET, dot-INFO, dot-BIZ, dot-MOBI, and other TLDs," he said. "Few if any of them will ever be put to use, because virtually all of them were purchased for purely defensive reasons and it has proven to be exceedingly difficult to get anyone to go to addresses that don't end in dot-COM. Online users have spoken: they expect businesses to be reachable via dot-COM and they won't go through the trouble of trying to locate a destination at dot-NET, dot-ORG or dot-INFO."

Can someone help me understand these two statements:

all of them were purchased for purely defensive reasons

and

they won't go through the trouble of trying to locate a destination at dot-NET, dot-ORG or dot-INFO

The "defensive purpose" is to make sure that someone doesn't register a name that consumers "won't go through the trouble of trying to locate".

The logic reminds me of that old song from the 50's…

"If you wanna be happy
For the rest of your life,
Never make a pretty woman your wife,
So from my personal point of view,
Get an ugly girl to marry you."

It would seem the best approach is to make sure that all of your trademarks are extremely unpopular, so that you won't have to invest any money in defending them.

Just make sure your products, and your brands, suck.

Paul's & Behavin's companies are in Knujon's James I Smith  –  Feb 06, 2009 10:26 AM PDT

Paul's & Behavin's companies are in Knujon's latest report
http://www.knujon.com/registrars/

Now why is it they are both very keen on new gTLDs?

We don't let Road Builders decide where new roads are to be built - Government and Society decides - Road Builders then tender for the contracts to build roads - Simple really

As is every large registrar, because... John Berryhill  –  Feb 06, 2009 3:16 PM PDT

...the Knujon report buries the relative incidence of problem domains, and puts raw numbers up front.

In other news, it has been found that 85% of convicted mass murderers prefer Coke over Pepsi.

Re: As is every large registrar, because... James I Smith  –  Feb 06, 2009 4:23 PM PDT

John Berryhill wrote "As is every large registrar, because… " - Wrong and a crude attempt at FUD.

For example GoDaddy is a lot bigger than Paul's & Behavin's companies combined and GoDaddy isn't on Knujon's list.

From Knujon
"Not every registrar is the same size. Some registrars have millions of domains while others only a few hundred. We took this into consideration and compared the number of reported spam-advertized junk product sites to the total number domains held by the registrar."

http://www.knujon.com/registrars/

Yes if you brand under several names... John Berryhill  –  Feb 07, 2009 1:28 AM PDT

You think Wild West being located in Arizona is some cosmic accident.

I haven't looked, but I will bet you right now that the primary determinants are:

1.  Price
2.  Ease of bulk management
3.  Language

Please learn the definition of "FUD".

I know the definition of "lie" - and it would include saying that Wild West is not a GoDaddy company, for example.

Further... John Berryhill  –  Feb 07, 2009 1:31 AM PDT

I did not say there wasn't a proportionate analysis in the Knujon report - well "below the fold".

Please read what I actually wrote.  Up front and center in the report is a chart based on raw numbers.

There is a difference between "buried in the report" and "not in the report".

wild west is godaddy Paul Stahura  –  Feb 06, 2009 5:26 PM PDT

james,
1) wild west is on the (flawed) knujon top-10 list - wild west is godaddy. 
2) re where to build roads - do we let the government decide where you locate your business?  market forces.  simple.

A market to locate a business Alex Tajirian  –  Feb 12, 2009 10:33 AM PDT

do we let the government decide where you locate your business?  market forces.  simple.

Thanks for sharing your opinion on a market to “locate your business.”

@James: Get your facts straight. Directi is Bhavin Turakhia  –  Feb 06, 2009 9:55 PM PDT

@James: Get your facts straight. Directi is NOT on the Knujon report. And in the past we were wrongly quoted on it due to our contract with ESTDomains.

To his credit John Berryhill  –  Feb 07, 2009 1:34 AM PDT

While he did falsely state Directi was in the report, and doesn't earn high marks for reading comprehension, I believe he did imply that you were behavin', Bhavin.

@John: you always crack me up :) Bhavin Turakhia  –  Feb 10, 2009 5:14 AM PDT

@John: you always crack me up :) ...

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