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What's the ROI on a $20m TLD Auction?

ICANN have taken a solid stance in regards to contention sets, with those yet to be resolved soon to be forced into auctions of last resort in the coming months. As expected, this has increased the velocity of private settlements between applicants, either via deals or private auctions.

It seems like most applicants (wisely) don't want to see their funds going into ICANN coffers unnecessarily.

While the prices paid for TLDs at private auction are a closely guarded secret, talk abounds in industry circles of prices approaching US$20 million for some contention sets.

Are these prices an outstanding investment or sheer lunacy?

The answer lies in being able to implement a strategy that generates solid revenues, whilst understanding the true costs of running a TLD.

Take for example the .sex TLD which was recently reported as having sold for USD 3 million. Intuitively this could appear to be a bargain for perpetual ownership of such a strong keyword TLD, considering the size of the industry, and the fact that directly comparable but much less flexible assets sex.com and sex.xxx sold for $13 million and $3 million respectively.

Or was the price tempered given potential concerns of 'unexpected' delays or political concerns such as those that impacted the .xxx TLD or queries over the competitive impacts of .xxx, .adult, .porn etc.?

While domain industry hyperbole over auction prices may be no more than scuttlebutt, there can be no denying that there have been some exceptionally high auction prices through the transparent ICANN auction of last resort process, such as .vip ($3M), .buy ($4.5M) and .tech ($6.7M).

What price is too high to pay?

At some point, without an amazingly viral marketing campaign and a magically cheap operating plan, the operations of your TLD can send you broke within a short matter of time.

Having being tasked by some applicants to assist in this very issue, I'd like to share the first two questions I am generally asked when sitting down with customers to define a TLD auction strategy:

  1. How do you appropriately value the asset to gain enough capital to win at auction?; and
  2. At what price does this TLD become unsustainable in terms of ROI?

The answer to both of these questions can only be divined after comprehensive analysis of both sides of the ledger; the potential revenues AND the real-world costs. Each has their own significant considerations.

Revenue

Calculating forecasted registrations from Sunrise and ten years of operating is relatively simple.

However, smart applicants are thinking beyond just x% of the total target market * wholesale price and realizing that the real benefit of operating a TLD is in finding the hidden value of these complex assets.

The value in the key partnerships, spinoff properties, premium domain name sales and associated businesses (just to name a few) which will make far more revenue than just domain name sales.

Costs

The second part of any good analysis is costs.

There is no such thing as a free lunch, and in the case of a TLD, you've got the obvious costs such as your registry, marketing and registrar management, and the not so obvious including managing ICANN compliance and dealing with an increasingly volatile regulatory environment.

Each of these has the potential to send your business spiraling backwards if not managed correctly.

Understanding and predicting all of these cost centres is one of the most important elements of working out your TLD's potential ROI. To effectively complete this task, you really need the insight of folks that have been managing TLDs for many years.

Next steps?

Firstly, you're not alone here. If all of this applies to you, you can rest assured that it's impacting your competitors too.

However, it is time for you to get serious. If your auction strategy can achieve more ROI than your competitors, then you'll enter the auction with a strategic advantage that could prove the difference in your one shot at securing your TLD
A good auction strategy relies on two fundamental principles:.

  1. Knowing what value the TLD represents to you
  2. Knowing what value the TLD represents to your competitors

If you aren't absolutely certain you know the answer to the two elements above, you might be blowing your one and only chance.

Having a clear vision, a strong auction strategy and some help from those with experience in the process will ultimately decide whether you walk away on auction day with big frown or a profitable TLD.

By Ryan Baker, Advisor, Professional Services at Neustar Inc.

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