In the tenth month of the revolutionary expansion of generic top-level Internet domains, global registrations in new gTLDs reached more than three million addresses, providing the clearest illustration yet of the strong international appetite for new, relevant addressing options. As we near the first full year of new gTLD availability, focus now shifts to another critical metric — renewals — which we expect to show similar strength based on history and data analysis.
If registrations demonstrate consumer appetite, renewals reflect consumer satisfaction. Both factors are critical to the long-term success of new gTLDs. While every hour brings new registration data making the case for a strong and growing global enthusiasm, we will have to wait four to five months before we have a full picture of the renewal marketplace.
If history is any guide, however, we have good reason to anticipate renewal figures that are impressively strong.
Several key factors drive renewal rates:
On each of those factors, new gTLDs in general (except, perhaps, any that are offering outright free names) and Donuts gTLDs specifically present a strong case for renewal.
Age and Size Are More than Just Numbers
The age and size of a TLD are important factors in renewal rates because the better names in a TLD are registered first. Put simply, TLDs with fewer names registered in them have a higher renewal rate because the 20,001st name registered (example: GreenBay.PIZZA) is of better semantic quality than the 100,000,001st (example: Samza-OrderIn.COM). Comparing the median Donuts new gTLD zone file size of 11,054 (for gTLDs launched prior to May 31 of this year) to .COM's more than 100 million, it is reasonable to anticipate strong renewals on that factor alone.
A qualitative analysis of new gTLDs further supports this point. Looking at the zone file for .PHOTOGRAPHY, for instance, one sees a gTLD dominated by short, descriptive names that are directly related to photographic content or the photography business. More than half are keyword domain names, and the remaining typically are small business company names. An examination of the market dynamics of existing TLDs reveals that domains of this type are renewed at the strongest observed rate.
Country code TLDs (ccTLDs) that are operated as country codes, also typically smaller than legacy generic TLDs, are another indicator with higher renewal rates. Names in these TLDs renew at a blended rate of approximately 80 percent.
The recently re-launched .CO domain gives us a look at renewal rates for a larger TLD. The first 100,000 names registered in .CO posted a renewal rate of 92 percent, while the next 180,000 renewed at 72 percent, netting out to a blended rate of 78 percent for these first 280,000 addresses. The case for renewal in .CO becomes even stronger if we factor in the rate of names that were re-registered shortly after non-renewal. More than 80 percent of those first 100,000 .co names that did not renew on their first year anniversary were subsequently re-registered as new names within the first 60 days of non-renewal. More than a year after the first 100,000 .CO names were registered, 98,000 were still registered.
Related to the size of the TLDs is the breakdown of names registered by year. Names registered in 2014 in .COM are names registered in that TLD's 29th year of existence. Names registered in 2014 in a new TLD are names registered in that TLD's first year of existence. Names registered in the first year have a higher renewal rate than those first registered in the 29th year.
There is a tendency in analyzing TLD performance to focus on the distinction between "real" users who register domains for the purposes of immediately establishing businesses and identities online, and domain investors (or "domainers"), whose principal goal is asset monetization, either through resale or advertising.
While that distinction may matter in assessing the qualitative impact of a new TLD, it has less bearing on the quantitative reality, at least in the new gTLD marketplace. As it turns out, the renewal behaviors of both professional domainers and non-domainer registrants are driven by many of the same considerations. In both cases, semantic value — that is, what, if anything, an address means — is a critical factor in determining renewal rate.
In legacy domains like .COM, registrants renew at a rate lower than that of many other gTLDs. But because early registrations in any gTLD, especially now in new gTLDs, are based on the semantic value of the underlying terms, and not merely the traffic the name might generate, the purchase motivation for any buyer is different than those purchasing in .COM.
Accordingly, the first 50,000 or so names in each TLD will have an extremely high semantic value, and thus a high renewal rate, regardless of who the registrant is.
Things get even more interesting when we compare .PHOTOGRAPHY, for example, with the population of .COM names that were newly registered in 2013. For these .COM names, the percentage of active sites with unique content is just 23 percent, and a full 30 percent of them fail to resolve. The renewal rate on these .COM names is just 52 percent. In .PHOTOGRAPHY, already over 20 percent have active content (a nearly 14 percent increase since late June) and only eight percent don't resolve. It will be fascinating to compare a full year of .PHOTOGRAPHY with the population of .COM names newly registered in that same year. Current data suggests the .PHOTOGRAPHY names will handily outperform the contemporary .COMs in renewals.
Domainers and new gTLDs
Domainers are an unusual market segment. As the "fire-starters" of any registration trend, they not only are hyperaware about TLDs but act as an unpaid sales force by selling domain names to other types of users at a margin above what they paid the registrar for the name. In the first year of any TLD the proportion of domainer registrations is therefore skewed to a higher percentage. But over time, and this is happening steadily already, domainers get good names into the hands of end users.
Why are these domainers registering names in .COM and in new TLDs? To satisfy one or both of two criteria: 1) semantic value, and 2) traffic value.
Domainers register cheap .COM names and park them, hoping to make more per year in PPC traffic than the few dollars they paid to register the name. Will domainers renew a .COM address at the registrar's $8 renewal price for that second year? Not if the traffic value is less than $8. They won't even renew for $1 if the traffic degrades below that value.
Now let's look at why domainers register new names in new TLDs. It's not because of the traffic, because there is almost none yet. The entire TLD is new, so no residual or legacy links to currently unregistered (but previously registered) names, or any other source, even exist. In fact, according to our own analysis of six of the earlier released Donuts gTLDs (.PHOTOGRAPHY, .EMAIL, .COMPANY, .TIPS, .TODAY, GURU), usage of registrations for PPC declined by an average of 9.36 percent over a four-month period ending November 1. So the reason for domainer interest is the other component of domain name value: the semantic content of the name itself. It's meaning these domainers are buying, not traffic.
The domainers bought the names because they believe they'll be able to re-sell the names for a higher value later (the names are only parked because there is nothing else to do with them while waiting for TLD awareness to increase and the names to be resold at a profit). They are speculating. And they are paying 10x (or more) for these new TLD names, compared to .COM names.
Traffic fluctuates over time, but meaning does not.
Unlike the quantity of traffic to .COM names, the meaning of words does not change very fast. "Pizza" means "pizza" all over the world — it meant the same thing last year and it will next year. The meanings of "Fast.PIZZA", "Chicago.PIZZA", "Order.PIZZA" do not change, so they hold their value. With increasing awareness of the .PIZZA TLD, or more Google attention for semantically valuable names, semantic value on the Internet increases. This is why domainer registrants will largely renew, because a) to not renew means losing their investment, and more importantly b) they believe the name's future value (minus the future renewal fee) is greater than its present value.
The Price Equation: Easy Come, Easy Go
The price we pay for something is directly proportional to how much we value that thing. In the same way that you care more about your Mont Blanc pen than the cheap disposable you bought in a pack of 20, you are likely to place greater value on a domain for which you paid a premium than one you bought among dozens at a bulk introductory rate for pennies.
Names sold for higher prices have a higher renewal rate (when the second year price is the same as first year price) than do names sold for lower prices because names sold for lower prices are more often registered purely for traffic reasons while names sold at a higher price engender more attachment and have more meaning. A buyer paying $20 for a name has a sunk cost incentive to renew when it comes time for renewal. Registrants think twice about deleting names that cost them $20 and think three times if they cost $200, but don't think twice about deleting a name they got for $1 or free. As an example of this principle, if .PHOTOGRAPHY names were $1000 per year each there would be fewer names in the zone, but renewals would be very high.
Diversity Creates Stability
The more diverse a gTLD's registrant base, the less likely it is to be impacted by any individual's renewal rate decision. Renewals generally go up for TLDs in which the ratio of addresses to owners is low (as opposed to domains that have higher numbers of portfolio registrants). Our ratio of average domains per registrant is low, at three names per registrant, and that ratio is getting smaller as our TLDs mature.
What that means from a practical standpoint is that Donuts domains have not been concentrated in a few hands and therefore are not likely to be cancelled or dropped en-masse.
Another Consideration: Deciphering "Blended" Renewals
Names that already have been renewed at least once have a higher renewal rate than will names that have yet to be renewed.
This is an important distinction to understand when analyzing renewal rates. Is the rate you see the blended renewal rate, or a specific cohort's renewal rate? The blended renewal rate for .COM is about 72 percent, while the renewal rate of .COM's first-year cohort is, now, close to 100 percent (names registered 29 years ago that have been renewed each year since then are very likely to renew next year), and the renewal rate for the .COM 2014 cohort will be approximately 50 percent. All those cohorts together make for a blended 72 percent rate for all names in the .COM TLD.
The same data is born out in the same way in the .CO.UK domain name, according to this graph:
Renewal rates correlate to the age of the domain – Domains between three to four years old follow the average renewals rates of around 70% and this increases up to over 90% for domains aged 10 years and over. (Source: Nominet)
What Should We Expect?
In March 2015 we'll see the renewals start on hundreds of thousands of short, descriptive, meaningful domains that were purchased for real money by a wide variety of registrants, and were not purchased for traffic harvesting purposes. The semantic value of these names is not decreasing, and usage of these names and general awareness of the TLD increases steadily every month. Based on the factors discussed here, we conservatively predict an initial renewal rate of greater than 80% for Donuts gTLDs.
By Paul Stahura, Founder and CEO Donuts Inc.
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