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Google Chose to Win .APP in an ICANN Auction for $25m - Why?

Jean Guillon

For those who don't know, there are typically 3 methods of resolving contention sets in the new gTLD world:

1. Private deals – This method is used often for small contention sets of 1 to 3 applicants where straightforward negotiation is possible. Sometimes, revenue sharing deals are agreed, a fee can be agreed in exchange for other parties to withdraw their applications, or other types of barter deal are used such as 'swaps' where one party withdraws from one application and another withdraws from a different TLD application in which they share a contention set.

Advantages: Easy to manage in a small contention set, no outside costs, simpler to achieve a win win.

Disadvantages: negotiations can be drawn out, applicants with less money or fewer gTLD applications are at a disadvantage in long negotiations, sometimes the resolution can become quite complex.

2. Private auction – This method is used by all sizes of contention set from 3 applicants onwards. The winner is naturally the highest bidder. The losing applicants then share the proceeds amongst themselves, less of course the auctioneer's substantial fee!

Advantages: Quick resolution, winner takes the TLD and losers usually get to cover their application costs and then some, no complex negotiations involved. There can be no criticism of applicants funding the regulator through purchasing gTLDs in an ICANN Auction.

Disadvantages: Losing applicants no longer get the opportunity to keep a stake in the TLD.

3. ICANN Auction – This is dubbed by ICANN as the method of last resort to resolve contention sets. Many applicants have been surprised and disappointed by the rapidity with which ICANN has implemented these drastic resolution measures. The process is similar to the Private auction method but all the proceeds (surprise surprise) go to ICANN.

Advantages: Portfolio applicants (such as Google and Amazon) can make sure that any money they spend in acquiring a gTLD cannot be used against them in the resolution of another contention set at a later date.

Disadvantages: If you are a losing applicant you walk away with nothing, you lose everything including the ICANN gTLD application fee and any development cost spent in getting to the ICANN last resort auction. All of the details of the auction are made public by ICANN exposing the willing applicants' budget and providing a good deal of information on the other participants by inference. Academic theory states that the price paid to acquire a gTLD in an ICANN auction (where monies are not redistributed to other bidders) is higher than with the other methods of contention set resolution. In practice this would appear to be true.

Given that Google is a portfolio applicant of over 100 gTLDs why did it elect to go for an ICANN Auction and make all details of the auction public?

What do we know about the auction?

There were 12 participants including Amazon and several other portfolio applicants with deep pockets. Two players dropped out early, when the price was less than 2 million, the remaining 10 stayed in the fight until the price was above $5m and over half the applicants were still bidding when the TLD reached $12.5m. Four participants were left when the TLD reached $20m. Since, even if this auction had been held in private, a winning bid of $25m would only have meant proceeds of around $2m per applicant the argument about withholding funds from competitors doesn't carry much weight in this case. Also, there are mechanisms to delay proceeds from private transactions reaching losing applicants.

Disclosure of the winning bid by Google certainly makes a statement, it's very newsworthy, but does it serve Google's purposes, since it is in other contention sets for some popular strings and a bar has been set? Maybe Google is hoping that by making this statement other contention sets will be resolved in its favour at a lower price through other means rather than the other applicants' fear that they will walk away with nothing at the end of an ICANN auction? This argument seems pretty farfetched even if Amazon and other well-funded bodies are not in the contention set but even so applicants may be reviewing their estimate of the value of their investment in a favourable light when Google is in the picture.

Is Google falsely inflating the value of the pre-delegated gTLD market? Google may have inadvertently given the entire gTLD industry a shot in the arm with such a bold move in public but would it have been better served by acquiescing to a private auction?

It is clear that ICANN auctions are the most expensive way of owning a gTLD with, in reality, the only party coming out a clear winner is ICANN which not only takes $185,000 as an application fee from each of the applicants but also pockets the proceeds of an auction that it forces the applicants to enter into! Cynics might, however, view it as a means to grease the palm of the regulator which is to oversee how Google use gTLDs like .APP particularly given the controversy surrounding the issue of open/closed generics.

Maybe Google would be better off resolving contention sets in a manner that will actually really benefit the industry rather than the self-appointed Regulator?

By Jean Guillon, New gTLDs "only".
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Jean,I understand the factors in deciding between Alex Tajirian  –  Mar 04, 2015 11:43 AM PST

Jean,

I understand the factors in deciding between auctions and negotiations (http://bit.ly/1tMIyzL). However, why do apparently intelligent registries choose the wrong type of auction? What is Google’s excuse, if any?

Industrialization Jean Guillon  –  Mar 05, 2015 12:21 AM PST

I would not answer for Google but I think new gTLDs are a tool like another for the giant so why use a different process when one is organized by ICANN already?

perhaps John Levine  –  Mar 04, 2015 11:49 AM PST

Google has big plans for .APP, they can afford $25M, and they didn't want to screw around. They certainly didn't care whether or not they got part of the money if they were outbid.

What about .BLOG? Jean Guillon  –  Mar 05, 2015 12:23 AM PST

I would have loved to be able to use a .BLOG domain name on the Blogger platform and directly made available in Google Domains. Why didn't they go for .BLOG then?

I suspect Google's making a statement: "We've Todd Knarr  –  Mar 04, 2015 2:40 PM PST

I suspect Google's making a statement: "We've got the money to out-bid you, we're willing to out-bid you, if you're facing us your best bet's to cut a deal and take some money to withdraw instead of ending up in an auction where you'll still lose and won't get anything for your trouble.". .app's a perfect domain to do this with, because it's considered valuable enough to justify the price anyway. I'll bet this leads to a lot of smaller applicants going the private-deal route with Google for other gTLDs, netting Google more domains at a lower cost than if it hadn't opened with a strong statement. And for domains where they're facing some deep-pockets opponents who're willing to stay with them, they can inflate the price beyond what those opponents had planned on paying and possibly force them to reconsider which domains they really want to pursue badly enough to stay in the game which may net Google a few domains they wouldn't have otherwise gotten.

Maxim 57: If you have to hit them, hit them hard enough the first time that you don't need to keep hitting them.

So I guess .BLOG was not worth it Jean Guillon  –  Mar 05, 2015 12:27 AM PST

It is interesting because the .APP new gTLD is not something that appeal in the French language (I am French). Of course, French is not the number one spoken language in the world but I wonder if so many people will buy .APP more than they will buy .BLOG domains.

As far as I know, Google is Todd Knarr  –  Mar 05, 2015 12:47 AM PST

As far as I know, Google is going for .blog intending it to be for auto-creation of domains for Blogger blogs (unless there's some rule I overlooked where winning the auction for one gTLD precludes participating in any further auctions). They're also going for .dev for internal use only (WTF? If it's internal-only why bother paying money for it, just declare a private TLD or delegate under one of your existing domains and use the domain search list in the resolver. I ran .ttk like that for years when I needed internal DNS but didn't need externally-visible domain names.). The last count I saw had Google applying for 101 gTLDs, which IMO is just a little bit more than seems reasonable for a company that's not in the business of being a general public registry.

Wasn't .BLOG "won" already? Jean Guillon  –  Mar 05, 2015 10:21 AM PST
.blog John Levine  –  Mar 05, 2015 10:32 AM PST

Yes, ICANN confirms it's being contracted with a sketchy Panamanian company that actually operates from Colombia.

Oh, and I suspect Google wants .app Todd Knarr  –  Mar 05, 2015 12:56 AM PST

Oh, and I suspect Google wants .app to create domains for apps appearing in the Google Play Store. They already have Google Sites, being able to offer app developers a convenient way to create a site for their app with direct ties between it and the store seems a sensible move.

Isn't it a good idea? Jean Guillon  –  Mar 05, 2015 10:28 AM PST

There is no need of a .APP for this. I wouldn't be surprised to see .APP domains in direct connection with a validation platform on Google's side.

What makes you think Google made this decision? Andrew Allemann  –  Mar 05, 2015 7:07 AM PST

12 auction participants and Google has previously participated in private auctions...what makes you think this was Google's decision?

Oh, duh John Levine  –  Mar 05, 2015 7:47 AM PST

Of course — once you remember that all of the applicants have to agree to a private auction. I wonder who the holdout(s) was.

Lol Jean Guillon  –  Mar 05, 2015 10:30 AM PST

Very good point here. I think I know where you are taking me here: would there be something happening behind the scene?

No, not really something happening behind the Andrew Allemann  –  Mar 05, 2015 10:36 AM PST

No, not really something happening behind the scenes. Just one of the 12 applicants didn't want to go to a private auction. Several companies have declined to participate in a private auction. The most likely case is Google wasn't the holdout.

For an interesting analyses, see http://onforb.es/1KpP2gS. Alex Tajirian  –  Mar 05, 2015 9:34 AM PST

For an interesting analyses, see http://onforb.es/1KpP2gS.

Interesting but ill-informed John Levine  –  Mar 05, 2015 9:57 AM PST

I stopped reading after this:

Google is already a virtual gatekeeper to the Internet for people that begin and end their online explorations with its search bar, but should it be successful in migrating ‘legitimate’ content to ‘trusted’ top-level domains that it controls like .app, .blog, .book, .corp, .game, .med, .movie, .music and .talk, it could ...

Um, not really.

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