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Who Pays When .Org Prices Rise?

When .org prices rise, who suffers — nonprofits or speculators?

Will Ethos Capital raise prices more aggressively than ISOC would?

Vint Cerf attributed concerns about higher prices to speculators: "Of course, companies that hold domain names in the tens of thousands for speculative purposes might find such increases more troubling, but I don't have much sympathy for that business model in the context of the organizations the .org brand is intended to serve." [1] Similarly, in a recent CircleID article, Nora Abusitta-Ouri, the Chief Purpose Officer of Ethos Capital, presented a contrast between a nonprofit "holding a single registration" that would be little affected by a $1 increase in a .org domain name and "a speculator holding tens of thousands of domain names." [2]

The picture painted in these arguments, however, is counterfactual. Non-commercial users [3] hold significantly more .org domain names than do speculators, otherwise known as domainers. Prices under an Ethos Capital regime would rapidly increase by more than $1 per year due to compounding, and at rates likely to be far higher than the historical norm under ISOC. Domainers, on the whole, are little affected by increases in .org prices because .org is such a small share of their holdings.

All registrants are affected by price increases, with noncommercial users bearing the brunt of increases in .org prices. They will likely fare far worse under Ethos Capital than they did under ISOC.

A review of a random extract of the .org zone shows that 8% of registrations are held by domainers. 27% are clearly identifiable as noncommercial, and 20% are clearly commercial. The remaining 45% are inactive and can't be readily identified as either commercial or noncommercial and will be a mix of both. [4] Inactive domain names are unlikely to be owned by domainers for domainers ensure that their domain names are active in order to generate ad revenue and sales leads. [5] When .org prices increase, therefore, the burden falls primarily on the nonprofits who heavily rely on .org domain names, on businesses using a .org to generate leads or as a defensive registration, and on individuals, families, bloggers and other noncommercial users.

Domainers on the whole have little interest in .org domain names because of the much lower demand for .org domain names and the much lower prices realized on average on resale than for .com domain names. The .org aftermarket is only 3% of the size of the .com aftermarket. [6] Domainers hold 33 times as many .com domain names as .org domain names. [7] In other words, out of every 100 .com and .org domain names held by a domainer, 97 will be .com and only 3 will be .org. [8] .Org is a rounding error in most domainers' portfolios. The small share of .org domain names registered to domainers reflects this.

Nonprofits, in contrast, are heavy users of .org domain names. Many nonprofits own multiple .org domain names beyond their primary domain name, whether for use for specific events and fundraisers, or for use by local chapters, or for defensive reasons, or for other uses. Some own hundreds or thousands of .org domain names apiece, including the YMCA, Rotary International, Meals on Wheels, Habit for Humanity, Boys and Girls Clubs, Salvation Army, Goodwill Industries, Catholic Charities, the American Cancer Society, UNICEF, AARP, Mount Sinai Hospital, American Heart Association, Planned Parenthood, the ACLU, and Special Olympics, among many others. [9] While not a large share of the budget of each of these nonprofits, higher costs due to .org price increases, when aggregated across the .org domain names held by hundreds of thousands of nonprofits, totals to millions of dollars per year.

ICANN is currently permitting millions of dollars collectively intended for cancer research, meals for the needy, homes for the homeless, and other pressing societal needs to be diverted to ISOC, such that the needs that those funds could have addressed will remain unmet. Now Ethos Capital wants to take control of .org and with it the power to raise fees without end on .org registrants to benefit their wealthy funders.

Ethos Capital claims that despite the removal of price caps on .org, its "plan is to live within the spirit of historic practice when it comes to pricing, which means, potentially, annual price increases of up to 10% on average." [10] Yet historic practice has not been to impose annual 10% price increases. PIR's first price increase did not occur until late in its fifth year of operating .org, and the increase was for 15 cents. [11] The current price of .org of $9.93 has been flat for nearly three and a half years. The increase in the price of .org from $6.00 in 2003 to $9.93 in 2020 is equivalent to a historic practice of 3% annual price increases. If .org prices had risen by 10% each year from $6.00 in 2003, .org prices would now be over $30 per year per domain name.

Although Ethos Capital wishes to portray its ownership of PIR as maintaining continuity with prior practice, 10% annual price increases each and every year is far higher than the pricing practice under ISOC. ISOC is so awash in money as PIR pulls in $75 million in funds each year above what it pays to Afilias to run the registry that it may have reached the point where it already has more money than it knows what to do with. As a nonprofit, its primary incentive is not to increase "profit" each year. In most years ISOC did not increase the price of .org. In contrast, there is no sating the appetite for profit of a private equity firm. More profit is always the goal.

Ethos Capital, as owner of PIR, would have the contractual power, now that price caps have been lifted, to raise prices as high as it wants at will. Even if Ethos Capital constrains itself to its asserted plan "to live within the spirit of the historic practice" of 10% annual increases, this assertion is both factually incorrect, as discussed above, and unless further clarified, leaves room for Ethos Capital to double prices at the start and then keep them at that higher level for the next seven years. This would produce an ending price for .org consistent with an annual 10% increase but would extract over $400 million more from .org registrants over those 8 years than if prices had increased by a steady 10% per year. [12]

Under either scenario, by year eight, the burden on .org registrants would exceed ICANN's current annual budget of $140 million. After 14 years, even at a 10% limit on annual price increases, the price of a .org domain name will be four times as high as it is now. That would allow Ethos Capital to pull in $400 million per year from .org registrants, and that burden would continue growing year after year. [13] While 14 years may seem like a long time away, it is important to think about the future impact of the decisions that one makes today. We are now in the 18th year of ISOC/PIR's control of .org.

While Ethos Capital wishes to minimize the perception of the harm to nonprofits of continued price increases in .org and focus instead on the impact on domainers, very little of the millions of dollars of additional unjustified overcharges resulting from annual 10% price increases would be paid by domainers. The vast majority of those millions of dollars will come from nonprofits and other .org registrants with no connection to the domain industry.

[1] See: https://medium.com/@vint_4444/a-stronger-future...

[2]See: http://www.circleid.com/posts/20200113_a_stronger_pir...

[3] Non-commercial users include registered nonprofits, as well as informal associations, families, individuals, bloggers, and others using .org domains not in order to generate profits.

[4] The most accurate way to determine who is registering .org domain names is to review a random extract of the .org zone file, although this is quite time consuming. A 100 domain name extract was created by using computer code to randomly select domain names from the .org zone. The webpage associated with each domain name was then reviewed, if available, and whois records including historical whois records were then consulted if ownership was unclear. If a webpage had no unique content and if the whois records were under privacy, then often the ownership could not be determined. Familiarity with the domain industry is helpful in interpreting the results. For instance, a parked page with ads may at first glance appear to be owned by a domainer, but often is a default lander published by the registrar, as with pangolinmedia.org, where the registrant is not a domainer. Due to the small sample size, the margin of error in the percentages is high, but the qualitative findings as to relative ownership share is clear. If you question the results, I would encourage you to conduct and to publish your own research.

[5] Standard practice among domainers is to set up all their domain names with either a parking page to generate ad revenues or a sales lander page to generate sales leads, or with a page that does both. Domainers attempt to monetize domain names. A dead web page with no way to reach the owner does not generate revenues and is not likely to be registered to a domainer.

[6] Source: NameBio.com, based on publicly reported sales over the past five years.

[7] This data comes from a review of the .com/.org composition of domain names hosted on name servers associated with the domain industry. The analysis looked at over 10 million domain names in all TLDs associated with dozens of companies in the domain industry — major domain name portfolios, leading parking companies and the most commonly used marketplaces.

[8] See also: "The strange idea that the secondary market is some big, bad ogre devouring all the domain names in a TLD is wrong. The reality is quite different. The secondary market for most healthy TLDs is only a small percentage of the number of domain names registered in that TLD.", comment by John McCormac of HosterStats.com at https://mm.icann.org/pipermail/....

[9] Source: Reverse Whois searches

[10] https://www.keypointsabout.org/

[11] https://www.dailynews.com/2007/04/22/fee-rising-for...

[12] This assumes a $19.31 price in year 8 after 7 years of 10% annual increases, compared to 8 years of revenues at $19.31 each year. Both scenarios assume .org registrations remain flat at 10 million.

[13].org registrations have flat lined at around 10 million registrations. These calculations assume that .org registrations will remain at around the 10 million level. Even if .org registrations fall modestly, the underlying points made will still be true

By Nat Cohen, Owner

CircleID Newsletter The Weekly Wrap

More and more professionals are choosing to publish critical posts on CircleID from all corners of the Internet industry. If you find it hard to keep up daily, consider subscribing to our weekly digest. We will provide you a convenient summary report once a week sent directly to your inbox. It's a quick and easy read.

I make a point of reading CircleID. There is no getting around the utility of knowing what thoughtful people are thinking and saying about our industry.

VINTON CERF
Co-designer of the TCP/IP Protocols & the Architecture of the Internet

Comments

What all this ignores By Joly MacFie  –  Jan 17, 2020 12:43 pm PDT

is that it is in PIR's self-interest to well serve its customers, including pricing.

As Mike Godwin points out in his recent CircleID post, freed from the need to fund ISOC, the new PIR has great growth potential. That would be achieved by improving its services, not extorting a dwindling base.

Improving services? By Nat Cohen  –  Jan 17, 2020 1:14 pm PDT

Thanks for your comment. 

Can you explain a little more what you mean by PIR "improving its services"?  What nearly all .org registrants wish is simply to continue using their .org domain names.

Their ability to continue using their long-standing domain names requires paying renewing fees to PIR, at pricing set by PIR. 

What do you mean by "great growth potential"?  .Org is almost a must-have for nonprofits, especially US based ones.  Do you want to promote .org for for-profit use so that it loses its nonprofit character?

"Improving its services"? By Karl Auerbach  –  Jan 21, 2020 3:19 pm PDT

What services is PIR to provide beyond being the .org registry?

Why should the cost of that business expansion be loaded onto the backs of captive .org registrants?  (I am among them - I support various thinly funded non-profits in .org and often end up paying their registration bills out of my own pocket.)

In all of this we forget that PIR's new owner is unknown, that it is hidden behind a Gordian knot of opaque Delaware corporations.  We do, however, know that some ICANN insiders have suspicious roles.

But whatever is that new owner, it came up a big pile of money.  And having been involved in more than a few such transactions, I can attest that one quickly learns that those who invest that kind of money are always tunnel-vision focused on how they are going to get that money back, with significant gains or tax leveraging, within a very few years.  Such investors can, and often do, become rapacious in order to achieve their financial goals.

Remember the old story about putting 1 cent on the first square of a chess board, then 2 cents on the next then 4 cents on the next, then 8 cents ... by the end of the board the amount of money is astronomical.

Well, compounding of price increases work that way tool.  At 10% per year prices double after about 7.5 years.  Then at the end of 15 years they are 4x the original, then after 22.5 years - roughly the life span of ICANN so far - they are 8x.  And that doubling every few years need not ever stop.

PIR is already bringing in a lot of cash - they are getting a registry fee that's far above the amount they are paying Afilias to do the actual work.  Too bad ICANN has never wondered, much less asked, about the actual cost of registry services.

There is no hint that the technical machinery to operate the name servers and registration systems for .org are in any way under-provisioned.

PIR is a company that got its role by voluntarily assuming the protections of being a regulated service (ICANN, despite protestations to the contrary, is most definitely a very heavy handed regulatory body, one that has unfortunately been captured by those it purports to regulate.)

If PIR wants to expand into new business areas it must do so via corporate structures that are clearly separate in all ways from its .org regulated registry.

And those operations (like ICANN itself) must be subject to the harsh eye of US, European, and other laws regarding anti-competitive practices.

It's clear that serving nonprofits and other By Joly MacFie  –  Jan 17, 2020 2:05 pm PDT

It's clear that serving nonprofits and other mission-based organizations is PIR's focus. There's no reason to think they can't do more, better. My guess is Ethos' vision for PIR to develop and offer a number of enhanced "solutions" to this market. The current ISOC arrangement inhibits such development, both financially and managerially, which is why there is opportunity.

The opportunity is the uncapped ability to By Kevin Ohashi  –  Jan 22, 2020 10:33 am PDT

The opportunity is the uncapped ability to increase prices. It's naive to think anything less. Maybe throw in some cost saving measures as well. If this team was capable of great innovations in the domain name space, they would have done it at Donuts. They had the opportunity. This is nothing short of a non profit tax for personal gain.

Enhanced Solutions By Nat Cohen  –  Jan 17, 2020 2:53 pm PDT

Could you provide some substance to the otherwise empty phrase "enhanced solutions"?

Once the technical infrastructure is taken care of, there's not too much simpler than provisioning a domain name.

ISOC pulls in $75 million in surplus each year from .org.  If there are improvements that could be made to .org, they certainly have the financial means to do so.

In short, .org registrants are being financially exploited now by ISOC and they'll be financially exploited to an even greater degree if Ethos Capital takes the reins.

Guessing about possible future enhanced "solutions" as a justification for such a massive, unjustified extraction of funds from .org registration strikes me as a not very successful attempt to defend the indefensible.

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