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Having eBay has worked out pretty well for the world at large; now it's time for the world of domain names to start using it. We need to throw away the jumble of different auctions and dealer sites. Speculators may not like having their haunts cleaned out, but corporate (end-user) buyers and investors will welcome the chance to deal with one centralized auction mechanism with one set of rules.
Right now end-users wanting to buy domain names have no idea of what listing and bidding procedures they'll find when they show up at a domain-name auction site. The sites don't even use the same terminology. Worse, online presence requires a portfolio of domain names whose components may be listed on various sites.
With end-users shying clear of the murk, not much new material comes to market and fewer of them are on hand to buy names for the long-term, as opposed to a quick profit. Instead we have a market dominated by speculators, fast operators who buy only so they can "flip"—that is, turn around and sell the name for a quick profit. Those few original sellers who shuffle forward tend to be in need of immediate liquidity. (If they weren't desperate, why would they sell at enormous discounts?) What they find are anemic prices and a crowd of smart operators ready to flip and re-flip the same few offerings until somebody down the line pays something substantially more that the name's value. By the time the property reaches an end-user, the price will have to be high enough for a chain of speculators to have money in their pockets.
So there we have it: low prices for original sellers, high prices and limited selection for end-users, and plenty of opportunities along the line for sharp players who know the terrain and want to make a fast buck. This is not the picture of a well-designed market. Speculation can serve some purpose to society, but not speculation caused by an informationally and operationally inefficient market, a market that lacks the forces needed to restore it to functionality (see, for example, First-come, First-served Domain Name Allocation Is a Social Loss).
Thus, there is a need for the industry to move to a major centralized auction. Doing so will benefit society, end-users, investors, dealers, and consultants. Specifically, it will dampen speculation for Internationalized Domain Names (IDNs), those about to be launched, and those based on the new ICANN TLDs.
If the current auction sites resist the move to being consultants and dealers to facilitate owners' interactions with the centralized auction, there will be new entrants. Moreover, the industry can impose a speculation tax to deter such activity with secondary markets in IDNs and new TLDs. (A speculation tax was first proposed by James Tobin, a Nobel laureate economist, and is picking up steam among government officials in Britain).
A centralized auction mechanism could also be devised for expired-name auctions. However, the live auction-dealers may survive longer because of their theater value and because of the value conferences have as occasions for education and industry socializing. (To preserve theater value, with the consent of auction winners, the new bread of dealers can advertise the identities of winners, not just the property and its selling price. Domain name sites have yet to follow that innovation.)
By Alex Tajirian, CEO
Related topics: Domain Names
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Domains orginally had a "speculation tax," they were $100 for the first 2 years with $30 going towards an Internet infrstructure fund. The $30 feee was struck down as an illegal tax. The people at Network Solutions who convinced the National Science Foundation to go along with this speculation and it made the Network Solutions people rich. they charged $35 for something that cost them less than $1.
This type of tax in the name of some vague claim of "societal benefit" rarely works as intended. Like most sociual programs it just funnels money into a few well-connected people and diverts people away from actual work and into political activities so they can get their hands on the "tax" revenue.
There are strong opinions on both sides of any tax debate. Nonetheless, a lot depends on the fine print. So, I am glad you brought it up.
The extra charge on early registrations was a bad instrument to curb speculation in the secondary market. Moreover, it failed to dampen the demand for registrations, at least in retrospect; A fixed charge on a variable selling price is not a sound tax policy. Nevertheless, the registration tax is itself speculative, in that its authors were speculating that there would be excessive speculation.
I should have been more careful to note that a tax initiative is for the secondary auction market, which is where the negative impact of speculation is taking place. Nonetheless, serious tax discussions can act as a threat to speculation.
Having said that, the speculation tax is not central to the essay’s theme. It, or the threat of a tax, is another instrument to improve efficiency in the secondary market.
I would be agisnst any further domain tax. The ICANN tax is already too high. ICANN does not use the current tax to do their basic function such as making sure the registrary agreement are complied with, the whois system is kept up, etc. Instead, much of the money is used for paying for travel for ICANN staff and legal fees to law firms that are associated with ICANN officals. ICANN even claimed to have lost millions in the stock market when they invested their operating expenses in high risk ventures. Any additional ICANN tax will do nothing but promote more corruption.
Besides, your whole idea would only apply to domains that are dropped and then auctioned off and not the majority of the secondary market. It is interesting to note that the prices claimed for dropped domain auctions are often significantly higher than similar domains that sell in the secondary market. I find many of these claimed prices to be highly questionable.
(a) Which “idea” are you referring to? Using eBay or the tax?
(b) Why do you think the idea would only apply to dropped auctions?
(c) Are you saying that the dropped auctions are speculative markets?
Even if it were desirable there is no way to control the secondary market for domains.
ICANN should do something about all these speculators buying domain names so that you can not have it.
The speculators intend to do nothing with the domain other than holding it until someone who really needs the domain for development, personal or professional, pays a premium for the name they are holding.
The speculators produce nothing in society, they have no use, time for them to go.
ICANN does the technical adminstration of DNS, they are not supposed to dictate how domains are used.
I have never heard of anyone who "really needs" a domain. Most domain disputes involve 2 companies that are both trying to make money from a domain. There are plenty domains avaiable for registrations, just not the desireable ones. Even if there were some restriction how would know what domain holders intend to do with a domain?
How about people holding land or have second homes they don't use much. Isn't that also speculation that should be stopped? In China the government owns all the land and people have 99 year leases. Maybe you are suggesting domains should run on the Chinese communist model where ICANN is in charge and dictates to everyone how their domains should be used?
The post notes that not all speculation is useless. Also investment and speculation (especially excessive speculation) are not the same.
Domain speculation and investing in real estate are quite different. To purchase real estate takes significant cash for the down payment and closing costs, credit to qualify for the loan, a significantly formal transaction, and a committment to continually make substantial monthly payments, taxes, insurance, utilities, repairs, etc. Buying a domain takes about 8 bucks and 2 minutes, and the decsion to renew annually is trivial unless you have an enormous number of domains. The fact is, if domains cost a significant amount of money, say $10K annually, alot of the speculation and other funny business would stop. The registrars would get just as rich, if not more so, it would just be on less domains registered, but MUCH better margins. I own several domains that relate to my business and have them on auto-renew as the decision and investment is trivial; but that would change if they were significantly more expensive. Domains have become like car keys: an insignificant cost item, and a component of a car that in no way factors into the purchasing decision or quality of the car purchased. But without the car key, your pretty new Mercedes is nothing more than a lawn ornament. The power that a domain can provide far outweighs the $8 annual payment.
No registrar becomes "rich" from registering domains and I doubt they even make a profit at it. The profits come from add on services.
The plan charge everyone this large tax to slow down speculation (that is somhow see as "evil"). Now we have everybody paying this tax and then, instead of a few speculators making money, the registrars would see a huge profit and there would be this new major expense to have a web site. Somehow this is supposed to benefit society.
It sounds to me that some people are just jealous that they did not have the forethought to register valuable domains years ago. Now that they see other making money from it they want it stopped. Instead of admitting jealousy they claim "societal benefits" and claim free markets do not work and that experts (the people in ivory towers who do not have their own businesses) are supposed to design the perfect marketplace. What a bunch of nonsense, it is just about control and getting their hands on money that does not belong to them.
John has a good point. ICANN should at least sponsor a formal discussion on speculation.
Can someone tell me why it is OK for ICANN to try to limit domain tasting (not a DNS function) but not speculation?
ICANN is in charge of the adminstration of the domain name system and the associated contracts. This means how long a domain should be registered, that they have a whois avaiable etc. "Speculation" has no real definition and there is no way to classify a domain as being registered for "speculation." Even if there were a way to do that that is dictating how domains are used which is outside the scope of ICANN's responsibilities.
These arguments have gone on for at least 15 years and I have never heard anyone who can actually define "speculation" or exactly what activity should be "oulawed" or limited. Even if you did come up with rules who would police millions of domains and pay for all the administration of the "enforcement."
We don't need to waste more of the domain registration money sending a bunch of pontificating "experts" around the world on free vacations to have discussions that will never amount to anything (like the other ICANN panels such as the Whois panel).
Can someone actually explain to me how a monopoly will benefit the end users ? Usually lack or absence of competition results in higher prices.
One central auction system means more money flowing to a single operator (which one ? Verisign ?), and more competition for scarce resources.
If the intent is to drive prices up, including for the (non-speculator) end users, let's do it. Because that's all that will be achieved.
While we are so doing, why not end speculation on the stock exchange ? After all does that kind of speculation benefits society ?
Oh wait there are too many people dabbling in stocks, that won't like it.
I think this is purely an ideological stance, and the so-called domain speculators have not caused the subprime crisis either.