How can you accurately gauge how secure and/or volatile your revenues will be as a TLD?

Every TLD has domain name registrants who use their domain name either as their primary site, the basis of their online identity, or as a navigational aid to direct traffic to other sites. The dominant purpose determines the long-term financial wellbeing of the registry.

The choice to use a domain as a simple pointer to another site versus creating a branded identity online does not just happen. It is almost always the direct result of the registry’s own efforts and focus. How does the registry define their customer? What is their value proposition and who is expected to deliver it? How do they treat their channels? How do they allocate resources? All of these determine whether the TLD exhibits more of the characteristics of what I’ll call a Navigational Aid TLD versus a Brand TLD.

For existing TLDs facing a changing market, understanding which way they lean will enable them to more accurately forecast revenues and assess risk. For new gTLDs, self-awareness of this distinction is even more important to making the right business decisions from the beginning.

First lets review the primary characteristics of a Navigational Aid TLD—those TLDs whose second-level domains are primarily used as pointers to other sites. These domains are often registered defensively, and/or used as a means to capture and redirect traffic to the main site. Typically these domains do not have MX records associated with them because they are not used for email.

An analysis of the namespace reveals that there are many domain names with parked pages, or very thin content. As a result, registrant demand is highly price elastic. In other words, registrants are more likely to purchase domains in this type of TLD if the price is deemed low enough; however, increase the price and you will see a corresponding drop-off of in demand and registrations.

A Navigational Aid TLD is rarely a registrant’s first choice simply because there is much utility beyond the defensive or the navigational aid aspect. To be expected, when the registrant is forced to prioritize in less forgiving economic times, these Navigational TLD registrations are dropped rather than renewed.

Registrars and “Push versus Pull Marketing”

On the registrar side, the situation is not much different. Registrars treat Navigational TLDs interchangeably and often position them as the alternative to the unavailable name in the desired TLD, or as a cheap and impulsive add-on at the tail end of the purchase process. The registrars’ loyalty to the TLD is low, since dropping it from their shelf space has little impact on their business.

As a result, the registries operating these types of TLDs are highly reliant on the registrar channel to “push” their product to the market. They treat the registrar channel as the customer, creating promotions, and assigning dedicated sales and account resources as enticements to sell. Their primary means of motivating registrars are price promotions, or discounts to be exact. As a result, the fees paid by registrants vary widely based on time or choice of registrar. The registrant is then trained to demand lower prices.

TLDs with more of a navigational bent often find that they are increasingly dependent on a few registrars for the bulk of their new creates and renewals. Should these main registrars focus their attention elsewhere, the Navigational TLD’s numbers tank.

In the meantime, neither these primary registrars nor the others feel any reason to carry the marketing or value proposition the registry may now produce. But really, why should they? They see it as an additional burden not warranted by the ROI.

You will often see wide swings in “new net adds”, and less dramatic, but nonetheless important, swings on renewal rates. Those TLDs facing their first ever renewals, will experience a sudden drop, and their rates in turn lower than industry average.

It is no wonder that these characteristics will sound familiar to more than a few TLD registries. To understand what this means to long-term revenues in this competitive and deregulating market, it is vital to make distinctions between the different types of TLDs.

In the next blog in the series, I will discuss the characteristics of the TLDs that have established themselves as the first choice of their target registrants.