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?