Market up in arms over Netfleet bidding scandal — Australian domain

Australia gets its own type of “Halvarez”.

The Australian domain community is still reeling from a controversy that emerged in late September. Haven’t heard? Then you’re not an Aussie. But if private bids are shared to attract competing bidders, then that matters everywhere.

The Context

In order to understand this upside-down story, let’s visit the “Land Down Under”. You’ll want to pack this background info:

• Australia’s ccTLD is .AU – most commonly registered as .COM.AU.
• Outside the USA, country codes are a significant part of the online landscape.
• While international drop catchers such as NameJet, SnapNames, Pheenix, and DropCatch deal mainly in gTLDs, many ccTLD markets have evolved specialized auction platforms of their own.
• For expired .AU domains, one of the most notable venues is NetFleet.
• Today NetFleet reportedly functions as a joint venture between founder Mark Lye and Melbourne IT, which is right now listed as the world’s 6th largest domain registrar.

Here’s the crucial bit: NetFleet auctions rely on sealed bids. Clients are told that “this is a blind auction” in which “you cannot see any other bids except your own”. Still, “other clients may have placed a higher bid than you”. Anxious not to lose out but totally in the dark regarding other bids, you are encouraged to submit “the maximum amount you are prepared to pay” – let’s say $5000. If you’re the high bidder, then you’ll pay the full bid amount, never knowing if the next highest bid was $4900 or $800 or $75 or nonexistent. Meanwhile, if you’re outbid, then you’ll tend to bid higher in the future.

Nothing wrong with that. The various auction systems all have their pros and cons. Wearing a blindfold is frustrating, but avoiding bidding wars is a relief. Yes, in the dark you might fall short of other bidders or overshoot them. But as long as your bid is well and truly sealed, then you can safely bid without drawing further attention to the auction; and you can disclose your maximum budget without spurring others to outbid you. It’s a fair tradeoff.

Unless…

“Gobsmacked is the only way to describe this,” writes Ned O’Meara in his article that broke the news; and 77 comments from NetFleet clients reiterate the gobsmackery. Reactions varied. Some people were stunned:

This is such an incredible revelation that I am right now struggling to make sense of it all.

Others expressed cynicism:

[T]his calls into question every bid i have ever done, when did it start? we’ll never find out!

The very first comment lamented a “total breach of client trust”.

So what are Australian domainers up in arms regarding? Well … Allegedly, a NetFleet employee contacted an end user who wasn’t bidding and, indeed, had never bid at NetFleet, telling him

‘that they had a bid from a big domain investor at $720 (and named the person); and assured him that if he was to bid $750, he would get the domain’.

Consequently, this buyer leapfrogged the high bidder; and he, rather than the NetFleet client, took home the domain. That’s the allegation. By sheer stupendous luck, this end-user buyer hadn’t just been contacted by NetFleet; he had previously heard from a broker who offered to acquire the same domain at a lower price. So when NetFleet surprised the buyer with extra fees, he circled back to the broker … who told the high bidder … who told Ned O’Meara at Domainer.com.au … who told everybody counting me … who am now telling you.

Facts

And is it true that NetFleet revealed what is supposed to be a sealed bid – both the amount and the bidder identity – to a competing buyer? To his credit, Jonathan Gleeson, general manager of NetFleet, responded to allegations right away. Gleeson conceded that “a legacy way to access the bid information in our system” had been found by “the sales person who dealt with this case”, but he maintained that the employee “was not shown this function nor instructed to use information from it.” Gleeson added, “I have now removed this ability …”

An official response by NetFleet was published a few days later. It states that

A telemarketer in his first week with Netfleet inadvertently accessed limited data on existing bids in our daily expired domain auction. It appears that he used that information as a benchmark to influence a bid from a third party on a single domain.

But the decisive claim by NetFleet is surely this:

We would like to stress that this is an isolated incident … An existing bid has never been used to influence a fresh bid from a prospective buyer ahead of or since.

Between the informal reassurances on Day 1 and NetFleet’s official response 3 days later, a number of domainers vowed to boycott NetFleet “until the platform is changed to a transparent bidding system”. Their remarks can be found in a second article here.

Once NetFleet replied formally, reactions were mixed. The firm’s protestations of an isolated mistake were met with skepticism by many. Personally, I made a detailed case for seeing NetFleet’s answer as a positive sign. Above all, I wished to draw attention to a bold way forward, which the firm volunteered:

an independent audit of randomly selected data from past auctions to ensure the integrity of the platform.

You be the judge.

An article goes missing

When this NetFleet scandal erupted, an article covering the allegations was published by ITWire.com, which calls itself “Australia’s most read independent technology news source”. Still, the piece was removed the same day, September 29. At first, domainers were tolerant of the vanishing. It was expected to reappear following giving NetFleet time to respond, and that seemed “fair enough”.

Yet the article hasn’t been resuscitated by ITWire, leading some to murmur that it may have been suppressed as a favor to Melbourne IT, part owner of NetFleet. Even so, a cached copy can be read in full. It would appear that everything in the missing ITWire article was substantiated 2 weeks ago by NetFleet itself.

Insults 

The ugly epilogue to this story appeared online only recently, but it occurred the morning following NetFleet published its official response. Ned O’Meara, the domain investor who relayed the allegations regarding breach of privacy, claims he received the following text message (and more) from Mark Lye, founder of NetFleet:

I hope you’re ready for the truth Ned. Thank you anyway for trying to fuck my family business. I am relentless . * you can’t quote me on that you piece of family digging shit. My family hurts not that you would ever care.

In retrospect, it is ironic that this scandal broke when it did. Just days ahead of, on the very same site, Ned O’Meara had featured NetFleet’s general manager, Jonathan Gleeson, as a podcast guest.