ICANN Releases Two “Whitewash” Notes to Defend its Positions on fresh gTLDs
Notes argue fresh gTLDs ought to move forward with no price caps.
I’ve been duped.
When ICANN disclosed it was commissioning a note on the effect of price caps on fresh TLDs, I assumed it would seek an unbiased note. Instead, ICANN used domain owner’s money to hire an economist to defend its views.
ICANN released two “studies” by University of Chicago economist Dennis Carlton:
Preliminary Note of Dennis Carlton Regarding Impact of Fresh gTLDs on Consumer Welfare (pdf)
Preliminary Analysis of Dennis Carlton Regarding Price Caps for Fresh gTLD Internet Registries (pdf)
The first note regarding consumer welfare (i.e. competition) argues that fresh gTLDs will create competition amongst registries in TLDs, but that trademark holders and existing domain owners needn’t worry since fresh gTLDs won’t be very successful.
Sound conflicting? It is. Here’s an excerpt:
I conclude that ICANN’s proposed framework for introducing fresh TLDs is likely to improve consumer welfare by facilitating entry and creating fresh competition to the major gTLDs such as .com, .net, and .org
Followed shortly thereafter by:
It would not be sensible, from an economic perspective, to block entry of gTLDs to prevent potential trademark concerns. Indeed, the relatively modest number of registrations achieved by fresh gTLDs such as .info and .biz introduced in recent years suggests that the need for defensive registrations in fresh gTLDs is limited.
And then:
While a number of fresh gTLDs have been introduced in recent years, these have achieved only limited success in attracting registrants and Internet activity.
Hmm. There’s a need for fresh TLDs. But don’t worry, trademark owners, these fresh TLDs won’t matter so you won’t have to pay for defensive registrations.
But wait, now let’s switch back and say they will promote competition, since that’s ICANN’s view:
An increase in the number of gTLDs increases the number of alternatives available to consumers, and thus offers the potential for increased competition, reduced prices, and increased output.
The note also argues that the introduction of fresh TLDs will foster innovation as .com faces competitive pressure (please ignore the aforementioned arguments to consider this):
Removing entry barriers is also likely to foster innovation. In the absence of competition from fresh gTLDs, registries and registrars that serve .com and other major TLDs face limited incentives to develop fresh technologies and/or improved services that may help attract fresh clients.
Here’s the problem. That’s assuming a free market, which the registry system is not. If ICANN removed the presumptive right of renewal, it’s true that competition may push some registries to innovate. I doubt it with .com, but it may do it for other TLDs.
The note then discusses some examples of how fresh TLDs could be beneficial. These examples, such as the use of .generalmotors.com or .cars suggest that finding information will be easier with fresh TLDs. I don’t understand how this will be easier than with existing TLDs.
The second note regarding pricing makes rational arguments that letting fresh TLD registries set their own prices will be kept in check by competition. This is mostly true. But the note manages to gloss over this little issue of existing TLDs being able to change their prices. Existing registry contracts give registries the right to argue for clauses in other registry’s contracts. So VeriSign (NASDAQ: VRSN) can argue that it shouldn’t be subject to pricing caps.
The argument in the note that “a supplier that imposes unexpected or unreasonable price increases will quickly harm its reputation making it more difficult for it to continue to attract fresh clients” would not apply to VeriSign. It could raise it’s prices by $25 in a year and businesses would just be forced to pay it.
I don’t believe Carlton was aware of this contract clause. He uses price caps on existing TLDs as rational for letting fresh TLDs set their own prices:
The fact that major TLDs are right now subject to price caps further constrains the ability of fresh gTLD registry operators to charge non-competitive prices.
The notes discuss the high switching costs between TLDs (e.g. changing your web site from dnw.com to dnw.org) but completely underestimates them. The switching costs are massive. It’s virtually impossible to switch to a fresh TLD without irreparable harm to your firm. That’s why renewal cost increases must be capped. Letting fresh TLDs set initial registration prices is OK, but giving them free reign to jack up prices on existing web site owners each year is not.
Fool me once, shame on you. Fool me twice, shame on me.
