Inside fresh top level domain firm Donuts

Two of Donuts’ co-founders discuss the firm’s results, strategy, and plans for the future.

The last time I visited fresh top level domain firm Donuts’ office in Bellevue, WA, the firm had zero revenue from fresh TLDs.

It was mid-2013, and it wouldn’t be until the next year that Donuts would launch its first batch of domains such as .guru, .bike and .ventures.

185 launches later, the firm now has 1.7 million domain names under management and regarding 40 employees.

The prior week in Bellevue I sat down with two of Donuts’ founders, CEO Paul Stahura and COO Richard Tindal, for an update.

Premium Domains

One of the more interesting aspects of fresh TLDs is the premium pricing model.

This model, in which registrants pay a higher-than-normal annual fee for domains deemed of higher quality, isn’t fresh. .TV did it for many years.

But many fresh TLD firms, counting Donuts, have made premium domains a big part of their strategies.

By all accounts, the premium model is working for Donuts. The firm has eight tiers of premium domain names, with each tier selling for different prices based on the top level domain.

The firm has regarding 72,000 premium names right now registered that retailed for $100 or more. (Many other premium domains retail for under $100.)

Donuts has roughly 325,000 premiums retailing for over $100, so regarding 20% are right now registered.

(Compare this to Rightside, which has regarding 600,000 unregistered premiums over $100 across regarding 40 TLDs. Donuts has four times the number of TLDs but a lot fewer priced as premiums).

At a wholesale level, these 72,000 names generate $9 million in annual recurring revenue. Premium domains represent under 5% of volume but 15% of sales.

Renewal Rates

Donuts predicted very high initial renewal rates of regarding 80%. While this number was optimistic, Tindal stated that renewal rates are coming in at around 70%.

Competitor (and partner) Rightside, which is just down the road in Kirkland, is reporting renewal rates closer to 60%. I suspect the difference has to do with two factors.

First, Donuts’ domains have been out longer and have the benefit of second-time renewals, which tend to renew at higher rates than first-time renewals.

Second, Donuts hasn’t engaged in much discounting on first-year registrations.

Tindal stated the renewal rates for premium domains are in line with the larger base of domains.

Marketing

When I visited Donuts’ headquarters three years ago, the firm stated that it viewed itself as having one product to market: fresh TLDs as a whole.

It didn’t view each TLD as a separate product to market and didn’t plan to promote the domains individually.

“That thinking has evolved,” explained Tindal. “Certainly, we are now doing marketing around categories.”

An example might be the firm’s promotion of .camera, .equipment, .gallery, .photos, .lighting, and .photography at a photography tradeshow a couple years ago.

Donuts Labs

Donuts recently hired Tim Favia as VP of Corporate Development.

Favia is overseeing Donuts Labs, which disclosed its first investment earlier this month.

The Donuts Labs program will invest in firms that have different ways of using DNS or can promote fresh uses for domain names.

Favia is also leading efforts to acquire other top level domain names.

When will we see more consolidation in the top level domain space?

“When prices become more sane,” Stahura stated.

Favia added, “Right ahead of consolidation you have a disparity between owner perceived value and market value.”

Favia stated struggling firms looking for an exit still have the perception that their asset is worth more than it probably is.

Donuts purchased .Reise in an auction, and we might learn of another TLD buyout soon.

But for now, Donuts believes the asking prices for TLDs on the resale market are too high.

Would Donuts ever sell a domain from its portfolio?

“Hell, Yeah!” Stahura stated. If the right strategic buyer comes along, the firm will certainly consider divesting one of its TLDs.

Future Growth

The prior week Rightside forecasted $50-$75 million on annual registry revenue in 2019-2021. This is much more than the $8.4 million it generated last year.

Donuts also forecasts rapid growth.

“Awareness will improve, channel presentment will improve and our marketing efforts will get more efficient over time,” Stahura predicted.

I’ve marked this date three years from now to travel back to Bellevue again. We’ll see if this prediction comes true.