Navigating the New gTLD Auctions: Winners, Losers, and the Evolving Domain Industry Landscape

The landscape of top-level domain names is undergoing a significant transformation, driven by high-stakes auctions where industry titans like Google, Amazon, and Donuts are fiercely competing for control. These battles for valuable digital real estate have yielded numerous surprises, shaping the future of the new gTLD program. In a recent insightful discussion, renowned domain blogger and new TLD consultant Michael Berkens offered his expert perspective on who is emerging victorious, who is facing setbacks, and the broader implications for the global domain name system.

Beyond the intense auction dynamics, the domain industry remains vibrant with other key developments. We delve into a comprehensive recap of the South by Southwest (SXSW) conference, providing a glimpse into innovative marketing strategies deployed by domain companies. Additionally, we examine the latest updates regarding GoDaddy’s initial public offering (IPO) and the strategic launch of Donuts’ “Freedom of Choice” advertising campaign, all against the backdrop of ICANN’s evolving budget forecasts and the performance of new gTLD registrations.

For those interested in a deeper dive into these discussions, the full podcast episode is available. You can subscribe via iTunes to listen on your iPhone or iPad, or simply click play below to start listening immediately. Previous episodes are also accessible for further exploration of the domain name business.

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A comprehensive transcript of this enlightening show is now available, offering a detailed account of the discussion.

Insights from the Domain Name Wire Podcast: Episode #25

Welcome to the Domain Name Wire Podcast, your premier source for insights into the dynamic business of domain names. Broadcasting live from the DNW.com Studio in Austin, Texas, your host, Andrew Allemann, brings you an exclusive conversation. This week’s show transcript is proudly brought to you by the expert domain name and new gTLD lawyers at Traverse Legal, PLC.

In Episode #25 of the Domain Name Wire Podcast, Andrew Allemann welcomed Michael Berkens, a prominent figure in the domain industry. Michael is not only the author of the widely-read domain name blog, TheDomains.com, but also a co-founder of the esteemed Domain Name Consultancy, Right of the Dot. The primary focus of their discussion was to analyze the current state of auctions for new top-level domain names, identifying key winners and losers, and exploring the profound implications for the new gTLD program as a whole.

Before diving into the intricate world of gTLD auctions, Andrew and Michael first reviewed some of the most compelling news items from the past week, painting a holistic picture of the bustling domain industry.

Domain Industry Highlights: SXSW, GoDaddy IPO, and Donuts’ New Campaign

The recently concluded South by Southwest (SXSW) Conference in Austin proved to be a significant gathering for the domain name industry. With an estimated three to four hundred thousand attendees converging on Austin for the ten-day festival, encompassing music, film, interactive media, and gaming, it offered an unparalleled platform for engagement. Domain companies seized this opportunity to connect with a diverse audience.

Sedo, for instance, executed a remarkably successful marketing campaign with their frozen yogurt truck. Over four to five days, they engaged thousands of people, sparking conversations about top-level domain names. Each topping offered was named after a different gTLD, ingeniously prompting customers to order “dot-club” on their ice cream, creating a memorable and interactive brand experience. Just down the street, Radix made a substantial impact with their .space grilled cheese booth, distributing over a hundred sandwiches hourly. The event also saw lively gatherings, including a popular party hosted by Domain.com and .me, providing excellent networking opportunities for representatives from various TLD companies and domain service providers.

In other significant news, GoDaddy, a giant in the domain registration space, announced its planned price range for its eagerly anticipated initial public offering (IPO). According to an SEC filing last week, GoDaddy aims to raise approximately $400 million, with a projected valuation ranging between $2.5 and $3 billion. The target share price for the IPO is set at $17 to $19 per share, with plans to trade on the New York Stock Exchange under the ticker symbol GDDY. This IPO marks a pivotal moment for GoDaddy and could signal broader investor confidence in the domain market.

Adding to the week’s developments, Donuts, one of the largest operators of new gTLDs, launched an ambitious advertising campaign titled “Freedom of Choice.” Donuts CMO, Jeff Davidoff, elaborated on the campaign’s rationale, stating that as a leading TLD operator, Donuts feels a responsibility to champion and promote new gTLDs in general. While declining to disclose the exact budget, Davidoff confirmed that the campaign would run for at least sixty days and cost well over a million dollars, underscoring the growing need for aggressive marketing within the new gTLD space.

This increased marketing effort appears to be a direct response to prevailing market trends. ICANN’s draft budget proposal for 2016 revealed that 2015 registration numbers are trending below expectations. While ICANN initially projected thirty-three million new TLD registrations for the fiscal year ending in June, this figure was later revised down to fifteen million in its final budget. Michael Berkens suggested that a more realistic number might be closer to five million. This shortfall in anticipated revenue for 2015 has led ICANN to temper its expectations for 2016 as well, highlighting the challenges in achieving widespread adoption for new top-level domains.

Further new TLD news included Rightside’s release of twenty thousand two-character domain names across its portfolio. These domains, which include at least one digit (e.g., letter-number, number-letter, or number-number combinations), remain somewhat in regulatory limbo with ICANN but are generally available at most domain registrars. While they command a premium price and their utility can be limited by the inclusion of digits, they present intriguing opportunities for specific branding or niche applications within the evolving domain landscape.

For more detailed coverage of these stories, including a video of Andrew Allemann ordering frozen yogurt at the Sedo truck during SXSW, further insights into GoDaddy’s IPO, and access to Donuts’ “Freedom of Choice” commercials, visit Domainnamewire.com. The search function on the website allows for quick access to all relevant articles and reports.

The Domain Name Wire Interview: Michael Berkens on gTLD Auctions

It’s time for the Domain Name Wire Interview, where we engage with leading figures in the domain name business. Today, we are privileged to host Michael Berkens, a name familiar to most Domain Name Wire Podcast listeners. As the author of TheDomains.com blog and a partner at Right of the Dot, Michael brings a wealth of knowledge to our discussion. Andrew welcomed Michael to the program, expressing gratitude for his participation.

Michael thanked Andrew for the invitation, and the conversation promptly shifted to the core topic: the intense competition in both private and public auctions for new top-level domain names, and the overall impact on the gTLD program. Michael has meticulously chronicled the ongoing saga of these auctions, making him the ideal authority to shed light on who is truly winning and losing.

Andrew initiated the discussion by asking Michael to explain the process when multiple parties apply for the same top-level domain name, a common scenario in the new gTLD program. Michael clarified that when more than one company applies for the same gTLD, they enter a “contention set.” Resolution can occur privately, often through a private auction where one party buys out the others, leading to withdrawals of their applications. If private resolution fails, the parties proceed to an ICANN Last Resort Auction. ICANN deliberately named it a “Last Resort” to encourage private settlements, aiming to avoid managing hundreds of contentious auctions themselves, given the initial pool of over 220 contended extensions.

Andrew further illustrated this with a hypothetical example: if both he and Michael applied for “.DomainBlog” and entered a private auction, the winner (e.g., Michael) would acquire the gTLD, and the loser (Andrew) would receive financial compensation. However, if Andrew refused a private auction and an ICANN Last Resort Auction ensued, the winner would pay ICANN, and the losing party would essentially gain nothing beyond a minor refund on their application fee. Michael confirmed this explanation, adding that some two-person contention sets have been resolved through alternative mechanisms, such as buy/sell numbers or even forming partnerships, as seen with Tucows and Donuts in some instances.

Valuations and Investments: Dissecting High-Stakes gTLD Auctions

The discussion then turned to the significant prices being paid for new gTLDs. While some figures from ICANN auctions are public, such as Google’s $25 million for .App, Radix’s $7 million for .Tech, and Fegistry’s $5.6 million for .realty, private auction results are often whispered. Michael noted that these high valuations, particularly for extensions like .App, were somewhat anticipated during the early discussions about the gTLD program. He even speculated that a highly sought-after extension like .web could potentially fetch upwards of $50 million, underscoring the perceived long-term value of these digital assets. However, he emphasized that whether these prove to be sound investments remains an open question, as market dynamics are constantly evolving.

Andrew pondered whether the initial launch performance of some gTLDs, perhaps falling short of owner expectations, might have a dampening effect on auction prices. Michael agreed that this was a valid consideration, especially given the opacity of private auction figures. He referenced the recent resale of the .reise extension for $400,000, which already had approximately 1,300 registrations, contrasting this with the price of a gTLD application alone. This raised an intriguing point: does a new TLD hold more perceived value before or after its launch? While pre-launch periods offer opportunities like Sunrise and land rush phases, they also carry higher hopes that may not always materialize post-launch.

Michael further observed that the industry now has a clearer understanding of market behavior, particularly regarding trademark holders. With few exceptions, trademark holders have largely not engaged aggressively in Sunrise periods, resulting in hundreds of registrations rather than thousands as many applicants initially hoped. This consistent trend, combined with the launch of over 500 new gTLDs with varying registration numbers and pricing models (from free to thousands of dollars for premium domains), provides a more robust gauge of the market’s reception.

Recent Auction Activity and Strategic Plays

Michael Berkens has been actively reporting on a flurry of recent gTLD auction activities. He noted that ICANN’s Last Resort Auctions are now scheduled monthly, with private settlements often preceding them by a week or two. Upcoming ICANN auctions include .SRL (a business designation akin to .inc or .llc, possibly for Spain), .GMBH (a German business designation), and .PING (contended between Radix and a golf manufacturer). Michael expressed skepticism about these particular extensions fetching substantial sums.

Analyzing Donuts’ strategy, Michael noted a shift. While Donuts initially didn’t win many private auctions, they appear to have gained momentum recently. Despite not winning any of the eleven public ICANN auctions, they’ve been active in the approximately 225 original contention sets. With about 18 active auctions and another 14 on hold due to legal issues, the gTLD contention process is gradually winding down.

A notable acquisition Michael covered was Major League Baseball (MLB) securing .baseball. While some in the gTLD community prefer generic terms to be open, Michael believes MLB’s adoption of .baseball is a positive for the program, potentially bringing significant attention to new TLDs. Andrew elaborated on this, suggesting that if MLB were to use .Cardinals.baseball or .Yankees.baseball in their stadium advertising (instead of .com), the sheer number of impressions could dramatically boost awareness for new gTLDs. This strategic use of gTLDs contrasts with the fate of .soccer, which was won by Donuts rather than Major League Soccer (MLS).

Google’s Selective Engagements and Other Corporate Strategies

Google’s performance in the gTLD auctions has been particularly scrutinized. While they famously acquired .App for $25 million, they have also lost numerous auctions. Michael reported that Google, who applied for 101 extensions (the second-highest after Donuts’ 307), has lost 37 auctions and only has 37 delegated. Despite initial industry perceptions that Google, with its vast resources, would dominate all auctions, Michael never subscribed to this view, citing their nature as a large business with specific budgets and anti-trust considerations. He observed that Google’s wins have largely been for branded extensions, with .App being a significant generic, likely tied to Android’s dominance in the app market. Google’s apparent lack of aggressive pursuit for .tube and .blog, and their potential pullback from the domain registrar business, suggest a more measured approach to the gTLD program than initially anticipated.

Other major brands have also made strategic moves. L’Oreal, the cosmetics giant, aggressively pursued and seemingly won most of the generic extensions relevant to their business, such as .makeup. Similarly, Scripps Howard, a prominent broadcasting company owning channels like Food Network and Travel Channel, secured generics like .food and .cooking, alongside their branded gTLDs, to protect and expand their digital presence.

Portfolio Players and Emerging Trends

Among the major portfolio players, Frank Schilling’s Uniregistry seems to have lost more contention sets than won, particularly for highly valuable generics like .news and .fashion. His recent acquisition of .mom struck Michael as a “head scratcher,” questioning its potential impact on online identity. Interestingly, Google appears to be the sole applicant for .dad, creating a potential future scenario for combining these related gTLDs.

Radix, on the other hand, has performed strongly, acquiring significant strings like .tech for $6.8 million in a public auction. They also secured .online, a gTLD for which data from an earlier partnership with Tucows suggested a valuation of at least $10 million. Radix’s portfolio also includes .website and the upcoming .site, positioning them with a robust set of new TLDs.

Donuts, the behemoth with 307 applications, has had 158 extensions delegated where they were the sole applicant. While they have withdrawn 59 applications, largely due to auction losses, they remain a dominant force. Their acquisitions span various verticals, including transport (.taxi, .cab, .limo) and sports (.football, .soccer), though they missed out on .baseball to MLB and .basketball to FIBA. Donuts’ consistent strategy has also made them significant financial gains from parties buying them out in private auctions.

Conversely, Famous Four, with 56 original applications, appears to be struggling, having only 14 delegated and losing many auctions, despite securing niche ones like .cricket and .rugby. This highlights that not all applicants achieve their desired market share.

The Strategy of Losing and Amazon’s Enigma

The discussion also touched upon the strategic advantage of “losing” an auction. In many business cases, gracefully withdrawing from an auction can be a profitable move, as it generates proceeds from the winning bidder. However, justifying the immense prices paid for some gTLDs, such as .App at $25 million, requires unique business models. Google, for instance, is uniquely positioned to leverage .App through its Android ecosystem, potentially requiring apps to be in the Google Play Store to use a .App domain. This represents a strategic valuation beyond mere domain sales.

Another example is .law, reportedly sold for close to $20 million in a private auction. The operator, Minds and Machines, plans to restrict registration to licensed legal professionals and set a high wholesale price (around $200). It’s speculated that Minds and Machines may have had a partner contribute significantly to this acquisition, reducing their out-of-pocket expenses.

Daniel Negari, founder of .xyz, made an early splash as a sole applicant for .xyz and also successfully won .college in an auction against Donuts. His youthful dynamism and smart strategies have garnered significant attention, with whispers of further acquisitions. Amazon, another significant player, applied for 74 extensions, intending to operate them on a closed basis, including generics like .app, .book, and .music. However, ICANN regulations, influenced by governments, prevented companies from owning generic gTLDs exclusively, fundamentally impacting Amazon’s business model. Furthermore, they were unable to secure .amazon due to geographical conflicts with Amazonian countries.

Amazon’s acquisitions, such as .spot, .buy ($4.6 million in an ICANN auction), and recently .free, present an eclectic mix. While they actively register generic terms and brands across all TLDs as a defensive measure, their overarching strategy for diverse acquisitions like .buy and .free remains a mystery due to their tight-lipped corporate culture. This makes Amazon’s ongoing gTLD activities one of the most fascinating developments to watch in the coming year.

Future Outlook and Concluding Thoughts

The gTLD auction landscape has unfolded quite differently than many initially predicted, offering a continuously fascinating spectacle. Several high-stakes auctions are still pending resolution, including .gay (entangled in community disputes), .music (also with a community applicant and potentially a “big daddy” like .web), .search (contested by Amazon, Google, and Donuts), and the contention between .game and .games (involving Google, Amazon, Donuts, Uniregistry, a Chinese gaming company, and Famous Four).

These upcoming auctions promise further intrigue and will undoubtedly shape the future trajectory of the new gTLD program. Andrew and Michael expressed their eagerness to continue monitoring these developments, with the prospect of revisiting the topic in a future podcast once more of these significant battles conclude.

The Domain Name Wire Podcast extends its sincere thanks to Michael Berkens for his invaluable insights. Michael’s contributions through TheDomains.com and Right of the Dot remain essential resources for understanding the complex world of domain names. That concludes this week’s Domain Name Wire Podcast. If you found this episode informative, please consider leaving a positive review on iTunes. You can access all previous podcasts by subscribing on iTunes or visiting DNW.com/podcasts. Join us again next week for more updates and expert analysis.

Thank you for listening to the Domain Name Wire Podcast. For the most current news, analysis, and tips regarding the domain name business, please visit us online at DomainNameWire.com or follow our updates on Twitter @DomainNameWire.