Donuts Inc: Strategy, Growth, and the Future of New TLDs

An Exclusive Interview with Donuts’ Co-founders: Reflecting on Success, Charting the Future

The last time I stepped into Donuts’ headquarters in Bellevue, Washington, the pioneering domain name registry was a fledgling entity, generating zero revenue from its portfolio of new Top-Level Domains (TLDs). It was the era of mid-2013, a period of anticipation before the dawn of Donuts’ initial TLD launches, including now-familiar extensions like .guru, .bike, and .ventures.

Fast forward to the present, and the landscape has dramatically transformed. With an impressive track record of 185 successful TLD launches, Donuts now boasts a robust portfolio of 1.7 million domain names under management and a dedicated team of approximately 40 employees. This evolution underscores the company’s resilience, strategic acumen, and commitment to shaping the future of the domain name industry.

During a recent visit to Bellevue, I had the privilege of sitting down with two of Donuts’ visionary founders: CEO Paul Stahura and COO Richard Tindal. Our conversation provided invaluable insights into the company’s recent performance, its forward-thinking strategies, and its ambitious plans for continued growth and innovation in the ever-evolving world of domain names.

Unlocking Value: The Premium Domain Strategy

One of the most compelling facets of the new TLD landscape is the emergence and refinement of the premium pricing model. This innovative approach, which involves charging registrants a higher annual fee for domain names deemed to possess exceptional quality and inherent value, isn’t entirely novel. In fact, the .TV extension pioneered this strategy years ago, demonstrating its potential for revenue generation and brand differentiation.

However, many new TLD companies, with Donuts at the forefront, have embraced the premium domain model as a cornerstone of their overall business strategy. By carefully curating and pricing their premium domains, these companies aim to capture the intrinsic value of high-quality, memorable, and strategically relevant domain names.

By all indications, the premium domain strategy is proving to be a resounding success for Donuts. The company has established a tiered pricing structure, encompassing eight distinct tiers of premium domain names. Each tier is meticulously priced to reflect the unique value proposition of the specific TLD, ensuring that registrants are paying a fair price for the enhanced benefits and opportunities associated with premium domains.

Currently, Donuts has approximately 72,000 premium domain names registered that retail for $100 or more. This significant number underscores the demand for premium domains and the willingness of registrants to invest in high-quality online assets. In addition to these higher-priced domains, Donuts also offers a range of premium domains that retail for under $100, catering to a broader spectrum of customers and use cases.

Overall, Donuts boasts a portfolio of roughly 325,000 premium domain names retailing for over $100. Of these, approximately 20% are currently registered, indicating a healthy level of demand and a significant potential for future growth. This registration rate highlights the effectiveness of Donuts’ premium domain strategy and its ability to connect valuable domain names with businesses and individuals seeking to enhance their online presence.

To put this in perspective, consider Rightside, a competitor and partner in the domain name space. Rightside has approximately 600,000 unregistered premium domain names priced over $100 across about 40 TLDs. While Donuts has four times the number of TLDs, it has a smaller proportion of domains priced as premiums, suggesting a more selective approach to premium domain designation.

At the wholesale level, these 72,000 registered premium domain names generate a remarkable $9 million in annual recurring revenue for Donuts. This revenue stream underscores the significant economic value of premium domains and their contribution to the company’s overall financial performance. Although premium domains represent less than 5% of the total volume of registered domains, they account for an impressive 15% of total sales, highlighting their disproportionate impact on revenue generation.

Maintaining Momentum: Domain Renewal Rates

In the early days of new TLDs, Donuts boldly predicted exceptionally high initial renewal rates of around 80%. While this initial forecast proved to be somewhat optimistic, Richard Tindal confirmed that renewal rates are currently hovering around a healthy 70%. This figure demonstrates the enduring value and relevance of Donuts’ domain names for their registrants.

Rightside, a key competitor and partner located in Kirkland, Washington, is reporting renewal rates closer to 60%. Several factors likely contribute to this difference. First, Donuts’ domains have been available for a longer period, giving them the advantage of second-time renewals, which typically exhibit higher renewal rates than first-time renewals. This suggests that as Donuts’ domains mature, their renewal rates may continue to climb.

Second, Donuts has generally refrained from engaging in aggressive discounting on first-year registrations. This strategy helps to ensure that registrants are acquiring domains for their long-term value, rather than simply chasing short-term savings. By focusing on sustainable growth and customer retention, Donuts is fostering a loyal customer base that is more likely to renew their domain names year after year.

Tindal also noted that renewal rates for premium domains are consistent with the renewal rates for the larger base of standard domains. This indicates that the premium domain strategy is not only driving revenue but also fostering long-term customer relationships. The value proposition of premium domains, with their enhanced brand visibility and strategic advantages, appears to be resonating with registrants and encouraging them to renew their registrations.

Evolving Strategies: The Art of Marketing TLDs

When I last visited Donuts’ headquarters three years ago, the company’s marketing philosophy centered on promoting new TLDs as a collective product. The initial approach was to avoid marketing individual TLDs separately, instead focusing on the broader benefits and opportunities associated with the new domain extensions.

“That thinking has evolved,” explained Tindal. “Certainly, we are now doing marketing around categories.” This shift reflects a more nuanced and targeted approach to marketing, recognizing that different TLDs resonate with different audiences and use cases.

For example, Donuts has actively promoted its portfolio of photography-related domain names, including .camera, .equipment, .gallery, .photos, .lighting, and .photography, at relevant industry tradeshows. This targeted marketing campaign has effectively connected these specialized TLDs with photographers, businesses, and organizations seeking to establish a strong online presence in the visual arts.

Investing in the Future: Donuts Labs

Donuts recently appointed Tim Favia as VP of Corporate Development, entrusting him with the oversight of Donuts Labs. Donuts Labs is an innovative program designed to invest in companies that are exploring novel applications of DNS and promoting new and creative uses for domain names.

Earlier this month, Donuts Labs announced its first investment, signaling the company’s commitment to fostering innovation and driving growth in the domain name ecosystem. By supporting companies that are pushing the boundaries of DNS and domain name usage, Donuts is positioning itself at the forefront of technological advancement and shaping the future of the internet.

In addition to his role with Donuts Labs, Favia is also spearheading efforts to acquire other top-level domain names. This strategic initiative aims to consolidate the TLD landscape and further expand Donuts’ already extensive portfolio.

When can we expect to see further consolidation in the top-level domain space? “When prices become more sane,” Stahura quipped.

Favia added, “Right before consolidation you have a disparity between owner perceived value and market value.” This observation highlights the challenges of navigating the resale market, where sellers often overestimate the value of their assets.

Favia explained that struggling companies seeking an exit often maintain an inflated perception of their assets’ worth, making it difficult to reach mutually agreeable terms. This disparity between perceived value and market value is a significant obstacle to consolidation in the TLD space.

Donuts acquired .Reise in an auction, and the industry is eagerly anticipating news of another TLD acquisition in the near future. However, for the time being, Donuts believes that the asking prices for TLDs on the resale market remain excessively high.

Would Donuts ever consider selling a domain from its own portfolio? “Hell, Yeah!” Stahura exclaimed. If the right strategic buyer emerges with a compelling offer, the company would certainly be open to divesting one of its TLDs. This pragmatic approach underscores Donuts’ commitment to maximizing shareholder value and capitalizing on strategic opportunities.

Looking Ahead: Future Growth Trajectory

Last week, Rightside forecasted annual registry revenue of $50-$75 million for the period of 2019-2021. This projection represents a significant increase from the $8.4 million in revenue that Rightside generated last year.

Donuts also anticipates rapid growth in the coming years. “Awareness will improve, channel presentment will improve and our marketing efforts will get more efficient over time,” Stahura predicted. This optimism is grounded in the company’s proven track record of innovation, strategic execution, and commitment to customer satisfaction.

I’ve marked my calendar for a return visit to Bellevue three years from now. Only time will tell whether this prediction comes to fruition, but given Donuts’ impressive track record and forward-thinking leadership, I am confident that the company will continue to shape the future of the domain name industry.