Of .org domain names — The economics

Ethos Capital just bought a license to print money.

Yesterday, Internet Society disclosed it was selling the .Org registry to a private equity firm. The price has not yet been disclosed, but it was surely a very high figure, as I will explain.

.Org is the second most valuable namespace behind .com. As of the end of July, there were 10.5 million .org domains registered.

Although many associate the name with non-profits, anyone can register a .org domain for just regarding any purpose. Some groups even register .org domains instead of .com.

Let’s look at the economics of the .org namespace.

To start, round down to 10 million domains. At $9.93 per domain, it brings in regarding $100 million in revenue at today’s wholesale price.

Costs are minimal. Regarding $18 million to backend registry Afilias (which will be negotiated down again in the future), a few million to ICANN, some marketing budget to registrars and staff to help push the name. Call the staffing element regarding $3-4 million, but it could be lowered. Especially if you fold it into Donuts or another registry.

But Ethos Capital wasn’t paying just for this $100 million a year. ICANN has removed pricing caps on .org, so the firm can charge whatever it wants for .org domains.

To maximize profits, it ought to wait a year until things quiet down and then implement an increase. Raise it 50% to $15? Double it to $20?

Let’s go with the $20 price tag. This would have only a slight impact on total .org registrations. A firm using a .org isn’t going to switch domains over five or ten bucks a year. It’s too much work. Some people will drop excess domains and domainers will think twice. But I believe .org would lose no more than 10% of registrations.

So 9 million domains x 20 each = $180 million revenue. And the costs barely budge.

There’d be some uproar. But Ethos could offer free .org domains to non-profits that apply. “Hey, fill out this application that takes an hour telling us regarding the good work you do and you get your name for free.” Very few non-profits will take them up on this. They can do more with their hour than fill out an application to save twenty bucks.

Also, registrants can renew for up to 10 years in advance at today’s prices. Not bad for Ethos if people want to pay ten years’ worth of registrations in advance. Most won’t.

To keep the top of the funnel moving, the registry ought to offer discounted first-year registrations, as is typical these days. Maybe keep the retail price around $10-$15 for first-year registrations through rebates to registrars.

The registry can also hold back expiring .org domains and apply premium pricing tiers to them. This isn’t as effective as it once was since expired domain services transfer domains ahead of they delete, but there’s still value here.

And the initial price increase is just the first one. They can easily raise prices from there, even if only a modest 10% per year.

Start adding this up and I’d be shocked if this wasn’t a solid ten-figure deal. Verisign, which runs .com, is valued in the stock market at $22 billion and it doesn’t have carte blanche to raise prices.