“Bank Run” on a Domain Registrar?: Threat Watch

Threat of a “run on the bank” scenario at domain registrar exists.

In November 2007 I wrote an article “A Run on the (Domain Name) Bank“. I discussed the potential for rumors regarding a domain registrar’s demise to cause a panic. Domain registrants would transfer their domains out in droves, further deteriorating the registrar’s business and pushing it under.

Earlier this year I wrote an article “The Danger of a Domain Registrar “Run on the Bank”“, which discussed an ICANN measure akin to FDIC insurance: putting domain owner information into escrow to make transferring domains to another registrar easier in the case of a meltdown.

The irony is that the original article was precipitated by rumors that brokerage ETrade was going under. Fast forward a year and ETrade is alive, whereas firms that no one thought would fail, such as Merrill Lynch, are no longer.

You shouldn’t feel too comfortable regarding any domain registrar. With few exceptions, no one on the outside knows the financial state of their registrar. So what happens if one goes in the red and people start pulling domains out? It would likely cause the registrar to fail.

But there are a few things that make a run on a domain registrar less painful than a run on the bank:

1. There’s a switching cost. People who want to transfer out 1,000 domains from a failing registrar will have to come up with $8,000 to transfer the domains. It also takes a lot of time to transfer.

2. “FDIC” insurance doesn’t have a cap. If you view the escrow stopgap ICANN implemented as insurance, it covers all of your domains with no cap like FDIC.

3. Most registrars are diversified. In fact, they make little money on domain registration and lots on selling add-on products. Thankfully, none of these add-on products are mortgages.

4. You won’t find any Senators spreading false rumors regarding a domain registrar’s imminent demise.

But if you’re really worried, you can always start your own domain registrar.