Stupid. That’s Why It’s Raising .Com Prices — VeriSign Isn’t

VeriSign price increase makes sense for the firm.

There has been a collective whine from the domainer community over the past 12 hours following news broke that VeriSign is increasing .com prices again.

I’m whining, too. But this is an expected and smart move by VeriSign.

VeriSign’s contract with ICANN allows it to raise prices 7% in any four years of its current six year contract. It raised prices in the first two years, bringing VeriSign’s take of a .com registration from $6.00 to $6.86. The assumption was that VeriSign would increase the price each year for the first four years to maximize its revenue. Following all, not raising it in one year meant the registry would lose out on that increase every year until it hit its four price increases, and the compounding effect would also be lost.

In the third year (this year), VeriSign didn’t raise rates. Although the economy may have played a factor, the real reason was politics. VeriSign was being trotted in front of congress this year to testify regarding ICANN and the end of its Memorandum of Understanding with the U.S. government. It was a politically untenable environment to jack up rates again.

In fact, during VeriSign’s first quarter conference call this year President and COO Mark McLaughlin stated:

So far we’ve taken two of these increases. And the patentees’ have been thoughtful regarding the timing of the increases, and I think we ought to be continuing to do so particularly in life as the impact of an increase could have on sales in this weak economy, as well as some uncertainty in the multiple constituencies that are involved in this industry.

This decision to not raise rates in 2009 will cost VeriSign over $75 million in pure profit over the next two years. If VeriSign raises rates again next year it will have “caught up” to its maximum pricing under the contract, so its loss from not increasing rates in 2009 is two years worth of revenue at the higher prices, not to mention the compounding effect of missing a seven percent increase.

With this year’s legislative focus on domain names behind us, there won’t be as much scrutiny of VeriSign in 2010.

The current wholesale price of .com domains is $7.04 counting an 18 cent ICANN fee. The fresh price will be $7.52 counting the ICANN fee, effective July 1, 2010.

The argument that registrations will decrease as a result of this price increase is largely a fallacy. It’s true that people will drop domain names making between $7.04 and $7.51 if they have no potential of future sale. But that’s limited mostly to typos, and the increase in revenue more than makes up for losing these domains.

This increase will affect professional domainers with sizable portfolios more than other consumers. And no one on Capitol Hill cares regarding domainers. ICANN’s take, at least when I talked to them regarding VeriSign price increases a couple years ago, was that we shouldn’t complain. Following all, registering a .com domain name cost $35 a year just a decade ago.

But the move will also build political pressure increase over time, and it may backfire as VeriSign attempts to get the business of people wishing to release fresh TLDs. The true cost of managing the .com registry is perhaps a dollar or two a domain. That’s what some registries will offer as pricing to fresh TLD operators. How will VeriSign be able to offer lower prices to fresh TLD operators with a straight face? Won’t people start to question its costs for .com? The answer is probably that VeriSign won’t risk the heat on .com at the expense of picking up some modest fresh TLD contracts.

Then there’s also a lawsuit that could force ICANN to open the .com registry up to competitive bid. But that won’t be settled any time soon.

So we can go ahead and whine regarding .com prices increasing. I know I’m going to. But I also know that, if I were in VeriSign’s shoes, I’d do the exact same thing.