How Good Is The Domain Name Business?

Are you considering becoming a top-level-domain name registry?

If you are a potential applicant for a new top level domain name you may be asking yourself or your staff, “How good is the domain name business?” or “Should we be involved in a new top level domain?”  I’ve been in the business for over 10 years and I admit that I ask myself this same question each year, just as part of my professional self assessment.  I must say, that I always come back with the decision to stay in this business.  Here are some reasons why:

Profitability: Although profit margins on most domain names are squeezed because of competition, it is a “transactional sale”.  This means that, as long as you keep the processes automated (which is generally easy to do in the domain name business), any amount of net profit is high because the cost of provisioning the product is so low.

This formula changes if you are operating a sponsored or restricted registry because there is a cost involved in verification (making sure that a registrant qualifies for the domain name). But certainly the process of verification can be automated in many ways as well.

Predictability: One of the most valuable aspects of the domain name business is that once registrants choose a domain they tend to keep it.  Renewal rates in the industry are in the realm of 60% to 85%. This allows for business predictability and steady growth.  In effect, the success of your customer’s businesses (and/or hobbies or personal interests) are directly tied to your domain business and because renewal rates are predictable, this ensures much easier business planning.

Business Risk: The domain name industry is digital.  You are selling digital assets that have plenty of upside and really no risk of loss. If you are defrauded by credit card fraud, you just cancel the domain. You’ve not borne the cost of shipping, you’ve not lost any physical goods, and you completely control the asset (as a registry).  It is painful to see how many businesses that ship physical goods nationally and internationally, lose their shirts on fraud or mistakes.  The domain name business carries none of this kind of loss potential.

Repeat / Cross-Selling Opportunities: Almost every business and/or non-profit, or organization in the world needs a web site today.  This has become a fact of life.  A web site is often the most practical and basic need in business communications.  In fact, it is often one of the first things that a company does when opening its doors.  A domain name registry (or registrar) has access to businesses from the moment of their inception so it is a grand entree` for other business services.  Most domain name registrars also offer web hosting, merchant accounts, privacy settings, directory listings, marketing services, etc.  The potential for upgrades and additional business services offered to domain name registrants is limited only by your imagination.

Growth Potential: When I started in the industry, I couldn’t believe it when we passed the million-domain-names-registered mark.  Today, according to Verisign’s Domain Name Brief, the industry is at 215 million domain names registered across all top level domains.  Most experts believe that this is just the beginning.  Certainly, the Internet is being exploited as a medium, but from a business standpoint (businesses using the Internet as a channel for communication and sales) it is only just beginning.  I have no doubt that as more and more businesses and individuals find uses for the Internet, that these numbers will double.

New top level domain names will open up several opportunities for companies and individuals world-wide and it will become easier for an entity to find a practical domain name that they identify with because there will be so many more choices.  I don’t buy the idea that the Internet will become confusing because of these new choices.  If the Internet existed when I was in second grade, I would have been able to tell the difference between ford.com, ford.car, and even car.ford. It’s basic second grade reading; not that complicated.  Internet users will be able to tell the difference and understand the choices. Services will be provided to assist people in finding their way around.

Stability: Many businesses are cyclical and dependent on the economy and business cycles.  Think real estate or retail.  They are often also dependent on locales.  California & Nevada have been especially hard hit by the recession; The Internet is global in nature and thus, more resistant to local and national business cycles.  It has it’s ups and downs, booms and busts, but overall has continued to grow.

Security: Just like we still use physical addresses to identify the locations of our homes and businesses in the 21st century, we will need virtual addresses to identify our virtual locations for the foreseeable future.  This need should be a staple for many years to come and domain names are at the very heart of this system.

The Domain Name System was born out of a very human attribute, we remember names easier than we do numbers. That attribute seems very unlikely to change.  Staking your claim in the virtual world via the domain name industry (or a new Top Level Domain) seems to be a safe bet on the future, assuming you choose and win a TLD with a market behind it.

Competition: A domain name registry is a natural monopoly.  Although registrants can register other names and other endings, if they want your ending bad enough, you are the only place they can get it.  And there is still a ton of growth waiting to happen in the e-commerce world.

Disclaimer: This article is not meant to be a sales pitch of any kind. It is not meant to advocate or oppose your decision about whether to invest in a new TLD.  I only mean to share my thoughts and observations of this industry as compared to others and give you my insight.  Running a domain name registry is a challenge and if you are going to get involved, you’d better be prepared with a good idea and a strong market.  But if you think you have those things, I can’t think of a better industry to be involved in.  In fact, the points I’ve made here are only some of the positive aspects.  There are many more.

About Joe Alagna

Joe Alagna is the Vice President of Channel Development at the leading international domain name registrar, 101domain.com. Having been involved in the domain name industry and ICANN for over 15 years, he is an expert in all aspects of the domain business, including domain name investing, new gTLDs, registrars, and registries. Before the domain name business, he negotiated national accounts contracts for AT&T Wireless. Joe can be reached by phone at +1 (909) 606-9175 or via email using the contact form on this site.
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