New Top Level Domains, Private Auctions, and Chest Thumping

What Should You Do?

tlds-auctionThe New TLD Prioritization Draw is over.  Wherever your TLDs ended up on the list, the domain name industry has now moved one step closer to the creation of new TLDs on the Internet.  Big questions right now for new TLD applicants, are:

  1.  Should you participate in a private auction amongst your contenders?
  2.  If so, when should you do it?
  3.  Who should you use?

These are the questions undoubtedly going through the minds of most contended new TLD applicants.  I’ve done a lot of thinking and a some  research on the strategies and choices related to new TLDs and the present stage.  This is an important stage and what you do now will have an impact on your end results.  I’d like to expand on some of those ideas and strategies below:

Should You Participate In A Private Auction Amongst Your Contenders?

My advice, for most applicants, is yes.  ICANN designed this process to encourage private negotiation amongst contenders.  By their own definition, an “auction occurs as a contention resolution means of last resort.”  Avoiding negotiations may be a good business strategy, but to me it is chest thumping and likely only good for applicants who have money burning holes in their pockets. Maybe I’m a bad negotiator. I don’t get the point (and I don’t doubt that some applicants have this problem).  So, of course, do as you wish.

ICANN auction money will go to ICANN and I suppose there are some of you that would rather see that occur than to see that money go to a competitor.  I get it.  There will be winners (of auctions and new TLDs) and there will be losers who have spent the money and time to try but who will lose their investment.

On the other hand, for the amounts at risk, it can make a lot of sense to go from a model of “winners and losers” to a model of “buyers and sellers”.  In a private auction, applicants who have contentious TLDs will still be able to participate in auctions but, rather than lose their invested capital, will become “sellers”.  You can still bid as high as you would in an ICANN auction with knowledge of the fact that if your bids aren’t high enough, you will recoup the money you’ve put into these domains (you become a “seller” rather than a “loser”). And if you don’t win, you’ll have more cash.  You can then use it to bid on other TLDs you’re trying for (assuming you’ve put in for more than one TLD) or you can move on in life congratulating yourself on a good investment (I’m pretty sure that most applicants who participate in  private auctions will make their $185k plus some back).

If You Choose a Private Auction, When Should You Do It?

My view is that, in most cases, it is worth the time to wait for evaluations to come out.  No one knows who is going to pass evaluations or who is going to withdraw their applications.  Why go to an auction with someone whose application may be rejected?

Evaluators are, by design, independent. They have a job to do and they have to justify their existence and protect their reputation.  If they just rubber stamp every application that comes across their desk, they wouldn’t be seen as doing their job.  I suspect there will be some applicants who will be surprised and not make the cut.  And my understanding is that if an applicant doesn’t pass, they’ll have an opportunity to “clarify” but not to change their application.  If they ask for Extended Evaluation, they are not going to be able to “materially change” their application either (Module 2 – 2.3.2.). This is a decision that may very well resolve itself for you if your contender is knocked out.

The Cost Of Waiting

The cost of waiting for evaluations is the risk of losing your right to a larger refund. I understand that amounts to about $65k (You’ve taken bigger risks than that so far and you’re so much closer now.  Here again, I wish you the best in your decision.

If You Choose To Go Private Auction, Who Should You Use?

“The way I see it, we have no competition.”

I’ve spent some time talking to both Monte Cahn of RightOfTheDot.com (ROTD) and Peter Cramton of CramtonAssociates.com.  They are both very confident in their capabilities and their success in attracting applicants to use their auction systems.

My view is that they both offer a distinct set of capabilities that are different.  In terms of auction science and strategy, Cramton has the edge. He’s been at it for over 20 years and looks at this as an art and science.  He lives and teaches auctions every day and has been involved in some very large public auction processes. I have sat through both of his presentations (Toronto and Santa Monica) and there is no doubt that he knows his stuff.  He brought up issues and possibilities that I’ve not seen addressed anywhere else and that can have significant effects on outcomes and the complications of auctions and draws. He regularly drills four goals about successful auctions. They are efficiency, fairness, transparency, and simplicity. He is doing the industry a service by educating us on auctions.  He points out that by using a more sophisticated auction provider, you actually improve simplicity because experienced auction providers have dealt with more complications and account for them in their agreements.  Ironically, this made sense.

Peter Cramton disclosed in Santa Monica that he was made aware of the new gTLD auctions by Donuts.  Although I know that this makes many applicants wary, I don’t believe that he has any bias towards them and I don’t think he would risk a lifetime of dedication to fair public auctions by some underhanded agreement.  I’m glad however that he disclosed this publicly and I wish that I had heard that from him in Toronto.

On the other hand, Monte Cahn and Michael Berkins are both very competent and knowledgeable domain name veterans.  They clearly have an edge here.  Monte has run many significant domain name auctions and has that experience under his belt. This is an edge for their solutions.  Their expertise will also be very useful for what happens after an auction. This is because they understand domain name valuation better than most.  They also have a long term commitment to the industry which deserves respect.  If I’m calculating things correctly, ROTD offers a much lower cost to participants in auctions that end up less than $100M.  See the tables below (I invite both ROTD and Cramton Associates to correct any errors in my calculations).  Both companies have indicated that they are willing to adapt to the needs of the market as things move along.

There are price differences that deserve consideration.  Right Of The Dot fees are 4% of the amount of sale.  Cramton Associates charges a variable percent with a floor of $1 million and a ceiling of $4 million and where transaction volumes are less than $25 million, the commission is capped at 20%.

proposed auction fees

UPDATE: This chart isn’t exactly right.  I’ve sent off both to Cramton Associates and ROTD to get corrections. I received a response from Cramton Associates and am working on a corrected chart to post.  It’s a little complicated and in the mean time the above is the best I can make of it based on the information from the first documents I checked. I invite anyone who thinks they can help me to fix this to do so.

Ultimately, there is one thing that most people agree on; that it makes sense for most participants to do auctions in private before the ICANN public auction.  I suspect that there will be a few companies amongst the most highly funded that will take the position that they are doing the ICANN auction and that’s the end of it.  Of course, my ideal world isn’t generally what happens in real life.  It’ll be fun to see.

You can get more information on Cramton Associates here.

You can get more information on ROTD here.

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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