This is near and dear to my heart. Eventually, it will reach everyone's wallet. Please read and take action if the spirit moves you.
The .COM money scam. A monopoly for VeriSign. What to do when $450 million is not enough?
Here’s a quick and light .COM registry economics lesson.
This article will help you understand the enormity of the scam about to be pulled off by VeriSign – the .COM registry operator.
First, there are four players involved here:
. This acronym stands for the Internet Corporation for Assigned Names and Numbers. They approve registry and registrar deals. The have the ability to approve or disapprove the pending .COM deal.
. For each type of domain name (i.e. .COM, .NET, .ORG, etc.) a registry exists and it’s operated by a company like VeriSign. VeriSign operates .COM and .NET. The registry maintains the Internet routing systems, domain availability lookups and basic records. They have no end user (i.e. registrant) contact and deal only with registrars and ICANN
. These companies (GoDaddy.com is a registrar) act as a go between with the various registries and the registrants. They provide registrants with customer service and also other products that enable the use of their domain names.
. That’s you. You’re the user of the domain name and it’s your money that pays for all of the above. It’s really important that you read this. Unless we get this turned around, you’re about to be taken – again!
The economics lesson starts here.
It’s important to first realize that it costs VeriSign, the .COM registry operator, next to nothing to add each new .COM name to the registry, because unlike registrars, VeriSign:
• Does not have to provide customer service to registrants — that’s provided by registrars like GoDaddy.com
• Is not under any competitive pressures whatsoever to reduce prices – each registry has a monopoly until the registry contract is re-bid.
• Has everything handled by an automated process. The costs of operating these automated processes (i.e. bandwidth, storage, etc.) have been and are expected to continue to decline. Click on the link here to see historical charts
Registry profits will soar because of explosive growth.
To the above add the fact that the .COM registry will be the beneficiary of explosive growth
that is expected to occur in the Internet. The .COM registry grew 33% in 2005. This growth is expected to repeat in 2006 and continue into the future. While it will take some investment to accommodate this growth, it will most certainly not require price increases – particularly when it costs nothing to add additional names to the registry. Prices in the domain business should go down – they must not be allowed to go up – as VeriSign's Chairman and CEO, Stratton Sclavos wants.
VeriSign gets paid big bucks to run the registry.
Today there are about 48 million .COM domain names. Using historical and current growth rates we expect the .COM registry to exceed 60 million names at the end of 2006. At the current rate of $6.00 per name (this is what all registrars are charged – registrars in turn either discount or mark up this price to arrive at what the registrant is charged) VeriSign will take in $360 million dollars to operate the .COM registry this year.
The profits VeriSign makes now on the registry are huge.
The profits VeriSign realizes in running the registry are enormous. This became evident when the .NET contract came up for bid. VeriSign could not avoid the bidding process and was forced to cut the .annual NET rate from $6.00 to $3.50. As part of this deal VeriSign also agreed to collect 75 cents for each .NET registration year. This fee is paid by registrars in addition to the $3.50 registry fee.
There’s not much incremental cost to run the .COM registry.
Now let’s think about the .COM registry. It literally takes the same equipment that is used to operate the .NET registry. Because of today’s super computer and super storage architectures, and by VeriSign's own admission
(after all its goals have always been super scalability) they can do everything they want to do with the .COM registry on the same framework that’s been put in place for the .NET registry. This means that the incremental cost for VeriSign to operate the .COM registry is quite manageable — the same equipment runs both registries.
VeriSign wants a perpetual, unsupervised monopoly!
But if VeriSign has its way, and the proposed .COM registry contract gets approved:
• VeriSign’s monopoly will be extended indefinitely.
This means that the .COM contract can only come up for bid if ICANN
can prove that VeriSign has failed to perform their obligations. Even then, VeriSign will be given the opportunity to correct any problem before they would lose the .COM registry. This means that the benefits the Internet community realized when the .NET contract was put out for bid simply won’t ever happen again.
• VeriSign will get to raise .COM prices by 7% during four of every six upcoming years.
So not only will costs not come down – THEY WILL GO UP!
OK. Here’s the punch line. Grab your wallet!
If you think the numbers I've mentioned so far are big, hang on to your hat. They get much bigger. Now factor in the following: The .COM registry is expected to grow by 33% in 2006 alone. And we’re just getting started. Let’s be conservative and presume that the .COM growth slows to 25% for 2007. This means that the incremental revenue in the .COM registry at $6.00 a name – revenue which essentially comes with negligible cost to VeriSign – for 2007 should be in the neighborhood of $90 million dollars. That increases VeriSign's annual cash take from $360 to $450 million dollars.
But what if $450 million dollars isn’t enough?
But what do you do when $450 million dollars, with a huge profit margin – after all most of your costs are paid for by the .NET registry — is simply not enough? Well, if you are VeriSign you raise your prices by 7%. You raise prices not because you have to. You raise prices because you are a monopoly, and quite frankly, because you can. So instead of taking in only $450 million dollars for 2007 you raise prices on a product that incrementally costs you nothing and get an additional 7% or $31.5 million dollars. So now instead of $450 million in cash you instead get $481.5 million.
Let’s do the math for 2008.
Now let's do the math again for 2008. Figure a 25% growth rate in the .COM registry – actually with more and more people getting websites and the rest of the world joining the party, it could be more like 35% — but we'll stick with 25%. And for good measure throw in a 7% increase. I get a number of $644 million for 2008.
ICANN does get a little cut — "Alms for the poor."
In all fairness to VeriSign, I should mention that ICANN
does get a small cut of this. VeriSign did agree, starting in 2007, to send ICANN a check each year starting at $6 million and increasing over the following two years to $12 million per year.
I admit VeriSign does a good job.
There’s no doubt about it, VeriSign does a good job in operating both the .COM and .NET registries, and they will be the first to tell you so. They’ll tell you that the systems they have in place result in the smooth operation of the .COM and .NET domain name routing systems and a stable internet.
But VeriSign gets paid to do a good job.
To quote Chris Rock, VeriSign saying it runs the .COM registry without problems is like someone saying “I make my child-support payments on time.” Mr. Rock then follows up by saying “What do you want a cookie? You’re supposed to make your child-support payments on time!" In similar fashion I think we can say: VeriSign is supposed to be doing a good job!
VeriSign is not the only company who can run the .COM registry.
VeriSign would like us to believe that if we allow the .COM contract to be put up for bid that it could be a disaster for all mankind. A few years back the .ORG registry was transferred away from VeriSign as part of a deal that allowed VeriSign to delay re-bidding the .COM registry. There were no significant problems. I would also add that those companies that would bid on the .COM registry would be more significant in scope and size, than the company that was selected to run the .ORG registry. This was evident by the companies who bid on the .NET registry.
My problem with all of this.
I personally don't have a problem with VeriSign making a fair profit — but that's not what we're talking about here. I have a big problem with VeriSign's windfall profits being accomplished outside of the free enterprise system in which the rest of us all must compete. I find it particularly outrageous that because of the special privilege VeriSign wants to be granted, all of us who use the Internet may be denied the economies and innovation that come along as a natural part of our competitive environment.
Go Daddy's efforts.
I have been writing about this issue on this blog and talking about it on RadioGoDaddy
During the past week we have been very busy meeting with our elected representatives. In a number of cases they have expressed interest in the developments here and have indicated a willingness to be involved. It’s important however that they continue to hear from more of their constituents.
You can e-mail your congress reps here: