Masters Of Their Domains?

In late 1999, Southern California incubator eCompanies plunked down $7.5
million for the Internet address business.com, a move destined to join the
avalanche of Internet Super Bowl ads as prime examples of dot-com excess.
But at the time, the company – billed by its founder as “the Yahoo of
business” – drew considerable attention, not to mention $61 million in
venture money from The Financial Times, media magnate Mort Zuckerman
and publishing house McGraw-Hill. Putting up $7.5 million for a prime Web
address, during the dot-com boom, was similar to the thought behind buying
oceanfront property: location, location, location.

With the dot-com bubble burst, companies like businss.com are struggling to
survive. It would seem the fervor for tony Net addresses has suffered a
similar fate: registrations for the top domains (.com, .net and .org) fell
by 3.5 million from October to June, according to industry researcher
SnapNames.com.

“The constant question is how do I maintain a healthy business here?” says
Mason Cole, publisher of SnapNames.com’s “State of the Domain” report.
“Where is the demand for new services?”

For registrars, the companies that rode the wave of interest in Web
addresses, the market has changed, and they must now adapt their businesses
to suit the times.

The Dot-Com Hangover


After showing solid growth for years, the numbers of SnapNames.com’s monthly
survey of domain registrations began dropping last October. Verisign, the
registrar industry’s clear leader, lost nearly 5 million registrations from
September 2001, nearly 30 of its total domains under Network Solutions
management.

Cole and others in the industry point to two main classes in the loss of so
many registrations: speculators and promotional names. For the speculators,
the lure of scoring the next business.com (or even altavista.com, which went
for $3.5 million) was enough to register domains by the tens of thousands,
hoping a magical word combination would be in high demand. However, with the
dot-com collapse, the speculator market has suffered a similar fall, while
not disappearing altogether.

“There were a lot of names being put into the market that were lottery
tickets,” says John Donoghue, senior vice president of Verisgn’s registrar
unit.

A second source of lost domain names came from promotional names that were
either given away or sold at basement prices. In the dot-com era, many
registrars played the market-share game, looking to pad their number of
registered sites by cutting deals with corporations owning large numbers of
sites and even with individuals getting their own sites.

“At one point, the industry got very interested in market share, which is
not the right business objective,” says Michael Pollack, general manager of
corporate services at Register.com. “We’ve all realized that we need to get
good customers not necessarily the most.”

So how do registrars deal with a shrinking market? While the answers might be obvious, market forces are NOT on their side. See Page 2.

The Big Fish Thrive

The bursting of the dot-com bubble brought a healthy dose of reality to the
registrar business, but unlike many other Internet sectors, it remains
highly fragmented. The Internet Corporation for Assigned Names and Numbers
(ICANN) has accredited 122 registrars, and many small, mom-and-pop
operations have survived in a market that’s truly global in scope.

However, the center of gravity of the registrar business remains at the top,
where three companies – Verisign, Register.com, and Tucows — accounted for
51 percent of market, according to SnapNames.com. Verisign, despite losing
so many registrations from October until June, is still the undisputed
leader with a 33 percent market share. Tucows has replaced Regiter.com at
No.2 with 10.2 percent, while Register.com has 9.9percent.

“Revenues are still bunched at the top,” says SnapNames.com’s Cole. “What
are some of the smaller-volume players going to do to stay healthy? Our
observation was that unless some new products are brought into the
marketplace, it looks like some of those are ripe for consolidation.”

With many discount registrars selling domains for as low as $10, one
industry executive at a large registrar says it is not possible for them to
stay in business, given the economics of the industry.

“To make this business a viable business you have to be a certain size,” the
executive says “You have a few players out there charging very low prices.
Looking at the economics, they’re going to have trouble making money.”

Beyond the Domain


With registrations now leveling off, registrars have focused on providing
more services to their valued customers, typically large companies with many
domain names under their control. But unfortunately for everyone in the market except Verisign, the business of “wait-listed” domain shopping is now off limits as a potential revenue stream.

That means companies are left to offer their customers value-added services, including the company’s digital-verification and various and security products, as well as back-end services for Web sites. The goal, says Verisign’s Donoghue, is to draw customers in with domain names and bump them up to other services.

“Our business today is not just about selling names,” he says, pointing out
that 35 percent of those registering a domain with Verisign also bought at
least one add-on service.

Registars are confident more businesses will continue to use country domains
for specific national marketing campaigns.

“When you look at [country domains], they’re a lot more expensive, often
costing hundreds of dollars,” says Register.com’s Pollack. “Many are manual,
require paperwork, require a trademark, or presence in the country” –
further boosting the price.

“Adding new services and proving new value is one thing facing the
industry,” says Lisa Melsted, an industry analyst with Yankee Group. “A lot
of big players had been moving toward putting names together in a
brand-management mix. It’s not a bad move particularly for large enterprise
companies that own lots and lots of names that aren’t centrally managed.”

Register.com has pushed this service, Pollack says, in order to position
itself as the one-stop resource for companies that can have thousands, even
tens of thousands of domain names.

The company offers corporate services, from centralized billing to industry
data to premium domain name system. Pollack says companies are beginning to
realize the importance of having a domain-name strategy, including
monitoring derogatory sites.

A recent example of such a snafu was PwC Consulting’s decision to re-brand
its business as Monday, launching a Flash (and consultant-speak) heavy Web
site, www.introducing monday.com. However, PwC did not register the UK
address, only to see a British prankster register the
introducingmonday.co.uk site for a parody. IBM ended up buying PwC and
deciding to scrap the Monday moniker.

“You don’t want your name taken over,” Melsted says. “That’s one of those
brand-management issues that’s often overlooked and can be somewhat damaging
to a company’s reputation.”

While the gold rush days of business.com are over, registrars hope their new
services will help them chart a steadier, if less spectacular growth.

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