Although consumers may have been following the pricing of domains that they pay ie. the retail rates they should be aware of what is going on behind the scenes.
A lot of the bloggers who are involved in the domain industry have been commenting in recent months about the new contracts that Verisign is getting from ICANN.
The bottom line is that Verisign will not only end up with the .com namespace in perpetuity (I didn't even realise that such contracts existed these days - I was wrong) but can also hike up the rates by 7% each year.
Bob Parsons, GoDaddy CEO, has been talking about this issue for the last couple of weeks, but his most recent article is probably the most revealing and pertinent for consumers
He breaks it down into nice clear maths and the figures he comes up with, while frightening, are all too close to reality to be ignored.
A couple of excerpts to back this up:
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.
While many registrars are doing "specials" on .com registrations which may benefit consumers in the short term, you can see that they are taking a big hit on each registration. However the important point is that Verisign is netting $360 million plus per annum from the registrars (the companies such as eNom, GoDaddy, Joker etc)
Like so many things in business there are economies of scale, so the more .com's in the root the less the cost of maintenance per domain and the bigger the profit.
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.
If Verisign keep pushing up the prices to registrars will they be able to continue to effectively subsidise your domain registrations?
In the short to medium term the larger registrars may be able to afford to do so based on the percentage of registrations that convert into hosting and other service sales where the margins maybe higher (more economies of scale basically)
But what will happen in 5 years time?
You can also read about the other implications on Bret Fausett's blog or Karl Auerbach's
And of course as ICANN is primarily a US body there's very little we can do from here