new gtlds Day 1 of the implosion N.gTLDs. Stop renewing

[betthelot]

This will be seen as Day 1 of the implosion of new gTLDs. Fundamental shift of opinion and direction happened at Mind+Machines the owners of .London .Law and the not so good .Horse .Rodeo, 20 in total. Big player in this space.

If you are investing in new gTLDs, you really need to read this.
I started a thread headless.domainer in a topless.bar to show why the new gTLDs have not taken off and why they will not. There was little defense of the new gTLDs .

Fortunately the fired co founder of Mind+Machines the CEO, who arguably is a bigger new gTLD believer than Frank Shilling, gave a detail response why he got fired and his difference of opinion with the board (notably all the board members voted him out). His response I feel is the best defense of the new gTLDs, he's still a big believer, so Im going to break his response down to get an insight of what is happening in this space.

Minds + Machines, the company I founded in 2009, informed me last week that I was no longer wanted as CEO.
Now what? New gTLDs are barely birthed. The industry is very young. Twelve million new gTLD names have been sold in just about two years. That's nearly 5% of all domain names out there. What reasonable person doesn't expect that to rise to 20% or more within the next few years? There's a lot of opportunity in the field.

ICANN predicted originally 33 million new gTLD domain name registrations in 2015—a number it later revised to just 15 million. Didnt hit that, so by any measure the numbers are pitiful
Conveniently forgets even those numbers are inflated by 5million that were registered at $1 or less. A rise to 20% of nothing is nothing. Interestingly his last post blasted strings like .xyz for distorting registration numbers and giving new gLTDs a bad rep for spam and fraud.
Domianers have spent by far the most acquiring these names. We are holding up this whole ecosystem.

And yet there are some signs of desperation out there. (AGREE) Demand for new gTLDs hasn't been what anyone expected.(AGREE) Many single-TLD registries, though not all, are hurting.(AGREE) Many registrars still do not fully support new gTLDs that aren't plain-vanilla .com clones. Its because they dont sell, GoDaddy and others will only promote what the enduser want, its your job to create enduser demand.

ICANN continues to treat registries and registrars as unpleasant necessities despite the fact that its sky-rocketing budget is underwritten by domain name sales. No breakout awareness of new gTLDs has yet occurred and until it does marketing of the new gTLDs, many feel as useless as pushing a piece of string.

OH its ICANNs responsibility to promote the new gTLDs. YEP no marketing, no awareness, no sales, its Business 101 But I forgot the new gTLDs were special, there was going to be people banging down your door to reg them. Didn't happen, so its ICANNs fault, not that you completely over estimated demand. If you felt that the new gTLDs would fail without ICANN promoting them, shouldnt you have made sure they were going to do that before you sunk millions into new gTLDs.

Even so, the larger players in our industry continue to be very bullish: .shop went for more than $40M, the single biggest mistake in domain history, wrote a post about that as well.
.app went for $25M and a secondary market in new gTLDs is heating up fast. Really could of fooled us domainers. Existing registries, and companies outside the space, are on the prowl. Despite the perceived lack of demand, some people are clearly seeing a lot of value in new gTLDs. Yes and Mind + Machines are hoping to be brought out before they lose more money. Have not shown an operational profit since its inception in 2009.

Why the disconnect? It's a matter of perspective, and cash. Owning a registry, or even better a portfolio of them, is a fantastic long-term business. Those who can't think long term (no cash) or won't (no vision), will not be well served by what's to come. OK so you wanted to burn more cash to realize your long term vision and the board disagreed with your long term vision being profitable and wanted to call a halt to the cash spend.


What kind of registries are out there, and how will they fare? Below I've listed some of the major types of commercial models (non-brand) that exist today, and what their prospects are; there are also hybrids of these models.

• Registry as a domainer play: the registry is essentially an unlimited portfolio of names, and like a domainer you can price your inventory, park it, and wait for the right buyer to walk through the door. This model is concerned with understanding the value of each name and pricing it for maximum return. It also requires staying power and self-sufficiency; impatient investors are going to have a hard time with this model. This is the premium pricing and renewals model that the registries like so much. So the numbers look crap noone is buying them at the prices you set and investors are getting restless. Perhaps they are overpriced.
• Registry as supermarket. Sell it super-cheap or give it away and try to win on large volumes with low margins. Because low prices disproportionately attract fraudsters, this approach is problematic but in the short term at least it seems to be profitable. In terms of resale, however, it may be a poisoned well. (AGREE).
• Registry as small business. Make some nice signs, tell some friends, try to get good shelf space at the local store, take out some stands at trade shows, get some testimonials, keep the costs down, and build the business over time. This can work if there are no investors, or if they are angel investors looking for a nice ongoing income in the future. Having a single TLD instead of a portfolio is actually an advantage here. AGREE keep cost down, BUT 47% of the strings are not even profitable if you say there is only a $150,000 annual running cost.
• Registry as part of a bigger plan. Naming is part of a vaster ecosystem that includes the branding, positioning, marketing, selling and licensing of companies, goods, and services on the Internet. And, importantly, it includes Internet governance. It takes no great power of observation to see that being a big registry, essential to commerce and communication on the Internet, contributing substantial amounts to ICANN, gets you a privileged seat at ICANN, at the center of things when it comes to deciding what the Internet will look like in 10 years. That's actually worth a lot, but it's only available, or useful, to the biggest players. A dig at Verisign influence on ICANN. Again ICANNs fault. ICANN is the scape goat for the failing new gTLDs, I expect we will hear this more and more but they are not there to promote the registries names.

Existing portfolio registries have basically two ways to go. One option is to build up the TLDs in the existing portfolio, treating them as a collection of small businesses, and hope that they become self-sustaining and will fetch a decent multiple of profits in an eventual sale. A better option would be to treat today's highly fragmented ownership of new gTLDs as an opportunity to continue the portfolio-building that began with the first applications, acquiring good TLDs that are selling cheap now, keeping focused on the long-term value.
There selling cheap because they are not making any money and your board decided they never will.

One thing we agree on IS there will be consolidation as more of these new gTLDs fail.

Internet Identity that looks at security of the internet for businesses and governments said this recently about the new gTLDs, and remember they have no axe to grind, they are not invested one way or another.

IID anticipates an unprecedented series of domain registry failures as a result of the lack of gTLD popularity by 2017 in the form of bankruptcies and abandonment. “Most new gTLDs have failed to take off and many have already been riddled with so many fraudulent and junk registrations that they are being blocked wholesale,” said IID President and CTO Rod Rasmussen. “This will eventually cause ripple effects on the entire domain registration ecosystem, including consolidation and mass consumer confusion as unprofitable TLDs are dropped by their sponsoring registries.” WHEN THIS HAPPENS BAD PUBLICITY FOR ALL new gTLDs and LOSE OF TRUST. THIS WILL BE THE NAIL IN THE COFFIN.

I have been a domainer since late December 1999 and what I see today really worries me about domainers losing their shirt. Do your research and invest wisely guys. Dont listen to propaganda, look at the numbers, they dont lie.

 

[Domain Wildcatter]

Gravity is keeping me firmly anchored in .coms.

 

[Fancy.domains]

How many aftermarket domains do we have now? How many meaningful ($XXX or more) aftermarket sales occur on a weekly basis?

Currently I sell about 2-3 a week ngTLD a week. This is about 4-5 times more often than I sell a .COM or .NET. And honestly, I currently spend a little more time searching for .COMs than ngTLDs.

As I often refer to myself so I guess I might seem to have the biggest ego around. But at least, I can rely on my own experience and stats.

 

[Kate]

they got over 100,000 registrations at $15 renewal each - far better than most new gTLDs

And .tel is in bad shape:
Telnic has lost £25 million since it was founded — and much of that was before .tel even launched.

Warning signs as early as in 2008: http://domainnamewire.com/2008/11/10/telnic-a-35-million-investment-gone-awry/

The lifetime of the registry will depend on how long the investors are willing to sustain losses. I don't really see a future for that TLD: it can only exist as a dormant zombie, like .mobi or any TLD deprived of relevance and purpose.

It's true that we are 'only' in the third year, but you could expect that excitement would be at a peak in the beginning, now the new extensions are not novelty any more. They have 'normalized'. I think there are not too many people concerned with new extensions, it's mainly the domainers and some marketers. The public at large just doesn't care.

Icann have allowed just too many extensions, that will fight for a limited and saturated market. I repeat, I really think this is criminal on the part of Icann, because they have laid the groundwork for bankruptcies and failures.

Maybe the thread title is alarmist the new extensions are here to stay, but they will continue to underperform amid consolidation, failures, bankruptcies and scandals. What kinds of scandals ? I could see some drama when 'investors' realize the nature of the game they are in, and that have been lured by rosy prospects.

 

[mhdoc]

When you live and breath domains it is easy to think regular people actually notice or care about them. Some do, of course, but I doubt most people running searches, for example, ever notice the extension(s) they visit.

A couple examples to illustrate my point.

I do some work for a guy who after ten+ years online still doesn't know the difference between entering a URL or putting it into a search box. He uses Juno as his browser

Over a third of the educated, sophisticated investors in a real estate group I attend couldn't figure out how to leave a comment on a WordPress blog I set up for them. These are people who can whip out a fancy financial calculator and run discounted cash flow analysis in their sleep.

There is an old joke that goes "Baloney is still baloney, no matter how thin you slice it." I think some of the concerns about the new domains are slicing their actual significance very thin

One more story to illustrate the point.
Years ago I discovered statistics and was able to use RAX (Remote axcess computing from IBM) to run stepwise regressions on the mainframe. I got really into discovering how much of the observed variations in chemistry of water collected under trees was related to a variety of factors. Then I went out in the field and found a chipmunk had fallen into one of my 12" water collection funnels and downed. That one outlier event put more chemical nutrients into a small area than a storm did for the whole watershed.
In other words I wasted a lot of time being concerned with things that really meant very little.

 

[garptrader]

We are in year three for the TLDs launched early 2014. One big stat which gets a lot of focus is the number of registrations. No doubt some registrants which have likely seen disappointing sales are scaling back on renewals. So one way to counteract a disappointing renewal rate is to offer cheap registrations - probably why we are seeing these $1-$3 offers.

Most domain registrations in any TLD other than .COM and major country CCTLDs are made by domainers. However, those registrations cannot be maintained without the occasional aftermarket sale. With $10 renewals for .COM or .Net, an investor needs a $1250 sale at 20% commission and 1% turn to generate break even cash flow. However, with higher renewals on many new TLDs and likely lower turnover ratios and lower average sales prices (evidenced by paltry reported aftermarket new TLD sales), what is the financial picture for most new TLD portfolios? Not pretty.

But it wasn't pretty for domainers before these TDs were launched. We already had millions and millions of aftermarket domains - far more than end user demand - thus the paltry 1% turnover ratio. How many professional domainers are there who really make a full-time living buying and selling domain names? Not many.

I never understood why ICANN decided to launch so many new extensions all at once. I like domains as branding tools. Unfortunately most end users do not see domain names in that light. Thus industry turnover is abysmal and has undoubtedly plummeted with the mass registration of millions of more domains without end users to buy them. So in my view these record registration stats are just a bubble waiting to burst.

It would be great if end users suddenly woke up and said hey I really need to get a better domain than the one I currently use. And since my business operates in different markets or different product categories I could seek to buy several new domains appropriate for my business. We spend X annually on marketing and advertising and IT costs so just budget some amount for domain acquisitions. Multiply that mentality times millions of businesses and it would be a domainer's dream. Wake up - most end users already have their reg fee quality domain or are happy just using social media accounts.

 

[TRY]

It's all fun until someone loses an eye .....

Or money.

 

[Fancy.domains]

Some other decent sales the last few days:

• i.marketing = $12,500
• jjj.xyz = $9,600
• i.company = $2,150
• Mind.plus = $2,000

And the Chinese bought some .XYZ names:

• 9.xyz = $170,250
• yy.xyz = $37,500
• 22.xyz = $25,800
• zz.xyz = $17,100
• pz.xyz = $8,100
• 118.xyz = $7,500
• xxx.xyz = $6,450
• yyy.xyz = $6,000
• 987.xyz = $3,975
• 189.xyz = $3,375
• 6N.xyz = $3,375

What do you think guys, not that bad for something that is in the middle of imploding?! :P

 

[mad409]

What does the firing of their CEO have to do with the implosion of new gTLDS? Obviously he was either not performing well within his position, or could not get along with the rest of the members. Maybe the rest wanted to go a different direction and his refusal to agree was the reason for his dismissal. We will never truly know why this happened, it's all closed door business decisions.

I appreciate your concerns with new gTLDs but disagree with your early prediction of failure. I also appreciate your concern, warning new domain investors thinking they will get rich quick selling new gTLDs. It's always been my stance that if you don't have the capital to hold long term you should not be investing in them but if you do it's a gamble just like any other investment. I never go to a casino thinking I'll win therefore if I do great and if I don't that's fine too.

As for ICANN they do need to slow down, or maybe stop as it's becoming to saturated and there must be an ending point at some juncture. I say most of the bases have been covered now. My biggest concern is how many new extensions will they allow before there's a stopping point?

I too would like to see more advertising within the new gTLD space but this will happen over time as more sites come online and these companies spending 40 million to acquire extensions realize they need to do some advertising too.

Again I don't totally disagree with some of your points but many I do and calling the firing of one CEO Day 1 of the implosion is nothing short of misleading and sounds a bit anti gTLD. We must give this more time to see what the outcome will be, way too early. JMO.. :D

 

[betthelot]

Surely some of the new GTLDs should seem trustworthy. .work? .cloud?

It is inevitable that some of these strings will fail. You only need to account for 150,000USD a year running costs and 47% are running at a lose. The publicity from bankruptcies will tar all the new gTLDs. good and bad. If you get a few that fail and I believe you will, that will create a public mistrust issue for all the new gTLDs

 

[betthelot]

There goes .hotel

 

[carob]

search.bing redirects to Bing.com - all the top 10 .brands by Alexa ranking do not use them as their main Public facing home page. Thats pathetic. This was going to be how there was going to be the breakout of public awareness. The .Brands doing the heavy lifting. Not going to happen what now? Oh time - its just a matter of time

More .mobi rerun. The big companies investing in that mostly redirected their .mobi to their main site, except Nokia - and look where they ended up.

Microsoft invested €1.8m in the .mobi company and Google invested €600k and they and all the other investors just walked away and lost their money in the end, dumping the company and its losses into the arms of Afilias. And yes people had kept saying use by big names or marketing could make mobi popular, that sounds very familiar and it is seriously unlikely to happen.

 

[Silentptnr]

The fact is, I see a few simple points.

1: ICANN really does need to stop the madness of creating "thousands" of ngtlds. It's senseless. When the need for more extensions comes, then carefully plan a strategy to fill the need.

2: Noone knows what the future holds. I can tell you that I never thought 20 years ago that domain names would sell for millions. Regardless of the motives. There are still millions and millions of people that will come online and maybe domain names will still mean something and maybe they won't. Just use discipline as a "domain investor" and you'll be fine. Don't...and you could end up losing money.

3: Domain investors are some of the brightest, innovative, people around. It's great to see people agree and disagree for the benefit of those who seek wisdom. I spend alot of time reading old posts here on NP. More people should. You would be surprised to see what people were saying years ago. And years from now, others will be reading our posts.

4: The debate over .com versus other extensions really doesn't matter in the long run. What you buy and sell versus what I buy and sell makes no difference. A domains value is only what a buyer is willing to pay. And that's the same no matter the extension. What I support is a robust industry full of opportunity and great people. Certainly it is a science, but there is also a big element of luck.

Peace!

 

[garptrader]

Which would you feel more comfortable giving your credit card info to to buy electronics or books or running shoes from...

Amazon.com
Patagonia.xyz
Amazonia.club
Magdalena.ws
Santiago.biz
Mendoza.link
Cucuta.top

 

[domainsoup]

It's gotta be pretty hard to fail though...considering that .tel hasn't failed yet.

 

[cocaseco]

If you get a few that fail and I believe you will, that will create a public mistrust issue for all the new gTLDs

Don't they have to trust them first? You can't lose what you don't have.

 

[mhdoc]

Old quote from Barry Ritholtz (stock market guy) that I think might apply here. "Do you want to be right or do you want to be rich?"

 

[daj]

I don't think just new gtlds will implode, everything in this industry has been built on hype & speculation. I think it's only going to get worse from here.

Godaddy hasn't had one profitable year since 2009 (some reports indicate they've never been profitable) despite all the coupon codes they got rid of and all the new extensions & other services they've added over the years. They are over a billion in debt apparently.

Namebio's database of combined recorded domain sales only totals $1.3 billion. It's taken 20 years to get to $1.3 billion in recorded domain sales...the domain industry is truly hoppin'.

 

[Fancy.domains]

Renewals increase

I have renewed a few hundred ngTLDs the past year and zero of these have had increased renewal rates.

Instead, I have transferred many just to get cheaper renewal rates. Ok, this has nothing to do with the registries (but the registrars), but I guess you get my point.

 

[JB Lions]

"investor J. Carlo Cannell,"

"While I am a believer in new GTLDs, it is going to be many years before their revenue in any way materially approaches the revenue potential of our registrar operations. In my view, NAME’s registrar has become like a crazy aunt kept in the basement, one that you refuse to adequately clothe or feed, but who steadfastly spins straw into gold used to subsidize a stable of largely substandard new GTLDs such as .democrat, .dance, .army, .navy, and .airforce. Most of these new GTLDs are irrelevant and will never be sold in material volumes. NAME is holding back the growth potential of your registrar by pushing garbage extensions to a user base that quietly knows better."

Some of these are head scratchers. It would be interesting to be in the room for some of these, the discussions.

https://www.namepros.com/threads/major-rightside-shareholder-upset-with-focus-on-new-tlds.925552/

http://domainincite.com/20061-activist-investor-slams-rightside-over-garbage-new-gtlds-looking-for-blood?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed:+DomainIncite+(DomainIncite.com)

http://domainnamewire.com/2016/03/01/major-rightside-shareholder-upset-focus-new-tlds/

 

[betthelot]

What is so interesting about this, is that he is saying the same views that we have expressed on this thread and which many people think is a bit extreme. He's suggesting to abandon the weaker gTLDs and when we have said that this will happen, its been met with derision. This guy is also a serious investor and a well-known investor. We only get to see under the hood of these publicly Listed companies, there are only two of the new gTLDs registries that we can get an insight into, which are mind and machines and rightside and both over the last two weeks have shown a lot of dissent from the investors. The two comments I really love in his filing to the SEC is that there is too much propaganda of the new gTLDs and that the public quietly know better by not registering the poor gTLDs.
Day 2 of the implosion of the new gTLDs.

 

[brindle123]

Maybe ICANN can refund the domain owners of failed gtlds using the startup money that goes into starting a new gtld!
Yeah Right like that will happen.

 

[garptrader]

Interesting comments from a major shareholder.... "....unrelenting propaganda about new TLDs.... most of these new TLDs are irrelevant and will never be sold in material volumes...pushing garbage extensions to a user base that knows better...."

If I acquire 100 .COM domains, just to have breakeven cash flow going forward I need either 1 sale at $1250 or 5 sales at $250 each etc assuming $10 renewals and 20% commissions. Domainers tend to not pay much more than low $XXX for domains and more often they focus on auctions rather than looking for aftermarket domains. End user purchases are far less common but domainers can provide some liquidity at a wholesale level. Eventually though there has to be an end user to feed the process. If the domain investor who was buying at $250 each cannot sell any domains to end users, they stop buying at $250.

So it is with new TLDs. There is only so much speculative money on the sidelines that can fuel the new TLD mania and maintain a registration base without end users footing the bill. There only has to be enough end user support to pay renewal bills and you can at least wait for the long-term maturation of the market. Otherwise though the new TLD speculator has to fund renewals from outside sources - .COM sales or website earnings or a full-time job. .Net has existed for 30 years while .TV was launched in 2000 and .Info I believe in 2003. Yes there are occasional sales in those extensions but investors in those TLDs generally have not done well - thus a stagnating registration base. So why should we believe new TLDs will gain mass market acceptance in the next few years?

With 12-14 million new TLD registrations (some with premium renewals), how many end user sales does it take to pay the renewals?

assume 12 million domainer held new TLDs x $10 average renewal = $120 million in annual renewals

FYI that is more than $2 million in renewals a week - Do you see that sort of new TLD aftermarket sales volume on DNJ?

Don't expect to be able to sell off your new TLD portfolio to other domainers because it is likely they already have all the new TLDs they want and are looking for someone to help pay their renewal bill.

About seven years ago I had more .Net than .COM and about five years ago I had more .TV than .COM. Those registration stats are now much lower than they were at their peak - not enough buyers of domains in those TLDs.

 

[jbjbjbjbjbjb]

Doesn't matter, the short answer is if i GTLD doesn't sell to cover costs it will eventually be shut down after perhaps a max 3 year period. I can see quite a few GTLD's going that way

 

[Fancy.domains]

I decided to start listing the +$1000 ngTLD sales each month. This is the February list:

https://www.namepros.com/threads/new-gtld-sales-february-2016-minimum-1000.926474/

Will the ongoing (?) implosion decrease sales, or not? The statistics will teach us.