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Could dot-WIX Decimate the Domain Industry

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Every business needs a domain name – I should hope that statement is self-evident. The days when a business' internet strategy could consist of a couple of Hotmail addresses are definitely long gone. There's also certainly some great arguments for why individuals should have their own personal domain name. For people who are their brand, like public speakers or media personalities, this should also be self evident. But even for the average home user, the independence this gives them from their ISP is worth the relatively small cost involved.

So this is the basic driving force behind the multi-billion dollar industry that is domain names. Although the current best estimate for the total number of registered domains is 332.4 million, it feels like there is still plenty of room for growth in the industry. Especially when you look at innovative products like Names.of.London's service Phrases.for.Sale, where they are promoting natural language domain names, like Fitness.for.Men, for marketing purposes – opening up a whole new market opportunity for domain name sales.

That all sounds like good news, so what's this about “decimating” the industry then?

One of the problems with technology is that, to the average person, it makes very little sense. Most people could not tell you much about the relationship between domains names, websites and email addresses – and quite right too. They are lawyers, accountants, hardware stores and so on. They have more then enough to worry about, in their own sphere of expertise, without having the time or inclination to worry about what us geeks are getting up to.

This is the reason many small businesses rely on suppliers like Wix or GoDaddy who can offer an integrated internet product. You pay one fee and you get a basic package of everything you need – a domain name, website and email – often with a vast library of sexy design templates thrown in.

Wix's prices start from as little as $7 per month, and they can keep those prices so low because they supply nearly all aspects of the service – the one thing they don't supply is the domain name – that has to bought in.

One way to solve that issue would be for Wix to register their own Top Level Domain – dot-WIX. So their customers could have domains like www.shoes.wix. To a certain extent, they actually do this already, but at the next level down. Their free service offers names under the wix.com domain. From a technical perspective this works fine – its no different (say) from from countries that use second level domains, like ibm.co.uk.

However, it can really obfuscate the customer's brand – shoes.wix.com – there are now two other brands (Wix & dot-COM) being advertised alongside the customer's brand, and end users might not be sure this really is a web site that really works. So the site owner may feel they need to add the “www” prefix to emphasis this, leading to www.shoes.wix.com – even further obfuscating the end user's brand.

There is also a phenomenon called “dot envy” which basically says that people find domains with fewer dots more desirable. Its not exactly clear why, but it is probably related to the idea that the fewer number of dots there are, the more important the domain name is. This actually has some truth to it, as the fewer dots there are, the higher up the DNS hierarchy the domain is.

This often leaves the site owner with little choice but to buy a domain name.

Registering the dot-WIX Top Level Domain

Having their own top-level-domain would have a number of big advantages.

Firstly, they would cut their costs by issuing their own domain names. Even for a fully commercial new-top-level-domain, ICANN fees are a maximum of only $0.25 per domain, as opposed to dot-COM domains that come in at a number of dollars (discounts depending on volume).

Secondly, every time a customers promotes the customer's brand, it would also promote the Wix brand. Of course, this also happens with wix.com domains, but (as discussed earlier) there are good reasons why most customers will buy a domain, and so not use the free domain.

Thirdly, they have effectively recreated a new library of extremely desirable domains. Shoes.wix may not be as desirable as Shoes.com, and there is no doubt that Shoes.wix will leak visitors to Shoes.com – especially during the early days of the dot-WIX domain, but the effect should gradually reduce over time, although its unlikely to ever be eliminated. These desirable domains could also act as a significant source of additional revenue – allowing Wix to charge a premium for them.

One of the problems many of the new top-level-domains have been having is lack of customer familiarity. When people see, for example, shoes.click it may not be immediately obvious to them that this is a web site's address. This problem would be significantly reduced for name in the dot-WIX domain as the Wix brand is already very well in the area of web site hosting.

They also have the massive advantage of a brand that is three letters, which makes it ideal for registering as a top-level-domain. Obviously, other players like GoDaddy could adopt the same model, but dot-GODADDY wouldn't have the same impact, dot-GOD would lead to all sorts of issues, but dot “GO-D” might work, but generally hyphens are considered extremely undesirable, especially in the very large north American market – although the Germans don't seem to mind them quite so much!

How would this affect the Domain Industry?

Being able to offer their customers short, desirable domain names at more competitive prices, almost certainly bundled free with a package, would inevitably have an effect on all other operators in the hosting industry. Any significant success meaning market forces would very quickly ensure all other large hosting providers would have to quickly follow suit. The effect could then be a massive depression on the sale of domain names, forcing prices down and rendering financially unsustainable large sections of the domain investors market.

The new top-level-domains (newGTLDs) have already had a profound effect on the market for the less desirable dot-COM domains. One and two words dot-COM domains, especially those that include a noun, are always going to have a premium value, but many of the more obscure domain names have basically lost most of their value. After all, why would you go with a three word dot-COM domain when you could have a newGTLD that means you only have two words.

We saw this at the back end of 2017 when GoDaddy acquired a collection of 300,000 domains (probably mostly dot-COM), for which they paid $50 million. This sounds like a lot of money, but when you break it down that's only $167 per domain. Now take into consideration that many of those domains have already have been held for multiple years, requiring multiple years of paid renewals, the margin made by the seller on some of them may well be very low, or even negative.

The disposal of such a vast number of domain names is a clear indication that they are gradually becoming of less and less value. This is also clearly shown in 2015 by GoDaddy's acquisition of 200,000 domains from Marchex for which they paid $28.1 million. This included most of the 100,000 domains that Marchex had bought from Yun Ye for $164 million in 2005.

Clearly, you would need to know exactly which domains were part of each of the individual portfolios to be able to draw any true and accurate conclusion from what appears to be a very significant drop in value. But even if you're just looking at the 2015 transaction on its own, it still places a value of about $140 on each domain – again, meaning that some were almost certainly sold at a loss.

Would ICANN allow it?

This actually isn't as straight forward a question as you'd think, as the proposition somewhat falls between the two stools of the ICANN newGTLD program – generics and brands.

Generic terms, e.g. nouns, must be open – but they don't have to be open to all. Restrictions are allowed on who can qualify to register. For example, by profession like dot-LAW, a restricted top-level domain for the legal open only to those in the legal profession, or by geographic region, like dot-CAT the top level domain for the Catalan region of Spain.

Companies can also register their own brands for their own use – often referred to as dot-BRAND domains. The original intention of dot-BRAND domains was that they would be for the company's own private use only. For example, BMW has registered dot-BMW and makes occasional use of it – e.g www.missiontomars.bmw

So which of these stools would dot-WIX sit on? Could a company register a dot-BRAND domains with the intention that part of its use would include giving sub-domains away to their customers, but only to their customers? If they were forced to run dot-WIX as an open registry (in which any third party could register a domain), they could simply change the business model and say that the hosting is provided free when you buy a domain, instead of the other way round!

Its possible that ICANN would see the disruption & domino effect, to the rest of the domain industry, that this might create and so block the registration. On the other hand, ICANN's original intention, when opening up the ROOT zone to new domains, was to foster innovation and creativity, which (so far) seems somewhat lacking. We should also stress the word “might” - it is by no means clear that this would have the kind of catastrophic effect on domain sales one might suppose.

After all, immediately following the introduction of the new-top-level-domains, sales in dot-COM did falter for a couple of years, but is now back to full-stream-ahead.

Would it be in Wix interests?

This is a very interesting question, the answer to which would probably only become apparent by actually running the experiment. Over time, it is so likely to alter buying patterns and the competitive behaviour of others in the hosting space, that trying (with any certainty) to predict the outcome is really quite problematic.

But that sounds far too much like a cop-out, so I will try and address some of the issues.

Firstly, although the domain name represents an additional cost to Wix's customers, it represents a revenue opportunity to Wix themselves. Not least because customers often buy multiple domain names – e.g. their own country domain and (if they can get it) the dot-COM. Giving domains away for free removes this revenue source. However, offering to sell the customer additional dot-WIX domains could, at least partly, replace this.

There is also the issue of pricing their service. Clearly, at least for the time being, customers would expect a service that comes with a dot-WIX domain to be priced lower than one that comes with a dot-COM domain, but the price drop could be set at a point that recovers the loss of revenue from reselling the dot-COM domain.

Conclusion

Ultimately, probably the most significant deciding factor in the equation will be down to what the competition do – and how successful it is.

If their competitors start down this road, and start cutting prices accordingly, and the new domain suffix gets reasonable traction in the public's minds, market pressures will almost certainly mean that the others will have to follow suit, or try and differential themselves by offering a premium product.

This is where GoDaddy's large portfolio of dot-COM domains comes in – it gives them the ability to offer a product that (at least for the time being) is still considered a premium product. The question is, for how much longer will dot-COM domains be considered premium. If this ever happens, then the market for domain themselves could collapse as customers would simply be happy with the ones they get for free from their hosting provider.

The danger with only offering a premium product is that you can end up becoming a niche player. Customers often prefer to start with an entry level product and gradually upgrade to the premium – forcing them to start from day-1 with a premium product could simply drive them elsewhere.

Especially as a dot-WIX domain space is likely to be kept relatively clean, as speculators might be put off by the need to also buy hosting services alongside the domain names.

 

 


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