Web.com Chairman Bearish on new gTLDs, Premium Domain Names

"Turning to our domain business... in recent quarters, we discussed our exit from a natural accounts business, as well as the softness we've seen in the premium domain name and domain portfolio sales areas of our domain business. These have largely been removed from our 2015 outlook, and each represented approximately $5 million of revenue per quarter, and will impact revenue by $25 million when compared to 2014. In the [new] gTLD market... based on the lack of clarity on future announcements and timing, we are not currently forecasting any gTLD benefit in 2015... We also took a modest, noncash $2 million asset impairment charge in the quarter related to the value of certain domain names held in our monetization portfolio. As we've referenced in prior quarters, the premium domain and domain portfolio business has softened, and this revaluation reflects our estimation this market is likely to remain under pressure... " - Web.com Chariman David L. Brown - Q4 2014 Earnings Call, February 12, 2015 (source: seekingalpha.com infra)

Web.com Group (WWWW) Q4 2014 Results - Earnings Call Transcript | Seeking Alpha: "George A. Kelly - Craig-Hallum Capital Group LLC, Research Division: ... First, with the premium domain business. I'm wondering if you could explain a little bit what's causing the weakness there?

"David L. Brown - Chairman, Chief Executive Officer and President: Sure. We think that it's a classic case of too much supply and not enough demand. That business has been a shrinking business for years. It was a darling business 10 years ago and even 5 years ago, but buying and trading domains has been a less attractive business here for the last few years. And then add on top of that, new extensions, new gTLDs. You can now go out and buy the name you want with .nyc, at the end of it, if you live in New York, or .ca, or a variety of other extensions. So why would you pay for a premium domain, if you can buy the domain for $20 or $30? And that, I think, has created a lot of at minimum, pricing pressure in that space, and has really dried up some of the demand for those premium domains."

Domain Mondo's response:

1. New gTLDs may be the DNS equivalent of damaged goods--new gTLDs reportedly "break stuff" and fail to work across the internet. The disappointing registration numbers thus far for new gTLDs would be even worse but for the rampant first-year registrations by cybersquatters, as well as the initial launch year defensive registrations by trademark holders and speculative registrations by legitimate domain name investors. .GURU was one of the first new gTLDs to launch last year and its renewals (which began January 30, 2015) together with new registrations, have shown surprising weakness, and even an overall "contraction" in total registration numbers on some days.

2. The key to long-term success for new gTLDs is for business owners to build operating websites on those new domain extensions. But now with the known issues of new gTLDs' problems with "Universal Acceptance" [as noted above, new gTLDs reportedly do not work across the internet (a problem which will take years to "fix") and break stuff]--it is hard to see how any knowledgeable entrepreneur would be willing to risk building his/her main business website on a new gTLD domain name.

3. Even if the "failure to work across the internet" problem is ultimately solved, new gTLDs, in general, have a pricing predictability problem--they are not only more expensive, generally, than dot COM domain names to register, but the renewal registration fees have no caps--one year the renewal fee could be $20 and the next year it could be $20,000--totally within the control of the new gTLD registry operator (that's just one of the ways ICANN failed to protect the "public interest" in the new gTLDs program). Predictability is an important factor to business owners and, right now, a competitive advantage of dot COM domain names are on price, predictability of future pricing (renewal fees) as well as the obvious dominance of the brand dot COM.

4. Dot COM is still the "gold standard" in domain names and that is not likely to change for the foreseeable future. Dot COM registrations continue to grow and dominate total new TLD registrations worldwide--that is why dot COM domain names are increasing in value on the aftermarket. Because there are over 100 million dot COM domain names registered, the normal churn in dropped dot COM domain names continues to create an active, on-going buying opportunity for both new registrants and domain name investors. Indeed, while there are functional domain name aftermarkets (both sales and auction platforms), there is still a golden opportunity awaiting an enterprise or entrepreneur who builds the Uber of a domain name aftermarket.

5. I am personally bearish on Web.com (which also owns Network Solutions), for several reasons including a previously reported FTC investigation of Network Solutions marketing practices. From the earnings call, it appears that its strategy is based on charging its registrants for additional services they may (or may not) need, and which may be available at, e.g., GoDaddy, for less. Most domain investors I know avoid holding many, if any, domain names at Network Solutions/Web.com. (Note: I personally own no stock in WWWW and have no intention of taking any positions, long or short, in WWWW--see disclaimer at the bottom of this web page).

-- John Poole, Editor, Domain Mondo

Caveat Emptor!

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