How many new domain names will the explosion in gTLDs really produce?

Editor’s note: This is a guest post by Mark Kychma, who is a partner at London based MAKTIG VC, a company behind numerious online projects such as Links2.Me, Sincere.ly and That-Is.Me.

The Internet Corporation for Assigned Names and Numbers (ICANN), a nonprofit body that oversees the structure of the Internet, is about to multiply number of top level domain names (TLDs) by a factor of ten. Will that mean that there will be ten times more domain names in use? Do we really need that many?

Today the world lives with 20+ generic top-level domains (gTLDs), like that popular ones: .com, .net, .org, and .info, and less known ones: .aero, .coop, .jobs, or .museum. On top of that there are 200+ two character country codes (ccTLDs) for all possible states, islands and atolls, for instance .tv for Tuvalu. Recently ICANN has added a dozen of Internationalised TLDs (IDNs), those in non-Latin scripts.

In 28 years of their existence, domain names grew from a dozen back in 1985 to 250 million of them we have right now. This is an impressive cumulative annual growth rate of 80% that will make any other industry envy. Though if we narrow the analysed time window to the last three years, this growth slowed down to 10% and is now represented by a single digit around 5%. It still corresponds to nearly 10 million new domain names added every year. Despite so many millions of domain names in existence not all of them are really used. About a third are either “parked” as a single page or do not resolve at all.

Now that ICANN wants to have 1000+ new TLDs, how will it affect the status quo? Of course, not all of the applications will be approved and many of those granted will be brand-specific, e.g., .amazon or .google . Nevertheless, some 300 or more of them shall be quite generic and open, and new kids on the block such as .hotel, .shop, .web, .etc will start to compete with the old ones. With high probability we can say that the domain name base shall double or triple over the coming five years.

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Let’s see how much oxygen new extensions will have to themselves. Even if they manage to grab something closer to a half of the annual growth potential, say that of 5 million new registrations, spreading this number among all of them allocates a very minimal user base of 10 thousand domain names per year to each new TLD.

This number will not be enough for most of them to survive. An estimated budget of a typical TLD registry is between $300,000.00 and $ 2,000,000.00 per year, saying nothing about the ICANN’s application fee of $185,000.00, potential auction levies, and other costs such as extra marketing. Registries will need to keep the registration and renewal prices high at $100 per domain name to get to the black in the years to come. All known registries, which kept the fees that high in the past, never managed to pass the mark of one million registrations.

The business of every registry is built around two cost centres: infrastructure and marketing. The infrastructure is usually outsourced to one of the trustful third parties: Verisign, Afilias, CentralNIC, NeuStar, KS-Registry, LogicBoxes, OpenRegistry or NamelyPRO. Their fees range between $50,000.00 per year for a very basic solution to more likely $100,000.00 and even $200,000.00 annual bills.

At the moment only NamelyPRO (Editor’s note: the author is co-owner of the company that runs NamelyPRO) a offers a free registry platform, be it only for those reselling third-level domain names and emails. It then recovers the cost of hosting registries from the realised revenues. Even as this business model comes at the expense of the half of future revenues, it offers new TLDs a way of cut their operational costs to minimum. Other service providers should consider this approach as well.

Cost of promotion varies greatly. Have it below $500,000 per year and it will bring very little to the final product. In the last decade ICANN was rolling out new TLDs at the pace of one or two per year and advertisement was straightforward. New registries will have hard time competing against each other. Standing out in the overcrowded market will be more difficult and inflate the marketing budgets. This already applies to the existing marginal players such as .mobi, .pro or .travel who were unable to challenge shorter and smarter .co and .me. A recent darling .co paid millions to get to where it is now. Top registrars, think of GoDaddy and alike, will become greedier and will demand even higher slotting fees.

The incumbent king of all TLDs, .com, with over 100 million registered domain names as of today, will feel challenged. In the past few years we saw its market share declining, losing approximately 1% every year, now standing around 43% of all domain names. Its mother company Verisign may turn aggressive towards any serious competitor. It is very likely they may try to preventively acquire the most “dangerous” competitors or sweeten the registrars to leave .com in the spotlight forever.

New TLDs will have a difficult time to sell themselves. Anyone venturing in this sort of business has to have deep pockets and bags full of patience. Very few will turn into something big, quite few may not survive the long run at all. For a better result they should unite their efforts and try to “steal” the market share from manyverylongnamesin.com to something.shorter and more.sexy. Only the time will show which way it will go. Eventually everyone on this planet can end up with having a domain name or two, so there is still a lot of room for further growth.

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