The ICANNblog

ICANN’s New gTLD Process; to Auction or Not to Auction?

September 8th, 2008

by Chuck Kisselburg
ICANNWiki

I have been reading several blog posts concerning ICANN’s possible adoption of the auction model to help solve disputes regarding applications submitted for the same, new gTLDs.  To be specific, the concept of an auction was raised through the efforts of auction design firm PowerAuctions LLC with the assistance of ICANN staff, resulting in a paper regarding the auctioning process for new gTLDs.    In other words, multiple organizations can submit applications for the potential gTLD, “.bank”.  To resolve the issue “.bank” would be sent to auction for resolution.

For me several things come to mind…..

WHY NOT?

First of all I would have to say, “Why not?”  At the conference in New Delhi Peter Dengate-Thrush, ICANN’s Board Chair, complimented those from the DotAsia organization for the fantastic job they had done and that, through the use of the auctioning system implemented by DotAsia, all domain names that were requested by more than one entity were handled through the auction with none having to go through a dispute resolution process.  The auction process seemed quicker with less fuss associated.  Case closed.

So from the standpoint of DotAsia successfully handling duplicate requests quickly and easily without having to go through the normal dispute resolution process, why shouldn’t ICANN take note of such efficiencies?

JUSTIFYING AN AUCTION BID?

As noted from reading the paper this process can get expensive for those submitting applications and wind up in the auction process – kind of.  “Huh?”

When reading the paper the three bullet areas succinctly summarize the use of the auction process.

• Applicants whose true intentions or abilities are to serve many users would be able to justify higher bids than applicants who will serve few users;
• Applicants capable of providing high-quality service at low cost would be able to justify higher bids than low-quality, high-cost applicants; and
• Applicants who intend to develop the gTLD immediately would be able to justify higher bids than applicants whose purpose is to hold the gTLD, unused, for speculative purposes.

The question that comes to mind revolves around the word “bid”.  In other words, “… justify higher bids… “

So instead of a typical auction process whereby users can bid as high as the price will go, there appears to be some form of justification required for one to add a higher bid.  In other words, with each potential increase in the bid price, competing organizations need to justify why their bid should be taken over the others.  In other words this could be a long drawn out process.  The nice thing about this is it serves to guide the awarding of the gTLD to an organization that will do something with their new gTLD.  However, it still remains to be seen that if someone goes through all the justification and receives the highest bid to receive the new gTLD, can they truly be held to the deployment of the new gTLD or can they simply sit back on their new gTLD, doing the minimum amount of sales, if possible, knowing that it may become more valuable later?  Valuable to whom?  But that is under ICANN’s control, correct?  Perhaps as long as it is under an ICANN controlled Internet.

BUSINESS!

The other part of me looks upon this as a way for ICANN to increase its health.  Commercial or not, ICANN is still an operating organization that has bills and employees to pay.  Bottom line (pun intended) ICANN still lives by a profit and loss statement.

When in Paris I overheard someone say that ICANN has sunk a lot of cost into developing the gTLD process and will continue to do so to finalize the process before organizations can submit applications.  As such ICANN will need to recoup their costs.  From a business perspective that makes sense to me as companies who wish to stay alive need to have income to recoup their costs, especially for development.  In some cases startups will acquire the funding through key organizations becoming customers to help with the development of their product before they have a fully deployable product ready to be purchased by the whole world.

When reading ICANN’s 2007-2008 budget there were a couple of things that stood out to me……

“New gTLD Process” section:

“The process for the introduction of new gTLDs must be robust in form, timely and predictable to administer, and scalable to accommodate the numbers and variety of potential applications. The global nature and complexity of the project have direct bearing on the program’s start-up and recurring costs. ICANN anticipates a significant investment in the project, in year one, to create the gTLD program office.

The new gTLD process costs are intended to be fully self-funded and off-set by the application fees. It is anticipated that first-round costs will be significant due to one-time start-up expenses and that subsequent rounds will be less expensive to administer. Start-up costs include, but are not limited to: recruitment of new employees to staff the gTLD program office, professional services fees associated with production of the applicant request for proposal (RFP), development of the objections filed/dispute resolution model, retention of resources to conduct technical and business/financial reviews, and recruitment costs associated with the creation of an independent panel or series of panels to provide adjudication services around dispute resolution and string contention.

A significant component to start-up costs is the creation and implementation of a communications strategy, across many different languages, to announce and promote the first round to the global Internet community. ICANN will incur media costs when it publishes applications following conclusion of the application window. If ICANN is to foster a geographically diverse representation of service providers on the Internet, it first must communicate and educate them about the gTLD process.”

OK, so the above makes sense to me.

The other item that stood out in the budget was found in the “gTLD Registry Fees” section:

“In fulfilment of its obligation to develop alternate sources of revenue, ICANN has proposed the implementation of registry-level transaction fees. Transaction fees will serve to increase ICANN revenues and enable revenues to grow in proportion to growth in the DNS.”

“In fulfillment of its obligation to develop alternate sources of revenue…”.  Hmmmmmm.

So, again speaking from the business perspective, I can understand where an organization would need to recoup its startup costs.  I can see that as the costs are recouped the costs for new applicants will go down.  I can also see a business always looking for alternate sources of revenue.

GENERAL THOUGHTS:

So after thinking about, “Why Not?”, “Justifying an Auction Bid” and “Business”, general thoughts come to mind……

1). If all of this is to shore up the expense of developing the process, then what was not learned through the awarding of new gTLDs for .asia, .aero, .coop, .org, .travel, .tel, .com, .net., .mobi, .biz, .net, .name, .museum, .edu and .info to name a few.  There are also some applications that have been in limbo for several years, such as .berlin, .paris, .cat and .nyc, to also name a few.  So with all of those that have signed registry agreements and have been placed in the root servers, and with those applications that are in approval limbo, I can only wonder what has NOT been learned that requires the recouping the costs for establishing a new gTLD process?

2). Only those that have significant amounts of funding will be able to submit an application for processing, let along survive the bidding process to win if submitted through auction.

3). Organizations who win the approval and sign the registry agreement with ICANN regarding their new gTLD will also have to recoup their costs, thus passing the costs of their gTLD acquisition cost to those purchasing domain name(s) for the respective, new gTLD.

4). I know there is a big question mark as to ICANN’s future.  How much longer will they be under the US’ Department of Commerce?  Will ICANN emerge from the Department of Commerce to be a separate entity that can, or will be allowed to survive outside the grips of the US government?  In other words, will ICANN be able to move its operations to any location around the globe, such as Belgium?  I know the question was raised directly to ICANN’s Board in Paris by Elliot Noss.  The exchange between Elliot and the Board was frustrating as it was NOT like peeling away layers of an onion, but more like peeling away layers of an onion made of dense, tightly closed rusted iron.  It was that exchange that points to the ongoing suspicion people have of ICANN.

5). What is the magic number that, once reached, the price for applications will go down?  Through my reading of various blogs on the topic of new TLDs we could see larger organizations going after TLDs as part of their normal brand protection processes.  One blog mentioned that such efforts of brand protection through TLD acquisition “could” mean a total of 18,500 applications submitted.  At $50,000 a pop, NOT to mention the extra amount received via the auction process, any recouping of upfront costs could be accomplished very quickly!

6). With the amount of money ICANN is envisioned to bring in, might it then be able to take a good portion of that funding and turn it into global charitable initiatives, such as Sedo has done with their SedoCares program or how DotAsia – Giving Back to the Community is living up to one of their three mission statements through their Relief.Asia program? (see September 2nd blog post on “Sedo and DotAsia - Doing What They Did Not Have to Do“)

SUMMARY:

So to summarize, there are quite a few reasons that call for the need for an auction.  However, with what I have read and heard, as well as NOT heard, business is business.  Such a process will ultimately aid in the strength of ICANN’s bottom line, but will also need to be passed through to the those seeking domain names as the registry needs to recoup its costs.  Also, as costs are recouped how much will the costs of applications go down?  In other words, applications for new gTLDs will become like a “quasi” commodity as the process “should” be nailed down soon, however, it will never become a true commodity as a commodity implies competition.  How can there be competition when applications can only go through ICANN?

So, will an auction help make the process smoother?  I have no doubt it will.  Will it also help ICANN’s bottom line?  I also have no doubt it will.  Should ICANN be able to conduct business and aid their bottom line through an auction?  From a pure business perspective I can only say, “I have no doubt they should”.

Entry Filed under: Site News, TLDs, Business Strategy, ICANN Community, ICANN