NB: This is a guest article by Tim Schumacher, CEO and co-founder at Sedo.
As someone who has worked in the domain industry for over a decade, I have recently been asked if the new global Top Level Domains will change or devalue the prices of existing domain names?
My answer is always the same: a clear and resounding “no”.
While many travel businesses may see this as a fresh opportunity to purchase some of the keyword domains they missed out on last time round, the fact is that new TLDs ultimately wonâ€™t have an effect on the price structure of the secondary domain market at all.
Before explaining why, let me start with an apt analogy which Thies Lindenthal, creator of the IDNX domain index and a domain pricing specialist at Sedo, recently put forward in his Scientific American article:
“On April 22nd, 1889, large areas of what is now Oklahoma were officially opened up for homestead settlement. At high noon, thousands of pioneers raced from the territoryâ€™s borders into pristine land, claiming lots on a first come, first serve basis.
“Within hours, first cities emerged around railroad stations or at other well-connected spots, quickly establishing local governments, basic infrastructure and property rights. Despite opposing laws, land claims were directly sold off in secondary markets.
“But even then, Manhattan had already been settled much earlier, and land prices in Manhattan were, and still are today, more than hundredfold the prices of Oklahomaâ€™s rural areas.”
For example, the introduction of a number of new gTLDs in 2001 (.aero, .biz, .coop, .info, .museum, .name, and .pro) highlights how some extensions flourish, while others do not. I would imagine many people in the travel industry didnâ€™t even realise that TLDs like .aero and .museum had launched in the first place.
In fact, even the better known domain extensions such as .info and .biz have less than 10% of the market compared to .com names, and the value of a .info is on average only 13% of the value of the respective .com domain (as shown at IDNX.com).
They are also less frequently used than the primary domain extensions, and many registrations are simply as a protection against other companies registering those names. The inconvenient truth for new gTLD enthusiasts is that, in 2001, you needed a .com to start a business (or a country-specific equivalent such as .co.uk or .fr), and that this still applies ten years later.
In the case of 2011â€™s potential new gTLDs, another hurdle for companies to overcome is the substantial cost and infrastructure required to apply. If your company manages multiple brands, has a presence in multiple markets, or sees a significant threat of cybersquatting, you may want to consider your own gTLD, but otherwise, the costs may be prohibitive and not a wise investment at this early stage.
In the last ten years, our market studies have supported this trend. Any new domain names have only bolstered the dominance and strength of existing gTLDs (such as .com) and ccTLDs (.co.uk or .fr, for example). These are the domain extensions that mean something to most internet users: .com has remained king, while businesses provide language-specific content via the relevant ccTLD. Iâ€™m happy to be proven wrong, but I believe that any company advertising in five years time will still feature the company or product name with a .com, or a local top-level-domain like .co.uk or .fr behind it.
There are, however, storms brewing on the horizon for domain names.
Although new gTLDs are certainly exciting, this is not the first instance of online innovation affecting the domain name landscape. When social media began to influence online business, I was often asked whether domain values would decrease as more internet users navigated via social media platforms and mobile apps.
One trend we are beginning to see in recent months is that, particularly among companies who consider themselves trendsetters, domain names are starting to disappear or move into the background. Instead, companies are advertising their Facebook or Twitter addresses, their iPhone applications, or even searches at search engines like Google. Furthermore, these advertisements arenâ€™t limited to drawing new customers; instead, existing websites and communications are used to promote these new media channels.
However, many businesses have become so focused on their social or mobile efforts that they lose sight of the extreme long-term danger looming on the horizon: the “Navigation Nightmare”.
Essentially, hereâ€™s the problem: while itâ€™s smart â€“ and very web 2.0 â€“ to use all the channels available as additional means of advertising and customer interaction, itâ€™s inherently wrong and even dangerous to rely on social media or web apps as means of navigation. By fully switching their advertising and internet presence to 2.0 giants like Facebook, Twitter, Google or the iPhone, businesses put their fate in the hands of those providers. As a result, three things can happen:
Providers can kick out any business, or an entire industry, with or without reason.
Providers can go out of business, and there is no regulative environment in place. If that seems unlikely, consider how popular FortuneCity or Geocities were. Think of those of us who migrated from Friendster to Facebook, and who may migrate in the future to Google+.
Finally, and possibly most significantly, providers can and will maximise profits, once lock-in is sufficient, and profitability goals will follow growth goals. If your company has a million Facebook or Twitter followers, how good will your negotiation position be if the provider suddenly starts charging hefty fees?
Domain names, on the other hand, can avoid all of these pitfalls, even with the continued problems with cybersquatting and a somewhat cumbersome governing body in the form of ICANN. Pricing of new domains is regulated so that domain name registries â€“ even those eventually offering new gTLD registrations â€“ cannot charge prices aimed solely at maximising their own profits.
Turn these examples around, and imagine for one second how wrong it would seem if Facebook.com had to pay an annual $50 million registration fee for its very own .com domain name. They could certainly afford it, and it would be the right business decision for them to spend that money rather than lose their key domain name.
However, Facebook has built its company by being innovative, so it would be wrong and would stifle future innovation if a monopolistic organisation such as a registry could charge arbitrary amounts. And so, for good reason, they canâ€™t. Individual proponents for Internet and government openness around the world have ensured that this wonâ€™t happen, making the domain name system a safe harbour for the future.
Comparatively, Facebook, Twitter, Googleâ€™s Ad Network, and iPhone apps are proprietary, walled-garden approaches. Therefore, they are not what the Internet needs and present a danger for any business relying on such channels as navigation and addressing mechanisms.
In regards to every businessâ€™s strategy: Building an online business primarily on Facebook, Twitter, Google, or iPhone Apps, is like building a house on rented ground, with the landlord completely in control.
The reliance on outside platforms and providers is easily circumvented with wise domain name investment and, although some companies will be investing in new gTLDs, most will, and should, stick to their trusted and true domain extensions: .com and local ccTLDs.
NB: This is a guest article by Tim Schumacher, CEO and co-founder at Sedo.