DomainTools Blog

Melbrourne IT just announced to me they purchased the Digital Brand Management Services (DBMS) division from Verisign. This makes it clear that VeriSign is going back to focusing on the more profitable registry business. I talked with William Roper (CEO of Verisign) less then a year ago and he indicated that a leaner more focused business was his goal as the incoming CEO.

Deal specifics
- Consideration: US$50m
- Revenue US$29m
- EBIT of US$4m
- Over 2,000 premium enterprise clients
- More than 300,000 digital brands under management
- 120+ staff
- Experienced management team & staff
- World-class digital brand management portal
- Annualised cost synergies in excess of US$1.5m

Do you feel like paying more money for a Domain Names? Good news! You are in luck, Verisign is forcing another global price increase in both DotCom and DotNet (do you hear the sarcasm in my voice, god I hate monopoly). The wholesale price is going up yet again for another straight year in a row. Verisign is allowed to continue raising prices every year 7% thanks to the agreement they signed with ICANN two years ago. The good news is Premium domains will soon cost more because crappy domains will cost $50 a year soon enough.

Here is the official Verisign communication justifying the price increase:

VeriSign, Inc. (NASDAQ: VRSN), the leading provider of Internet infrastructure for the networked world, today announced, effective as of October 1, 2008, an increase in registry domain name fees for .com and .net, per its agreements with ICANN.

VeriSign announced that the registry fee for .com domain names will increase from $6.42 to $6.86 and that the registry fee for .net domain names will increase, from $3.85 to $4.23.

Traffic volume continues to increase with the emergence of consumer-driven services, the surge in Web-connected wireless devices and the proliferation of technologies and services using the Domain Name System (DNS). VeriSign processes a peak of more than 33 billion DNS queries per day under normal traffic conditions.

The .com and .net infrastructures are continually being fortified and scaled to defend against increasingly sophisticated cyber attacks and to help protect against service disruptions. VeriSign is increasing the capacity of its global Internet infrastructure by ten times by the year 2010. Additionally, VeriSign will increase its daily DNS query capacity from 400 billion queries a day to over 4 trillion queries a day and will increase the aggregate network bandwidth of its primary resolution centers around the world from more than 20 gigabits per second (Gbps) to greater than 200 Gbps per second. VeriSign will also expand its deployment of Regional Internet Resolution Sites to more than 100 locations across the globe by 2010. VeriSign is also deploying new proprietary security upgrades and monitoring tools to identify, track and isolate malicious Internet traffic generated from cyber attacks.

Watch out Cyber Attacks!

A new hope has just surfaced against the Verisign-ICANN monopoly. ICANN granted Verisign a contract that has no ability to end and has price increases that are baked into the contract forever. The new hope is an underdog watch group known as the “Coalition for ICANN Transparency, Inc.” (CFIT) that has filed a motion to declare the Verisign-ICANN contract a monopoly according to the Sherman Act. This is the third time they have brought the suit against ICANN and Verisign. The head lawyer on the case is Bret Fausett a sharp ICANN observer. There is not much hope that CFIT will win against such a titan, the other side has been able to get the case dismissed two times before, however I think the case is very strong and very accurate. The reason CFIT will face an up hill battle is because ICANN and Verisign have a lot of money to fight the lawsuit. Verisign has an extra $20 Million a year thanks to the contract and ICANN and VeriSign baked in a new ICANN fee that would be assessed on VeriSign and passed on to the registrars and ultimately passed on to consumers. This fee would result in excess of approximately $150 million dollars to ICANN over the contracted period of time and would be an end run around the existing ICANN budget approval process. The Court has already recognized that to eliminate competitive bidding violates the Sherman Act. The CEO of Tucows went on public record that they could provide DotCom registry services for $2 a name, which prompted the CEO of GoDaddy, the world’s largest registrar, to say that GoDaddy could do it for a dollar a name. Meanwhile the Chinese Registry CNNIC has figured out how to do provide global registry services for 13 cents a name per year. There is certainly a competitive market to run the DotCom registry.

So while the challenge is for CFIT to prove Verisign has a Monopoly in the eyes of the court, this will be a David vs Goliath type of fight that has a lot of valid points. What ICANN did was to grant a contract which goes against its own Bylaws and the Memorandum of Understanding between ICANN and the United States Department of Commerce, one of ICANN’s core missions is to promote competition. The DotCom contract now contains a “presumptive renewal” provision, which by its nature hinders competition. The proposed DotCom contract, however, goes much farther than the existing contract by strengthening the presumptive renewal and termination provisions on behalf of VeriSign, thereby making it virtually impossible for VeriSign to lose the DotCom registry and impossible to reap the benefits of competition. With price increases baked into the contract it also makes it nearly impossible for ICANN to take out the language of price increases. Next time the contract is renewed ICANN is obligated to extend the same terms and conditions and those price increase will continue to go up faster and faster. If that doesn’t make your blood broil then you don’t own a domain name.

The way the current contract reads Verisign has a monopoly and there is no way to break it. No other Registry can bid when the contract goes up for renewal. Prices will always go up and ICANN is mandated to continue renewing the contract. Verisign has a lock on ICANN and now owns the DotCom registry forever. The only hope we have is that the ICANN-Verisign contract is found to be a monopoly and a truly competitive bid is allowed on the Registry contract in the future.

Ask your Registrar to support the CFIT case financially. Only do business with a registrar that supports overturning the Verisign Monopoly.

DotCom prices go up October 15th. Verisign and other registries will be raising rates for registrars on that date. The top-level domains being effected are .com, .net, .org, .info .biz, .us and .name. On Monday, most registrars will be directly passing that cost on to their customers. If you own over 100 domains, you can save over $100 by renewing earlier than your auto-renewal date. If you own over 100,000 domains, you can save, well, a lot of money. Most big portfolio owners pay for domains one year at a time. If a domain expires in 30 or 60 days, most registrars will renew it for their customer if they have selected the auto-renew function. The registrar will bill the same credit card that is on-file.

eNom has already announced their price increases for October 15th. From what I hear, most registrars that have expensive domains like Dotster will not be increasing their rates. If a domain is $15 retail, it most likely will stay $15. However Dotster’s other brand, MyDomain.com, that has its lowest rate at $6.62 for over 100 domains will raise its rates. In short, if consumers have a lot of domains, they should renew now.

http://www.enom.com/price-notification.asp

Fabulous.com Domains
$7.15 = .com, .info and .org – Renewing/Registering/Transferring:
$5.15 = .net – Renewing/Registering/Transferring:

If you have a link to a registrar’s price increase page, please add it in the comments below and I will add it to the post. I have not been able to find price increase notifications very easily on many registrar websites.

UPDATE: The old price for DotCom to a registrar was $6.20 ($6.00 with Verisign+ $0.20 to ICANN). Now the price is $6.62 ($6.42 to Verisign + $0.20 to ICANN).

The United States Department of the Treasury, Office of Foreign Asset Control (OFAC) made an update to their list of Specially Designated Nationals (SDN’s) with whom engaging in trade or provisions of services is a federal felony. The SDN list is separate from the country sanction programs also administered by OFAC. The organizations that own these domains names are not allowed to do business with the US companies. Because the registries of these domains (Verisign and PIR) along with the ICANN registrars both have names on this list they will be forced to take some action against the domain owners that have been listed.

Now on to bigger things, how about IP addresses? If these companies use IP addresses, can those allocations be taken from them?

The full list of SDN’s is located here:

http://www.treas.gov/offices/enforcement/ofac/sdn/sdnlist.txt

Thanks to John Berryhill a Domain Industry Lawyer for pointing this out.

Domain owners that pay the renewal fee on their domain after expiration date and then transfer away from their current registrar are getting fleeced out of a year of registration. Under the right conditions and if everything aligns correctly we find that hundreds of transaction each day are being deprived of a paid domain year. I confirmed my finds when I found Pat Kane the Director of Business Operations of Verisign during the ICANN meeting in Lisbon. No registrar that I am aware of proactively provides a refund if the domain owner transfers away within 45 days of the anniversary of the domain creation and renewed after the expiration. I asked a few registrars and Elliot Noss the CEO of Tucows went on the record and said he would provide a refund when this edge case happened at Tucows. Mr. Noss doesn’t believe that many domain owners experience this at his registrar because their transfer policy allows domain owners to transfer out after expiration. At a registrar like Godaddy the edge case may happen a lot, if a registrar blocks the transfer during the grace period until the domain is paid for the case will happen more often.

However a lot of registrars do not allow owners to transfer out after expiration, instead they insist that the owner renew the domain name because it is past expiration, after the renewal they will not block the transfer. But their is a huge problem with this, Verisign refunds the money to the original registrar for the renewal if another registrar transfers the domain away in this window. Verisign implicitly automatically renews every domain that expires, this is why the domain stays alive past expiration, it is up to the current registrar if they want to delete the domain. The only way Verisign knows if a domain owners pays is if the registrar doesn’t delete the domain during the grace period. So if a transfer goes out, Verisign refunds one year to the old registrar, even it you paid for it, it is refunded to the old registrar.

The Verisign accounting system that handles over 75 Million transactions a year has a flaw in it that some registrars may not understand how it works and generally don’t issue a refund when they are issued a refund by Verisign. The special circumstances are as follows: The domain is past expiration, the owner renews the domain at the current registrar, the owner then transfers away with in 45 days of the anniversary of the creation date.

Do not renew your domain at your old registrar during the grace period and then transfer out. Instead, directly transfer out or pay your renewal fee, wait until day 46 after the old expiration and then transfer out. You will loose one year of registration if you pay first then leave.

Verisign could fix the hole by requiring a registrar to send an explicit renewal command, but the command doesn’t exist right now.

According to the Official ICANN FAQ at http://www.icann.org/compliance/faq.html, it says:

My domain name has just expired. Can my registrar require me to pay for a renewal before I can transfer to a new registrar?

No. Your new registrar of choice can initiate a transfer request on an expired domain name once they receive the required authorization from you. Expiration or nonrenewal of a domain name is not a valid reason for denial of a transfer request.

Note that if the registrar has already begun the deletion process on the domain name and its status shows it to be within a 30-day Redemption Grace Period, the name must be .restored. by your current registrar before it can be transferred.

This loophole most likely exists at other registries as well because most registries are modeled around Verisign’s registry. However Verisign has the biggest marketshare of the other registries and so it could be costing consumers millions a year.

UPDATE: Key-Systems.net, an ICANN accredited registrar has been giving refunds to resellers since 2002 with a automated fix they added five years ago. But only to resellers under the RRPproxy and ISPproxy system not to retail customers. So it would seem some registrars know they should give refunds… however not one registrar does give refunds on an automated bases to retail customers.

Richard Lau from RegistrarManager.com also pointed out ICANN posted an advisory about this in 2002. When I personally asked Verisign and a few registrars about this issue not one of them recalled the advisory ( http://www.icann.org/announcements/advisory-06jun02.htm ).

I think I have got about 6 calls in the last day from large portfolio owners. They want to know how to clean their portfolios. This is a hard question to answer because there is no good way to clean house. If you think you own a TM domain and don’t want the liability of owning it even if you delete it you can be sued. Domain Tasters sometimes own a domain for less then 5 days and get lawsuits months after they owned the domain. So if you have a portfolio and owned the domain for 2 years and delete it you are not sitting in the clear. Registering the domain is enough is to cause someone to sue you. So if deleting the domain doesn’t resolve all the conflicts how does a portfolio owner get clean. Let’s say you own 100,000 domains. You are likely to have at least 0.5% of the domains that can conflict with someone else. There will always be conflicts. The best advise is don’t sell off your trademark domains, delete them. The penny pitchers inside the portfolio companies really want to do this but it can really bite a portfolio holder in the end. When you are trafficking in TM domains and may bite the company in the end just as hard has holding them long term.

Mitigating liability is something that all portfolio owners should be doing. When one of the domains in that 0.5% percent hits you with lawsuit they can use your registration history, deleted domains, sold domains, and your current 0.5% of domains to paint a picture that you systematically target Trademark holders. If you park directly with Yahoo they have a tool that allows people to run domains against their trademark system. There can be false positives but at least it flags some of the domains and a human can walk through those instead of the whole portfolio.

Some portfolio owners are addicted to the cash of the TM domains. They transfer the domains to off shore sister companies. What a mistake, smart lawyers are not fooled by shell companies. If a portfolio holder always transfers to the same company the lawyer knows there is a good link between the two companies and can subpoena evidence to prove the theory. So don’t trick yourself to think you are clean if you divide your portfolio into two holding companies (Good Guys, Inc and Bad Guys, Inc.). They share money, they share assets, then the corporate veil can be pierced.

Offshore? There is no offshore. This is a myth. For Taxes, Yes. For lawsuits, No. Virgina is where the registry for DotCom is and a lawsuit in that federal court can get all assets both Good and Bad. So if you value your DotComs and don’t want to loose them you have to be completely clean and not hold bad liabilities.

When you delete a domain it can cause untold havoc. You are now putting a TM domain into someone’s Domain Tasting queue. It also makes the domain available to anyone to register. A newbie is going to pick up the domain and get struck by the lightning that you feared. In the ideal situation if you think you have a possible TM domain that you want to delete it would be nice to have a 501c3 charity like Mr. Peppler started called CarryOn.com that would hold possible TM domains. CarryOn.com doesn’t hold TM domains just adult domains. But a new charity could hold TM domains. The goal of the charity would be to direct domains to the rightful owner and try to give those domains back to the owners. The charity would not monetize the domains while they hold them. It would be great if Verisign was willing to be a major donor because a majority of the money the charity would operate would be for registrations paid directly to Verisign.

I would recommend any portfolio owner that has over 20,000 domains to get an outside audit on domains that they own every 6 months. If you get caught in a lawsuit that audit trail would be helpful to show good faith. When you judge and evaluate your own domains there is no outside balance and perspective.

“The Value of Trust” was VeriSign, Inc. (Nasdaq: VRSN) tag line. On September 15th 2003, Verisign launched a service called SiteFinder that violated several RFCs and appeared to alter the way the Internet worked so that Verisign could make some quick money. They did this unilaterally without ICANN’s permission. This was a huge black eye for Verisign and forever altered the way I thought of them. I wrote a piece in 2003 called the The Value of Trust in 2007. The titled alluded to how the Verisign contract was up for renewal in 2007 and that a company that plunders doesn’t deserve to be renewed.

Verisign quietly retired their Tag Line, “The Value of Trust” shortly afterwards. I think Verisign is a great company… if you are an investor. I have always thought that. I made a lot of money pre-bubble (1999) on Verisign stock as it shot straight up. The crash hurt Verisign but luckily they owned a monopoly on .COM and a pseudo-monopoly on SSL Certificates. That SSL monopoly is gone now and there are a lot of companies that are still chasing after those high margins. Several companies are crushing those margins and stealing long time SSL customers.

Stratton resigned and it looked a little funny because an Independent Director named William Roper Jr. replaced him. Traditionally, Independent Directors don’t do that. They are seen as outsiders by boards because some big stock holder had enough votes to put them in the board room. The board chooses its own slate of directors and takes that for a vote to its shareholders.

So yesterday’s announcement that an ad hoc group of Independent Directors of VeriSign’s Board of Directors reviewed Verisign’s historical stock option grant practices and the CFO stepping down looks bad. The board is now adjusting its financial statements for 2002, 2003, 2004, and 2005. So I have to ask, Is Verisign still a good company for Investors? Clearly they don’t have the interests of Internet Users at heart. They are raising prices and being very aggressive when historically prices should be dropping. Disk Space and Internet Bandwidth costs are getting cheaper and not more expensive. I have always argued that Verisign is a great company if you are an investor – they look at for bottom line and raise prices as much as the can. But is all this working against them and in the long run hurting them more? Making one quarter look good is a nice, making a whole year look good is excellent.

We can see that 2002 was a rough year for Verisign. Their peak in March of 2000 was $248. Their low in October of 2002 was $4.55. They were crushed by the bubble and I think this made them even more aggressive. They are now near their five year high since the bubble popped them. It does look bad that Verisign’s CEO and CFO both stepped down in the last month. Yet I think the market liked that. The news last night that Verisign’s CFO stepped down and that the company has restated earnings has helped the company. Overnight the stock shot up 2% on the news.

Overall I think Verisign is a good company for Investors. They still hold a very aggressive monopoly in the domain space and they seem to be clearing house. I hate to buy when a company is at a five year high but sometimes that is the best time. I look for those deals where the company is in a price valley and will recover back to an original high. I would rate Verisign as hold for me right now.

Stratton Sclavos stepped down from his positions as CEO of VeriSign for undisclosed reasons. The company then named William Roper Jr. as president and chief executive and Edward Mueller as Chairman of the board. Mr. Roper had served as the board’s lead independent director and has been a board member since November 2003. Mr. Roper most recently served as executive vice president of Science Applications International Corp., a diversified technology services company. Mr. Mueller has been a director since March 2005 and was former head of specialty retailer Williams-Sonoma.

The company also said it postponed its 2007 analyst meeting, previously set for June 6, to a later date.

VeriSign refused to comment on what prompted Scavlos to resign. Mr. Roper, the CEO cautioned “you shouldn’t read into this any other matters that relate to capital structure or those type of things”.

VeriSign said a probe into the company’s stock options practices uncovered “no intentional wrongdoing,” according to a statement in the Wall Street Journal.

During my recent interview with Karl Auerbach, a former ICANN board member, he told Name Intelligence that Verisign spends less then 14 cents to maintain a domain name in its registry. VeriSign hasn’t complained about the load on the .COM registry due to Domain Tasting, which it currently allows. Domain Tasting is a practice where currently 97.6% of domains are never paid for but go through the whole DNS life cycle in only five days. The 2.4% of domains that are kept need to bare the whole registry cost. With a wholesale price of $6.00, the average cost to run the registry must be under 14 cents per domain or Verisign would be loosing money and crying to ICANN about Domain Tasters. These calculations come as a huge shock after the announcement by Verisign that they will raise rates 42 cents per domain. The new rate will be $6.42. People have to wonder why Verisign is raising their rates 4 times the actual manufacturing costs on their ICANN granted monopoly of .COM. Verisign already covers their manufacturing costs by a whopping 40X return on their investment. Most companies would kill to be in a position like that.

Name Intelligence gathered data for an Associated Press article that ran in February. This article showed the decline of paid domain names. Name Intelligence has a huge database of every domain transaction since 2002. It is within Verisign’s control to stop this behavior so we know it is not costing them money. However, it is Verisign’s fiduciary responsibility to its Shareholders to raise the prices by the maximum amount allowed. So, ethically, it would be wrong for Verisign’s CEO not to take advantage of domain owners.