Risk vs reward of owning a new gTLD

Risk vs Reward

During ICANN47 in Durban I spoke with a cross section of applicants involved in the new gTLD process. I asked one question “Will your gTLDs be successful?”

The general feeling amongst all the applicants was yes, and why wouldn’t they say that, when they had spent at least $185,000 for their applications. One of the main reasons for their confidence was based on a risk versus reward analysis of what the break even cost was to run a gTLD successfully vs. the number of minimum registrations needed at an attractive price.

It’s estimated that you would need about $50,000 a year to cover your costs of running a new gTLD. So as long as the applicants felt that they could cover those costs with a minimum number of registrations based on their business plan, they felt that the upside was well worth the risk.

Here’s the logic

The thinking in many cases was based on a worst case scenario that if you sold 10,000 second level domains for $5.00 each you reach your $50,000 to cover your costs. Any registrations above that would be considered profit.  Considering that one of the slower performing TLDs on the market place like dot.aero currently has nearly 10,000 registrations, getting to 10,000 would be considered realistic and the risk reasonable.  Also through the largely untapped emerging BRIC markets of Brazil, Russia, India and China, the demand for registrations in the coming years is thought to continue to grow strongly. Sounds like a pretty straight forward plan right?

Possible errors in gTLD applicants thinking

Although SLAM Strategy is very much an advocate for the new TLDs program as a whole, we do have our doubts about the viability of some of these new strings. Not because they can’t be successful but because of three main and very real issues.

  1. Domain Supply vs demand concerns – There will be approximately 1,000 new domains available to the public in a very short time frame and although there will be considerable demand the supply is going to vastly outstrip demand with a flood of string options. Owners need to see this as a long term strategy that could take 5-10 years before they reach their breakeven points.
  2. $1 for a dozen domains for sale – Further to that, owners need to consider the fact that ICANN has mentioned subsequent rounds and the price for entry to own a domain likely to drop. This could further put pressure on existing owners trying to reach their break even points and extend or even make it impossible for some TLDs to ever reach their minimal requirements. A glut of registration options could lead to some offering a dozen domains for a $1 just to move stock.
  3. Risk of extinction – Anything with a small population is at risk of being wiped out if it is unable to adapt quickly enough to survive a changing environment. This is something that is a serious issue for the new gTLD owners as they are relying on a small pool of long established, existing Internet advertising and marketing companies to help them. In an environment where innovation, creativity and new thinking are paramount, the new top level domain name community is dangerously “short of options”, increasing the likelihood of catastrophic failures if they pick the wrong company to partner with.
    To some degree, a cookie cutter approach is inevitably going to be used by many of these companies who know no better, resulting in fewer registrations than anticipated and more importantly possible failure of the entire gTLD business model. All new gTLD applicants need to be wary of this and think outside the square. To understand this in detail you only need to look to the industry’s past and you will see that until the approved release of these new generic top level domains in 2011, the industry was tiny with only 22 top level domains and 250 country code top level domains which were drip fed into the system and snapped up by an almost inexhaustible demand for domain names. A fledgling and largely administrative driven industry was able to be serviced by a small number of Internet and Advertising providers who performed what would now be considered to be basic functions.
    The industry is now set to suddenly and massively expand into a very different and almost hostile digital landscape of dog eat dog and over supply. However, the number of new and external Internet Advertising and Marketing experts available that understand the gTLD industry but are not from the industry hasn’t really grown at all, and could almost be counted on one hand. Many of the people working in these companies have either worked at a registry, a registrar or at ICANN itself at some time in the recent past. While these companies and their specialists really are very, very talented with many years of industry experience, their greatest strength is also possibly their greatest weakness. Many of the current internet advertising and marketing companies providing support to the gTLD industry are providing advice based on their prior experiences from within the industry itself, as that is all they know. As a result, a lot of the same, repetitive and conventional industry thinking is likely to be offered, limiting any real competitive advantage that the gTLD owner may think they have. There’s no doubt these existing companies are extremely talented with amazing insight of the old gTLDs industry. However, the industry is rapidly changing and morphing into something very different from its past, requiring a more diverse approach to create real wow factor and excitement in the mainstream world of the average consumer.

How to make your new gTLD an Internet success story with fresh ideas

Yes this is a plug for SLAM Strategy but only because the new gTLD industry is a perfect synergy of business in the real world and the virtual world and creating ROI strategies in this space is where we see the future of online. We are an Internet Strategy company that could see instantly the potential of the new gTLDs on the global stage from a business strategy point of view. With over 23 years of experience in retailing, advertising and marketing and Internet strategy, the CEO of SLAM Strategy, Shaun Le Cornu saw an opportunity to give businesses an edge on the new Internet frontier that was clearly missing. Fresh thought is needed with a new approach by an Internet marketing company from outside the industry. There is a different game to be played that has not been played before and the current players could be lacking in vital real world experience.

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