Go Daddy Bets on Windfall From Web-Address Expansion Beyond .Com

Go Daddy Group and VeriSign Inc. (VRSN) are among online-services companies that may reap a sales windfall from an expansion of the Web’s address system beyond .com and .net opposed by some of the largest U.S. brand owners.

The Internet Corporation for Assigned Names and Numbers will begin accepting applications Jan. 12 for top-level domains that may result in hundreds of new Web suffixes such as .apple and .nyc. General Electric Co. (GE), Coca-Cola Co. (KO) and more than 50 other brands object to the program, saying it will increase their costs, confuse consumers and fuel Internet fraud.

The expansion, aimed at spurring online innovation, has sparked a land rush among established companies and startups for new opportunities to the right of the “dot” in Web addresses. Icann’s program may spur sales for Go Daddy, VeriSign and other companies that help consumers and businesses get onto the Web, Todd Weller, an analyst at Stifel Nicolaus & Co. in Baltimore, said in an interview.

“The new domains are potentially expanding market opportunities,” Weller said. “We think .com is still the premier domain name but more domains should be a positive for the market overall.”

Icann, an independent nonprofit based in Marina del Rey, California, oversees top-level domains under a zero-dollar U.S. government contract. The group charges annual fees to domain- management companies such as VeriSign and to sellers of full website names including Go Daddy.

The expansion of the Web’s address system beyond .com and .net has sparked a land rush among startups seeking new suffixes and may spur sales for Go Daddy, VeriSign and other companies that help consumers and businesses obtain Web addresses. Photo: Scott Eells/Bloomberg Close

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The expansion of the Web’s address system beyond .com and .net has sparked a land rush among startups seeking new suffixes and may spur sales for Go Daddy, VeriSign and other companies that help consumers and businesses obtain Web addresses. Photo: Scott Eells/Bloomberg

.XXX Precedent

The organization’s board concluded six years of deliberations by approving a plan in June to consider almost any word in any language as a Web suffix. Each application will cost $185,000. The program may double Icann’s annual $85 million budget, Rod Beckstrom, the group’s chief executive officer, said in an October speech.

Icann approved a .xxx domain for adult-content websites in March, providing an example of how the broader domain-name system expansion may play out.

Almost 200,000 .xxx domains have been sold so far through registrars such as Go Daddy and Network Solutions, Stuart Lawley, chief executive officer of ICM Registry, the operator of .xxx, said in an interview. ICM, based in Palm Beach Gardens, Florida, received almost $25 million from sales of the domains last year, Lawley said. ICM paid $95,000 in fees to Icann over several years to apply for .xxx and now pays $2 a year for each domain name, he said.

About 60,000 brand owners, including as many as 70 percent of Fortune 500 companies, registered .xxx domains over 52 days starting Sept. 7, Lawley said. Most of the Fortune 500 companies that acquired .xxx domains did so to protect their brands and don’t intend to use them, he said, declining to name the companies.

Go Daddy Doubling

The broader Web-name expansion may help closely held Go Daddy double the number of its domain names under management to 100 million from 51 million, Richard Merdinger, the company’s senior director of product development for domains, said in an interview.

“We’ve seen an ever increasing number of inquiries” from potential applicants for the new domains, Merdinger said. “It could be very significant.”

Private-equity firm KKR & Co. teamed in July with Silver Lake Partners and Technology Crossover Ventures in agreeing to buy Go Daddy in a deal valuing the Web-hosting company at $2.25 billion.

“It’s an open area that’s ripe for creative things,” Paul Stahura, co-founder and chief executive officer of Donuts Inc., a Seattle-based startup company, said in an interview.

‘Domain Nuts’

Donuts, which stands for “domain nuts,” plans to apply for 10 top-level domains under the Icann program, said Stahura, a former chief strategy officer and director at Demand Media Inc. (DMD), a Santa Monica, California-based website publisher. Stahura, who sold Internet registrar eNom to Demand Media in 2006, declined to name the domains his company is targeting or further describe his company’s plans.

Stahura’s startup is among an array of smaller companies looking to invest in new Web suffixes. Another is a London- company called Top Level Domain Holdings Ltd. (TLDH), which plans to acquire top-level domains and offer Internet registry services to domain applicants. The company said it hired former Icann chairman Peter Dengate Thrush in July, a month after group approved its expansion plan.

‘Benefit Users’

A spokesman for Reston, Virginia-based VeriSign, which operates the .com and .net domains, declined a request for an interview about the Web-name expansion.

“The registries and registrars that exist will benefit because there will be more activity, but we’re not bringing out this program to benefit them,” Stephen Crocker, Icann’s chairman, said in an interview yesterday. “We’re bringing it out to benefit the users of the Internet.”

The expansion may result in hundreds of new top-level domains, and potentially as many as 2,000, according to Crocker, who said the organization has no plans to delay or scale back the program amid criticism from brand owners.

“We’re very sensitive to the issue of consumer protection and protecting brand owners,” he said. “We have extensive safeguards during the process and even afterward if there are abuses detected.”

Icann will put aside about $60,000 of every $185,000 application fee to cover potential litigation arising from the program, Crocker said.

Pressure to Postpone

Icann has come under increasing pressure from U.S. lawmakers, regulators and large corporations to postpone or limit the program.

Brand owners including American Express Co. (AXP), Johnson & Johnson and Ford Motor Co. (F) joined the Association of National Advertisers to oppose the expansion in November, saying it would force companies to “spend ever-greater amounts of time and resources simply to protect their brands.”

The ANA, which initially urged the Commerce Department to persuade Icann to delay the program, yesterday suggested changes, including a “do not sell” list aimed at saving brand owners the expense of buying domains to keep them out of the wrong hands.

Senator Jay Rockefeller, a West Virginia Democrat who leads the Senate Commerce Committee, called for delaying or limiting the program in a Dec. 28 letter to the Commerce Department. The Federal Trade Commission said in a Dec. 16 letter that Icann should scale back the number of domains introduced, citing the risk of Internet fraud.

The Commerce Department, the overseer of Icann’s U.S. contract, raised industry complaints about the Web-name expansion in a Jan. 3 letter to the group while making clear that the government doesn’t wish to interfere with decisions about the program.

To contact the reporter on this story: Eric Engleman in Washington at eengleman1@bloomberg.net

To contact the editor responsible for this story: Michael Shepard at mshepard7@bloomberg.net

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