New gTLDs: Are they a success?
13th April, 2017
More than three years have flown by since the first new generic top-level domain (gTLD) was delegated on 23 October 2013. Today, hundreds of new gTLDs are now available, giving consumers and businesses the opportunity to register domains under the likes of .science, .guru, .xyz, .expert, .ninja, .pizza, .wine, and many more.
ICANN's New gTLD Program was launched in June 2011, and it received nearly 2,000 applications when the application window eventually opened in January 2012. Guided by a 338-page application book, each applicant was required to pay a $185,000 evaluation fee, which was intended to recover the costs involved in running the New gTLD Program.
The initial application fees alone have netted ICANN more than $300 million to date, so the program has arguably been worthwhile from its point of view, avoiding the need to subsidise it with ICANN's other funding sources; but with such high fees, how successful has it been for the applicants?
The fact that each applicant had stumped up $185,000 for each gTLD evaluation suggests that they must have had a fair degree of confidence in their own business plans before filing their gTLD applications. Applicants are required to provide financial projections, which would typically include forecasted registration volumes and the associated cash inflows. Every application that passes ICANN's Initial Evaluation process implies that both the applicant and ICANN were satisfied that the operation of the new gTLD would be sustainable. Even so, profits are not necessarily expected to be instant – the applicant's demonstration of a sustainable business model does not have to reach break-even within the first three years of operation.
Success in numbers
Now, after a few years of growth, it is clear that some of the new gTLDs have been very successful indeed. Take .guru, for instance: this was launched in January 2014, and quickly became one of the most commonly purchased new gTLDs offered by its operator, Donuts Inc. It has nearly 64,000 active registrations, and more than 56,000 of these are running websites that appear in our latest survey.
This registration volume likely translates to somewhere between 1.5-2.0 million dollars in registration fees being paid by consumers each year, depending on which registrar is used. While .guru's domain registry will only receive a portion of the consumer cost of the domain, with the rest being split between ICANN and the registrar, the amounts are likely to be significant.
Beyond the initial evaluation fees, applicants are also required to pay ICANN ongoing quarterly fees; but for the majority of gTLD operators, these will be much lower than the initial application costs. It is likely that .guru in particular is making a handsome amount of profit for its operator.
Donuts is evidently a firm believer in the potential for new gTLDs. Founded by Paul Stahura, who sold the domain name registrar eNom in 2006, this start-up company raised $100m in venture funding and ploughed most of it into 307 applications for new gTLDs.
Donuts operates nearly 200 of the 1,000 or so gTLDs that have been delegated so far (i.e. introduced to the internet's authoritative Root Zone database). While Donuts' .guru gTLD quickly established itself as a favourite, it has since been taken over by .life, .email, .today and .solutions. All of these — including .guru — were launched in 2014, giving them a head start in gaining popularity compared with newer new gTLDs. The .life gTLD is the current leader amongst Donuts' domains, with nearly 79,000 registrations.
In terms of the number of websites (rather than domains) using new gTLDs, the most common one in Netcraft's April 2017 survey is .top. This entered general availability in November 2014 and broke through one million registrations by 2016. The .top gTLD is operated from China by .Top Registry, and is now used by 160 million websites across more than 2 million unique second-level domains (e.g. anlink.top).
Many of these .top sites are nothing more than webspam, but it is the registration volume that counts when it comes to potential revenue, regardless of how interesting the websites are. However, depending which registrar a customer uses, a .guru domain could cost roughly three times the price of a .top domain, so the higher registration volume of .top does not necessarily translate to an equivalently higher revenue. Taking Namecheap as an example, a .top domain costs $0.88 for the first year and $10.88 per year thereafter; whereas a .guru domain costs $6.88 for the first year and $24.88 after that.
The actual revenue being drawn from new gTLDs is not clear, as the financial projections submitted by applicants do not have to be made public; however, a leaked presentation back in 2013 revealed that Famous Four Media put the potential year 1 revenue for each new gTLD at almost $30 million. Famous Four Media is another prominent applicant in ICANN's New gTLD Program, using separate limited companies to apply for 60 new gTLDs. A year ago, its .science gTLD was the most used new gTLD (by hostnames), then used by 66 million websites across more than 160,000 unique second-level domain names (e.g. bmgathome.science).
.top might have most websites (e.g. mail.simplegoods.top), but in terms of unique second-level domains (e.g. gen.xyz), and therefore active registrations, .xyz is the most commonly registered new gTLD in use on the web. Netcraft's latest survey shows it has a registration volume of more than 3.7 million, although many of these domains will have been given away by XYZ.COM LLC for free or at very low cost.
This time last year, much of the interest in the .xyz gTLD came from China: About 40% of all .xyz websites were hosted in China; more than half of all .xyz registrations originated from China; many of its 200,000 IDNs (internationalised domain names) were in Chinese scripts (e.g. 台北郵購網.xyz); and the single-digit domain 1.xyz sold at auction for a record $182,000 to a Chinese registrant. However, today, the United States hosts nearly 80% of all .xyz sites.
Things are evidently going well for XYZ.COM LLC, which also operates several other new gTLDs. Its CEO, Daniel Negari, notably put out a $5 million offer to buy four gTLDs from Rightside Group Ltd, and has also expressed its desire to buy gTLDs from other registry operators, saying it is "cashed up, and ready to do deals".
The large registration volumes of .xyz, .top and .life make these gTLDs serve as flagships for their respective operators, but not all gTLDs are this popular. For example, .accountants has only 1,400 registrations, even though it has been operated by Donuts since 2014. However, this lower uptake is not too surprising, as the target registrants for this particular gTLD are professionals practicing in the field of accounting and auditing. Lower registration volumes are therefore to be expected among these niche gTLDs, but the operational costs can be countered by charging more per registration – registering a new .accountants domains costs around five times more than a .guru domain (again, depending which registrar is used).
The .accountants gTLD also has to contend with the similar—but much cheaper—.accountant gTLD, which is managed by Famous Four Media. Despite the obvious similarity and mission overlap, the .accountant gTLD was approved by ICANN and delegated in March 2015.
Netcraft's survey found more than 50 times as many domains registered under the cheaper .accountant gTLD. While there are undoubtedly more individual accountants than there are groups of accountants, the cheaper cost of .accountant domains must also play a big part in these different registration volumes.
Most obviously, cheaper domains are more likely to appeal to domain squatters and ad networks. Demonstrating this, more than half of all .accountant websites are hosted by a single company, with most of these sites being used to display monetized search links rather than anything to do with accountancy.
Nonetheless, registrations are a gTLD operator's primary source of revenue, and so it is largely inconsequential to the operator what the registrants end up using these domains for. Although the .accountant gTLD is aimed at accountants and related businesses, it is actually possible for anyone to register these domains. Registrants of .accountant domains are required to agree to the Registry's Abuse and Rights Protection Terms and Conditions, which includes displaying an APM seal on their homepages. This measure is supposed to "augment the security and stability" of the gTLD, but it seems that this requirement is not actively enforced, as many of the spam sites using the .accountant gTLD do not display this seal at all.
Other metrics for success
Financially, it looks like the well-established new gTLDs have been successful, and many of the newer ones have similar potential; but this success has not yet manifested itself so visibly on the internet.
The most commonly registered gTLD, .xyz, might have 3.7 million current registrations, but fewer than 2,500 of these domains appear amongst the top million websites; and even though .science was the most commonly used new gTLD this time last year, even fewer of these—just 22—have made it into the top million. These amounts are mere drops in the ocean compared with the well-established .com, which is used by more than 403,000 unique domains within the top million sites.
Much of the early success of .xyz—relative to other new gTLDs, at least—can be put down to a Network Solutions promotion which offered a free matching .xyz domain with each .com domain purchased. Within its first ten days of operation, Network Solutions had registered nearly 100,000 .xyz domains, but many of these could not be monetized until the following year when the domains became due for renewal.
Phishers seizing new opportunities
Unsurprisingly, fraudsters have also exploited the plethora of new gTLDs by registering domains that are then used to host phishing sites. Many of the domains involved in recent attacks appear to have been registered specifically for the purpose of fraud, rather than belonging to sites that had been compromised.
While ICANN requires all gTLD registries to deal only with registrars that prohibit end-users from carrying out phishing attacks, each registry maintains its own safeguards, meaning that some are better than others at proactively defending against fraud.
With some new gTLD operators allowing domains to be registered by fraudsters, and others failing to enforce their own safeguarding policies effectively, it is clear that more could be done to make new gTLDs safer; but fraud prevention and policy enforcement often consumes time and money. The availability of both of these resources is largely dependent on how much revenue the gTLD operator makes, and so the operator's effectiveness at wiping out fraud could, bizarrely, also serve as a metric for success.
So, are they a success?
In conclusion, most new gTLDs appear to have been successful in some way or another, whether that be measured in registration volumes or revenue. Many of the new gTLDs that have low registration volumes are operated by companies who also operate several other gTLDs, so even if they were to make a loss on one, it would likely be offset by their more successful gTLDs. One thing that can be said for certain is that the new gTLD program has succeeded in its goal of giving registrants a much wider choice of domain names, whilst resulting in millions of dollars being exchanged between ICANN, the operating registries, and domain registrars.
However, there are indications of a slowdown in applications for new gTLDs: ICANN's Draft FY18 Operating Plan and Budget forecasts that its revenue from new gTLD applicant fees in FY2017 will be only $21 million, compared with $27 million (actual) the previous year, and $71 million the year before that. While this projection is unlikely to affect the revenue being made by the operators of existing new gTLDs, it suggests that the hundreds of new gTLDs in operation today may already provide more than enough choice for most consumers.
Netcraft services for new gTLD operators
New gTLD operators can confidently protect their top-level domains against phishing and malware with Netcraft's suite of services for domain registries. Taking a proactive stance against these attacks is vital, as it demonstrates to fraudsters that they are unwelcome, and thus ensures that the reputation of the new gTLD is not tarnished.