Studies & Opinions
Expired Domain Snapping: Does
It Create or Destroy Value?*
Alex Tajirian
August 14, 2007
Abstract
We argue that when the consequences of non-trademark snapped
domain names are evaluated individually, only a small portion of
the activities is ex ante value destroying. However, the
practice can lead to value destruction at the industry level.
Introduction
The domain name industry in general and domain owners in particular
have taken a lot of heat over the very competitive practice of registering
expired domain names almost instantaneously as they become available—that
is, “snapping” them. The large volume of domain names associated
with this practice has brought with it a very large number of disappointed
and disgruntled domain name owners. Nevertheless, there are very
few situations for which one can ex ante argue that the practice
is value destroying.
Below, we outline situations that are unambiguously
value destroying and we consider various scenarios that might be
value destroying in the short term but whose long-term effect on
value creation is ambiguous.
Scenarios
-
Snapping a name and then reselling
it to the original owner is a value-destroying practice. But
the outlook changes if the original owner fails to buy back
the name. Most likely, when that is the case, the domain owner’s
offer comes to less than whatever value the snapper expects
from the name. If so, and unless the snapped domain name represents
a strong brand, the sign and magnitude of the activity’s net
value is ambiguous. Of course, when trademarks are involved,
the activity is not only value destroying but also illegal.
-
Consider a domain name that generates revenue
from a non-parking business. If the acquirer uses the name for
a generic parking page, it is highly likely that snapping the
name will be value destroying. But suppose that the snapper
actually makes better use of the name than the original owner
did—value creation could well be the result. And if the snapper
sells the parked domain name to a third party at a price that’s
higher than the value the original owner
would have been able to generate, this will result in a net
positive value transfer away from the original owner. Obviously,
the original owner will not be a happy camper either way.
Industry Impact
Taken individually, the great majority of non-trademark
snapped domain names are ex ante ambiguous when it comes
to value creation. But on the industry level, there can be negative
spillover effects. For example, the call for action by the Coalition Against Domain Name Abuse (CADNA) could
be abused to recruit a large number of disgruntled domain name owners
and increase their power to bully domain name owners into surrendering
names even when the allegations of trademark violation are bogus.
Concluding Remarks
-
The resale of a snapped domain name to its
original owner is value destroying.
-
Snapping trademarked domain names is both
illegal and value destroying.
-
Snapping a non-trademark domain name with
a recognizable brand name has the potential to create
value if the acquirer builds on the brand.
-
Snapping could have serious fallout for the
industry if it provokes coordinated action by disgruntled owners
who lost their domains to renewal lapse.
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