Studies & Opinions
Network Solutions - Domain
Name Registrations via Auctions?
Alex
Tajirian
October 20, 2007
Updated November 10, 2007
Introduction
Network Solutions (NSI) seems to be gearing
up to launch an auction-based domain name registration service. It
has recently launched NameJet, its
own auction Web site for expired domains, which were previously outsourced
to SnapNames.
Registration auctions make
economic sense from the perspectives of NSI, registrants,[1] and the domain name ecosystem.
Such a mechanism increases NSI’s revenue, while creating thickness
in the registration market that increases efficiency and further
reduces bad domain tasting.[2]
In this essay we outline NSI’s
viable options for increasing thickness, options that strengthen
the argument for moving toward auctioned domain registrations.
Why Is Thickness Important?
Thin markets do not have enough matched buyers and sellers.
As a consequence, the allocation of an asset in such markets typically
does not go to its best use. Moreover, in some situations, thinness
can harm the industry’s ecosystem.
The market for domain name registrations is thin
and provides a fertile ground for domain tasting, which can have
an indirect negative impact on the domain name industry. Thinness
in domain registration markets is caused by the current allocation
system, which is first-come, first-served. Thus, the current mechanism
does not allow for multiple offers on the same domain name or for
protection of intellectual property.
How to Create Thickness?
There is theoretical and experimental evidence that markets
can be thin when transactions are made quickly and at dispersed times.[3] This is the case with domain
name registrations, which are instantaneously allocated to the first
requester and can be made at any time.
Thus, to create thickness,
the current domain-name instantaneous allocation system has to be
modified so as to allow others an opportunity to consider and to
bid for desired domain name registrations. The following are two
plausible scenarios for providing an opportunity for multiple bids:
-
Registrars notify companies when a request
to register a domain name that contains a specific key word
is submitted.
- Registrars periodically publish lists
of requested domain names.
Both of the above scenarios increase thickness
because decisions are not made quickly and at preset frequencies.
Below are additional possibilities for increasing
market thickness, with their adoption desirability for domain name
registration markets.
-
In the laboratory, under some conditions
for making offers, markets move toward thickness if firms
are not allowed to make a large number of simultaneous offers
(“exploding offers”). Although it is possible in theory
to limit an entity’s number of simultaneous registration
requests, doing so would put unnecessary restrictions on
the market and create incentives
to cheat. Hence it is not a desirable solution.
- Thickness also increases when firms
can make exploding offers so long as candidates can subsequently
change their minds without too much cost. However, in domain
name registration markets, the option of a registering entity
to change its mind, which is tantamount to a full refund grace
period, has created the opposite effect and has resulted in
tasting.
Tasting: Causes and Implications
Tasting has been fueled by the current ICANN-sanctioned
provision that allows domain name registrants to get a full registration
fee refund within five days.[4] ICANN (the Internet governing
body) is considering a number of solutions to domain tasting.[5]
There are two broad undesirable consequences of
tasting: coercion and a negative impact on the industry.
-
Coercion occurs when a domain owner registers
a domain name for the purpose of exploiting intellectual property
to extract monetary payment from trademark or brand name owners.
- Domain name registrations that infringe
on an entity’s intellectual property not only pose legal challenges,
but can also have a negative impact on the experience of Internet
users.
Concluding Remarks
NSI’s move into auctioned generic domain registration is economically
viable, as it creates market thickness by allowing multiple bids
on domain name registrations at less frequent intervals. However,
its success also hinges on ICANN abolishing the five-day registration
refund grace period.
[2] The practice refers to registering hundreds of thousands
of domain names and testing them for their potential to generate
ad revenue. After five days, the ones that “taste good” are
kept, the others are canceled for a full refund.
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