The backorder industry may be growing, but it's not getting any easier to understand. We go behind the scenes with Snapnames, one of the industry's pioneers, to try and understand the dark side of the domain name business.
What could be harder than having a good idea? Having it before anyone else. That's especially true in the "first come, first served" domain name industry, where a good idea often means trying to get a name that has already been registered by someone else.
Hence the backordering business. The concept of which seems straightforward enough. If the name you want is not available, monitor it until the current owner decides not to renew it and then try to register it the instant it's released.
Simple in theory, a lot harder in practice. A domain name's delete cycle is so complicated, consumers have no real hope of being able to understand when to pounce on an expiring name and claim it. But no matter. A new industry has evolved, using specialised systems to grab those expiring names.
A lack of coordination
Unfortunately for the consumer, the backorder industry is extremely hard to navigate. Many backordering systems are available and all compete against each other. Because the delete cycle is complex, there's no clear benchmark by which consumers can gauge the potential of one system against another. Firms can claim success rates which are impossible to verify.
That complexity is in part caused by a lack of centralization. To register a new domain name, an end user can go to any number of competing registrars knowing that in the end, his order will be centralized by a unique registry. Not so with the backordering industry, where there is no such coordination.
A centralized organisation has been suggested. WLS (Wait List System) was put forward as a means to coordinate backordering through the registry. But the company who made the proposal, Verisign, was deemed by many to have too much vested interest as it is the registry operator for Dot COM and Dot NET. As such, WLS has met stiff opposition, both commercial and legal, and has yet to come to market.
Increased revenue through auctions
That may be good news for existing backorder specialists, but it's not necessarily good for the consumer left trying to navigate an industry that is looking more chaotic and disorganised every minute. To gain more insight into the current state of play, we spoke to Snapnames, one of the original backorder specialists. The company developed an apparently straightforward sales model whereby it would only assign one backorder per domain name, arguing that it was unfair to sell the same thing to several people knowing that in the end, only one of them would be served.
Snapnames also worked on WLS and is a strong advocate of the system. But the company has hit rocky times and earlier this year, it was forced to adopt a rival model just to stay in the business. The model is an auction system whereby should a name be backordered by more than one person, it will go to the highest bidder. As can be imagined, that model generates greater revenue for those running it and Snapnames eventually found itself almost priced out of the market as its auction-using competitors paid registrars for exclusive partnership deals which guaranteed that expiring names managed by the registrar in question could only be backordered by the partner.
To make matters worse, some registrars have now started withholding expired domain names. They simply do not release them until they've had a chance to try and sell them on first. The more the players write their own rules, the more the backorder industry feels biased against the consumer. Since turning to the auction model, Snapnames has secured an exclusive deal with Network Solutions, who used to have a monopoly on Dot COM and remains one of the largest registrars in terms of market share. Since Network Solutions is also one of the registrars that have stopped releasing expired domains, the names it has under management today have very little chance of going to another company tomorrow. Now that doesn't sound like a healthy competitive market, does it?
A US$75 million a year industry
Snapnames pioneered the deleted domain name industry in many ways. Yet a few months ago, the company was forced to completely change its sales model. What has happened in the deleted names industry to make such drastic action necessary? What is the state of this industry today? The state of the industry is interesting — it’s nearly always in a state of flux and it certainly is today. It’s obvious, though, that in the long run, the players are going to need to find a way to make a healthy secondary market that serves end users, rather than one that’s so fragmented and difficult to use.
How big do you estimate the deleted names industry to be now in terms of annual revenue? It depends upon what is included in the term “deleted names industry”. If you count only the dollars earned at the time of drop or transfer of the names and not what is later earned by those who hold for traffic or resell names, then we estimate it currently to be $50 to $75 Million/year.
Where is the market for deleted domains: mostly in the US, mostly amongst private individuals…? It’s global. Pretty much everyone in the industry realizes there’s a core group of speculators that make up a lot of the business, and there’s lots of room for growth from businesses and individual end-users.
Is this an industry still centered around the main gTLDs (Dot COM etc…) or are you beginning to see demand for backordering systems that work on other domains (say the main European ones)? The main gTLDs still make up a great deal of the business, though some of the ccTLDs are coming on strong. It will be very interesting to continue to watch what happens in other countries, especially in Europe with dot EU.
Ignoring the end-user
WLS was supposed to coordinate this industry by centralising the waiting lists. Is that something that is still needed today? Sure. How could an end-user be expected to make sense of system that involves so many moving parts? The more a system can be centralized, the more certainty there is for the end-user, whom many conveniently forget or ignore in this business. The merits of a WLS system are “debatable” only by those who don’t consider what it’s really like for consumers or don’t want a change to the status quo.
Is there a future for WLS? Yes. ICANN has approved it three separate times. Now if they can only find an envelope to mail it to the Department of Commerce…
Without a centralised system like WLS, the deleted names industry seems in some ways to have collapsed into anarchy, with major registrars like Network Solutions deciding not to release expired domains… Many registrars are looking for a way to help their customers by acting as their customers’ agents in selling names that the customers no longer want. That’s more certainty, not anarchy.
Can you explain exactly what it is that Network Solutions and others have decided to do and why they are doing it? After expiration, when a registrant is certain to no longer want a domain name, it’s made available through the SnapNames platform to backorder holders. If there are no interested buyers, it’s sent to the registry for deletion. We think registrars are doing this as a response to the bogus accreditation problem as well as ICANN’s lack of responsiveness with WLS.
Overseen rather than regulated
The new ICANN budget increases the charge a registrar will pay per domain name. What impact do you expect this to have on your industry? It will remain to be seen if ICANN is able to accomplish its ambitious growth goals and stay true to its core technical coordination role. It’s clear to almost every observer that ICANN has stepped well outside its boundaries — over time, the real question will be whether or not everyone in the industry is satisfied with how ICANN performs, and what’s done about it if not. There are businesses in this industry trying to perform as businesses and, like us, don’t enjoy the endless runaround of ICANN’s processes.
Should the deleted names industry be regulated by a body such as Icann, or should it be left the way it is today? Everyone seems to agree that ICANN can play a productive role if it will, in fact, actually be productive. But it’s horribly unproductive. Take WLS for example: WLS had to be approved three times, only after a debate not on the system’s merits and tinkering with the details by ICANN staff, and since its last approval on March 6, 2004 — two years after it was proposed — it’s still not in the market. That’s more than absurd. It’s all fun and games for some people, but there are businesses to be run, end-users to serve and marketplaces that have expectations. ICANN certainly wouldn’t be happy being treated as it treats others.
Regulated, in the true sense of the word? No. Overseen, per the needs originally outlined by the framers of ICANN? That’s closer to the right shape of things.
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