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TMF: I guess the best way to start this is for you to give us a description of Register.com.
Forman: Register.com is the first step on the Web. Register.com was the first competitive accredited registrar to go live with systems. As you know, the domain name registration industry was a monopoly until June 1999. Register.com was the first of the new competitors to go live. We're the leading competitive registrar on the market today, and Register.com helps individuals and businesses get a domain name. Once they have a domain name, it helps them put it to use whether it's through e-mail services, Web hosting services, Web promotion services -- all the different products and services that customers are going to need in order to build out a robust Internet Web presence.
TMF: Can you talk a little bit about your customer breakdown between individuals and businesses, and also where you see the different kinds of market opportunity in terms of both new customers and value-added service sales?
Forman: Right now, we estimate that half our customers are businesses and half of them are individuals. But of the half that are individuals, a lot of them are using their domain names for hobby purposes, for moonlighting purposes, or for other small and medium-sized business opportunities, so we really see that about three-quarters of our customer base is composed of individuals or businesses using it in some type of commerce or non-individual context.
"We estimate that long-term, about one-third of all users of domain names are going to be individuals."
TMF: How do see that changing in the next five to 10 years?
Forman: Well, it's kind of hard to make accurate predictions. We do believe individual growth is going to continue to accelerate along with overall growth of all domain names worldwide, but we estimate that long-term, about one-third of all users of domain names are going to be individuals.
TMF: How would somebody go about signing up for packages beyond just the registration with you? Do you have sort of a beginner package or advanced package, or can you pick a la carte?
Forman: We've broken up more to an a la carte capability, but what we've done that no one else in the market has done, is we have a really rich and robust bundle of products and services included with the domain name. We give you the domain name, we give you DNS, or domain name services, we provide you with a domain manager application that allows you to easily manage and maintain your domain name, and lastly, we provide you with something called FirstStepSite that's going to give users the capability to build a quick, three-page website and attach their domain name in a matter of minutes.
TMF: Right now in talking about this business, one certainly has to talk about the merger between VeriSign (Nasdaq: VRSN) and Network Solutions (Nasdaq: NSOL). There had been rumblings of something like this for months, and then it happened and was the most expensive Internet-related merger ever. Any thoughts on that deal, maybe how it impacts your business or the industry in general?
Forman: We think it's a great thing for our business. We think it's great because it validates what we've been saying all along and that is domain names are important, and registrars are an important part of the process because the issuing and maintaining of domain names really is so vital to the Internet economy on a going-forward basis.
TMF: Is that really where the industry is going? Do you expect in terms of Internet services for small business and individuals, that there's just going to be a big rolling-up, or can a company like Register.com expect to be able to exist on its own?
Forman: Well, for sure companies like Register.com can exist on their own. I don't think there's any question about that. But while I believe the VeriSign/Network Solutions acquisition may make people think about those issues, what VeriSign really bought was a great distribution channel for its products and services.
TMF: While you guys are obviously offering value-added services along with the registration, you also sign up partners like Stamps.com (Nasdaq: STMP) and NetObjects (Nasdaq: NETO) to sort of flush out your offerings. I wonder if you could talk a little bit about how deals like this show up on financial statements, and also contrast that with the ones you offer yourselves. Certainly the financial dynamics have to be different.
Forman: I'd say what's unique about some of our partner relationships is they do share in the revenue that we get from our customer base, so we are sharing a percentage of the top line -- or, actually, not the top line, but we are sharing a percentage of the revenue that we receive from customers with our partners.
TMF: How are you choosing those partners? On what basis?
Forman: Ideally we'd like to try and choose them based on the amount of traffic that they can generate for Register.com and the amount of registration volume that they can provide. Sometimes we make a good choice and sometimes we make a bad choice. But today we have over 400 different partners, so I feel pretty confident that we are choosing good partners by and large, and those are helping drive our registration volume.
TMF: As an investor, I guess Network Solutions was certainly the first real way to play the registration space and I think that you guys, as far as a pure play, basically have what you might call a second-mover advantage. Where else do you find your competition coming from?
"What VeriSign really bought was a great distribution channel for its products and services."
Forman: Well, there are about 30 credited registrars today and those are our primary competition.
TMF: Are there ones that you think are ahead of the pack?
Forman: Looking back at the fourth quarter of 1999, Network Solutions had a 72% share of the market, Register.com had about a 13% share, and about 25 other registrars divided up the remaining 15% of the market. Looking at those numbers, it's hard to really count which of those 25 registrars has a large share of the remaining market.
TMF: I was talking to a number of consultants who said that something that might eventually become an issue, not for just businesses like yours but the Internet users in general, that there will eventually be a shortage of Internet protocol [IP] addresses. Is that a real issue and is that something that might affect you as a business at some point?
Forman: No, it's not going to be an issue at all from my perspective. The reason that it's not is because domain names are not IP addresses and people can have multiple domain names pointing to the same IP address, but also you're finding some intelligent IP address applications, so like servers used to have one IP address per Web hosting account, but they've gotten much more sophisticated where they can have 500 Web hosting accounts on one domain name.
TMF: So it is sort of a non-issue?
Forman: Well, I wouldn't call it a non-issue, but in terms of what keeps me awake at night, that's not one of the things.
TMF: Another thing in looking at Network Solutions, and I think it affects not just that business but the registrar space in general, is the registry aspect of what they do, which in time is not going be under their purview. How important is that? What's going to happen to that and do you have any idea when that's going to hit?
Forman: At this point we don't have a clear idea and I think that from listening to announcements from both VeriSign and Network Solutions, I think they are still trying to decide what they want to do with their business in that regard.
TMF: Is that a business that Register.com would be interested in trying to get into?
Forman: I think we'd look at any opportunities that came up, but at this point, we don't have any plans to do so.
TMF: As someone who would be watching your business as it grows, what should we be looking at in terms of the dynamics? What dynamics are the most important?
Forman: I think relative to all Internet businesses, it's important to look at it yourself and see how well that company is growing, and one thing that is unique for Register.com is that currently we are cash flow positive and I think very few of the Internet companies are cash flow positive. It's something we take a lot of pride in, and 75% of the other dot-coms out there are not cash flow positive.
TMF: Is there an aspect of your business that is generally misunderstood by investors or the investment community at large?
Forman: I think one of the things that's probably most misunderstood is how important domain names are to all Internet traffic, particularly domain name services or DNS services. Register.com is one of the largest DNS providers in the world and we believe it's truly a hidden asset that the company has in terms of our being able to control the way Internet traffic gets routed and provides us with a lot of opportunities to offer new products and services to our customer base. Some of which we are rolling out, some of which we have plans to roll out, but it really is something that is so critical to the way the Internet works and very few investors truly appreciate it.
TMF: Can you talk a little bit more about some of these products specifically?
Forman: Well, we tend not to talk about new products and services until they've been launched, but you've see ones we've come out with like our FirstStepSite Products, our e-mail services, our Web hosting services. We are coming out with a trademark protection service. We are going to be announcing some new things to help customers generate new domain names in probably about a week... [and] you're going to see new products and applications coming out of the shop approximately once a month for the balance of the year.
TMF: Where are you guys getting your customers from? Are people just sort of coming to you off the Web?
Forman: That's pretty confidential information. I'm sure you can understand. All the other registrars would love to know where we get our leads from, too.
TMF: Yes, I'm sure they would. Where I was heading with that question was that it seems like that the folks that just want to have a domain name, those are people that maybe in a lot of cases would kind of volunteer [their business], but I guess what my question was is how do you convert them into folks that are buying the value-added services on top of that?
Forman: The value-added services that are offered to our customers are logical extensions of the domain name. We're not offering them products and services that aren't related to either their domain name or their situation. For instance, we have site promotion services. A lot of these people have sites, we offer a commerce capability -- a lot of these people need commerce capability. Again, we're trying to make sure that the products and services that we offer to our customer base are ones that our customers need.
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