New Top-Level Domains Could Affect GoDaddy, Network Solutions, and More

Quick, how many web-address extensions (the suffix after the dot in the URL) can you name in five seconds?

During the final week of January, Internet web addresses have been finding their "neighborhoods" more diverse as an influx of new and more descriptive domain names began to surge onto the scene. While some view this phenomenon as a seismic shift in the Internet, not everybody is doing cartwheels.

Answering the question above, I would have come up with "dot com," "dot net," and "dot gov." That would pretty much tap me out. Aside from technology professionals, that's probably most people's list.

A quick tour of the jargon

But it turns out that up until now there have been 22 of these domain names, known as generic Top-Level Domains, or gTLDs. That number is scheduled to surge nearly fivefold as the 107th gTLD was introduced by the Internet Corporation for Assigned Names and Numbers, or ICANN, on Jan. 18, with the first installment of the growth spurt beginning this week.

This six-minute video discusses the function and importance of gTLDs.

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Source: ICANN

GTLDs are also known as "strings," and the names of these new strings often hint at the type of business better than the more traditional strings like ".com," ".net," and ".biz."  Examples of some of these more descriptive names that have completed the formal delegation process and are waiting to go live include ".training," ".guitars," ".luxury," ".solar," and ".plumbing." 

"It's happening -- the biggest change to the Internet since its inception," said Akram Atallah, president of ICANN's Generic Domains Division. "In the weeks and months ahead, we will see new domain names coming online from all corners of the world, bringing people, communities, and businesses together in ways we never imagined. It's this type of innovation that will continue to drive our global society." 

How to follow the money

Businesses applying for one of these new gTLDs pay an upfront evaluation fee of $185,000 to nonprofit ICANN, which in the short term looks to be the primary financial beneficiary of this name innovation. Businesses then pay $10 to $40 annually for maintaining their web address to registrar companies like GoDaddy, Network Solutions, and Name.com, none of which is publicly traded.

And while $10 to $40 per year may not sound like much, Verisign (NASDAQ: VRSN) announced a subscriber base of 125.9 million domain names under the category of .com and .net  last October during its third-quarter earnings report, so those annual fees can add up.

One aspect of Verisign's business that this influx of new gTLDs could affect -- and that investors could monitor when the company next reports earnings on Feb. 6 -- is the renewal rate for these .com and .net web addresses, which in the October report was 72.7% compared to 72.9% during the same quarter of 2012.  If enough businesses were to run with these new web extensions, it could lower the renewal rate for the .com and .net addresses at Verisign.

Perhaps in anticipation of how these new domain names could impact one of its key revenue streams, Verisign has applied to ICANN for its own set of new gTLDs, but the timeline for these new web addresses is murky.  During that same October third-quarter report, Verisign president and CEO Jim Bidzos discussed this issue: "At this point, we're not sure of the timing for our own new gTLD applications or for the back-end registry services that we'll be providing, but we will provide updates as appropriate regarding the status of our applications." He will likely provide such an update a week from Thursday during the earnings call.

Mixed reactions

According to vice president and general manager of domain names at GoDaddy, Mike McLaughlin, "Domain names are real estate of the Internet, and new land has just been opened up. So getting to stake your claim early is obviously better," he said. The influx of domains will "fundamentally change how people navigate the Internet, with names that are much more meaningful and targeted." 

Not everybody is as enthusiastic as McLaughlin, however. Because the leaders of some businesses know that people are used to address extensions like ".com" and ".net," they fear that changing their web address would only create confusion and make their business seem "less legitimate" to potential customers. 

The first set of new strings went live on Jan. 29. Even if Verisign is successful in acquiring its own set of new gTLDs, the renewal rate of its .com and .net subscriber base should be a useful metric for investors to keep an eye on in order to gauge the popularity of this latest Internet innovation.

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