VeriSign announced today it reached an agreement extending its role as a registry and registrar for .com, .net, and .org Internet domain names. This deal is significant because it doesn't require VeriSign to sell its registry or registrar businesses. With shares down 80% for the year, that news should give shareholders something to smile about.

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By Mike Trigg (TMF Tonto)
March 1, 2001

Shares of VeriSign (Nasdaq: VRSN) are up 4% today after announcing an agreement with the Internet Corporation for Assigned Names and Numbers (ICANN) extending the company's role as a registry and registrar for .com, .net, and .org Internet domain names. This deal is significant because it doesn't require VeriSign to sell its registrar businesses, which it previously agreed to do in 1999 in order to extend its rights to operate the registry for .com, .net, and .org through 2007.

There's often a misunderstanding over the difference between a registrar and registry. VeriSign's registrar business registers names -- like fool.com -- with the registrant -- like Motley Fool Inc. -- paying annually for use of that address. On the other hand, the company's domain registration business (registry) is a directory of Web addresses. Registrars pay VeriSign for keeping the directory, or roster, of Web addresses.

Under the terms of today's agreement, VeriSign retains the right to operate the registry of Internet domain names ending in .com until 2007 while maintaining the registrar business. In exchange, the company said it would only provide services for addresses ending in .net until 2006 and .org until the end of next year. (It could continue to operate both the .com and .net registries past the aforementioned dates under certain conditions.)

According to The Wall Street Journal, beyond giving up permanent control of .org domain names, VeriSign is required to put $5 million toward the ongoing operation of .org addresses. In addition, the Journal reported it would spend $200 million in research over the next 10 years toward streamlining Internet registries. The entire agreement is subject to approvals from the ICANN Board, Commerce Department, and VeriSign's board.

VeriSign's Network Solutions businesses once monopolized the Internet domain name business because VeriSign was the only company selling .com, .net, and .org addresses. The government ended that monopoly and cleared the way for competition and establishment of new domain addresses, such as .tv and .info.

Selling and maintaining the directory of Web addresses was once perceived as a significant competitive advantage, but companies like Register.com (Nasdaq: RCOM) have begun to chip away at VeriSign's dominance in the registrar market. With VeriSign's monopoly all but gone, there's little need to split up the two businesses. "Our initial cooperative agreements with ICANN have accomplished what they set out to do: provide competition and consumer choice for domain name registration,'' said VeriSign CEO Stratton Sclavos.

At this moment, The Wall Street Journal indicates that more than 80% of Internet addresses end in a .com suffix. And, as Paul Larson reported in his Network Security Internet Report, the domain names registry is a big-time cash catalyst because each address represents a sort of annuity to be paid to VeriSign. With shares down 80% for the year, news that the company will continue to be the registry for domain names ending in .com through 2007 should give shareholders something to smile about.

Mike Trigg spends his days offering readers what Gordon Gekko called "the most valuable commodity": information. To see his holdings, view his profile. The Motley Fool is investors writing for investors.

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