gTLD Update: Auctions for the New gTLDs; Whether to Trust Industry, Profession, and Geographic gTLDs

September 30, 2014

By Brad R. Newberg, Reed Smith LLP

Auction Update

While many, myself included, have discussed the uninspiring registration numbers for most of the new gTLDs, there are certain numbers that have been eye-popping: the amounts that are being paid for many of the gTLDs in auction. When two or more applicants are both deemed eligible for the same new gTLD string, the impasse is resolved in one of two ways. Either the companies agree among themselves which one should get it — almost always involving one company paying off the other(s) — or, the companies enter into an auction. These auctions can be run through ICANN, which was certainly counting on auctions as a major windfall well beyond the millions it received in gTLD application fees. They can also be run privately through various companies, some of which have been started recently for this very purpose.

While many of the winning bids have been kept confidential (as have most of the payouts from one company to others to avoid auction), the ones that have been released have been astonishing.  For example (all numbers according to published reports or releases from companies), the winning bid for .TECH was $6.76 million by Dot Tech LLC; Amazon got .BUY for $4,588,888; Minds + Machines bought .VIP for just over $3 million; and, so on.  In sum, all estimates I have seen surmise that the average purchase price for the gTLDs to go to auction was at least $1.3 million, and probably more. Of course, for the companies involved in multiple private auctions, some of this is pushing money back and forth between the same companies as the agreement in these private auctions is typically that the losers of the auctions get paid the lion’s share of the winning bid.

On the flip side of things, Domain Incite, an online news organization dedicated to reporting on domain name issues, has released a story that some number of the already launched or about to be launched gTLDs will be auctioned off in October.

Some of the new gTLDs have not been doing well at all, with average registrations totaling just a few thousand among all of the gTLDs, and many well below that. In a previous post, I surmised that many of these gTLDs would have little choice but to go out of business if they could not increase registrations or if their existing registrations went away come renewal time. It is possible that some of these struggling gTLDs will, instead, be bought by investors who think they can do a better job with the gTLD, or who believe that a particular string will be a valuable asset. As stated by Domain Incite, it “could be the first example of ‘domaining’ with TLDs.”

We do not know yet which gTLDs are being auctioned off, so it is also possible that these are gTLDs that have not launched yet or that belong to companies that always planned on selling. If not, however, the eventual reveal could give us a good indication regarding the health of the gTLD program. Furthermore, if the gTLDs up for sale really are struggling top-level domains, which have not even been active for a year, ICANN might want to think hard before starting a second round of applications too early.

As a final note on such sales, it certainly is strange that ICANN would make gTLD applicants go through an incredibly rigorous application process with dozens of questions geared toward the security of the internet and the applicant’s financial commitment to the gTLD, only to allow the gTLD — once granted — to be sold off to a third-party. One would hope that ICANN thoroughly vets any new owner of these recently approved strings.

Trusted gTLDs

Another issue of which brands should be aware concerns gTLDs associated with industries of heightened concern or a geographic region. For example, on the industry and professional side, some of the new gTLDs include .DOCTOR, .HEALTH, .ATTORNEY, .LAWYER, .ACCOUNTANT(s) and various ones related to real estate and finance/banking. Geographic gTLDs stretch from .NYC to .BERLIN to .TOKYO and so on.

As marketing for the new gTLDs has been minimal, no one knows for sure what the public will assume of these gTLDs. Given the specificity of these gTLDs and the fact that there actually are some gTLDs (“community” and otherwise) with wide-ranging requirements, will they incorrectly assume that the registrant of a second-level domain name in one of these occupation-specific gTLDs must have shown that she holds the proper licenses and is free of any serious violations? .NYC has certain requirements for its registrants, while many other city-based gTLDs do not. Will the public, knowing of the .NYC requirements (which might or might not be easy to circumvent anyway), assume that any business with a .LONDON second-level domain name must actually have shown that it is located in London?

Certainly, some brands will want to participate by registering second-level domain names in these industry-/professional- or geographic-specific gTLDs, especially where their company is closely aligned with that industry or profession, or has operations in that city. The concern, however, is whether there will be any backlash to all domain names within a gTLD when a consumer gets scammed by someone she assumed had a professional license he did not, or when a consumer believes he is getting an authentic piece of merchandise from a Tokyo business when the actual manufacturer or retailer is somewhere else. Such fears might be overblown, but they are worth considering. As always, brands should consult their internal marketing and legal teams or outside counsel, if necessary, to weigh risks and rewards.

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