Pricing and investment arguments are wrong.

Logo for .org domain, featuring a blue circle with white letters spelling ORG
Ethos Capital and Internet Society are working overtime to spin the deal to sell .org for $1.35 billion as a good thing. There are certainly some good things about it, but I cringe when I read certain talking points.

One is around pricing. Yesterday, from ISOC board member Mike Godwin:

But could it be at the public’s expense? What about the argument that the prices for domain-name renewals will soar? This argument ignores common sense — you don’t take over a successful business and price most of your customers out of the market or spur a mass migration to an alternative product. Not only would that permanently destroy any faith in .ORG — the business you just bought — but it also would undermine TLDs generally. (I’ve suggested, not entirely jokingly, that the proper response if anybody tries to extort huge renewal fees for .ORG is to launch a mass one-time conversion to the .WTF top-level domain. I’d happily lead any charge in the .WTF Resistance.) In any case, demand for TLDs isn’t inelastic, despite what the deal’s critics say — there are hundreds of TLDs and customers aren’t locked in. It takes only a few minutes of studying PIR’s year-by-year financials to see that jacking up domain-name renewal prices in the way the critics fear would be suicidal for PIR or any other registry that depends primarily on predictable renewal rates, and it would destroy the value of .ORG as well. I don’t think any of the companies that sought to buy PIR were dumb enough to invest a billion dollars in buying the .ORG business in order to destroy it.

And from Vint Cerf:

Moreover, as a for-profit company, PIR has a clear rationale for not driving away its customer base by any excessive raising of prices. Given current .org pricing, a 10% increase in price would be less than $1. Even if an organization had registered a dozen .org domain names, it is hard to believe that such an increase would be viewed as unsustainable for most non-profits. Of course, companies that hold domain names in the tens of thousands for speculative purposes might find such increases more troubling, but I don’t have much sympathy for that business model in the context of the organizations the .org brand is intended to serve.

This thinking ignores the economics of domain names. Godwin suggests that .org customers aren’t locked in. OK, then ISOC should figure out what would be involved with switching from InternetSociety.org to InternetSociety.charity. It would cost lots of money and time, and the headaches from switching email would last for years. True, there is price elasticity to domain demand. But for renewals, it takes a huge price increase to change demand.

Cerf is correct that most charities won’t blink an eye at a $1 increase in the cost of renewing their domain name, at least in the first world. But this assumes that Ethos and whoever owns .org in the future won’t raise prices more than 10% per year. Calling on Godwin’s words, jacking up .org renewal prices would not be ‘suicidal’ to .org. Even if renewals were $100 a year, it wouldn’t be worth the pain for most non-profits to switch.

The other issue I have is with the idea that Ethos can invest in .org to create new products and services for non-profits. It certainly can, but there’s no reason PIR can’t under the current arrangement. Cerf writes:

Second, when the operation of .org was transferred to the Internet Society, it created the non-profit called Public Interest Registry, or PIR. PIR’s primary objectives were, first, to operate .org and, second, to provide significant support for the Internet Society by essentially allocating any surplus from the operation of PIR to fund the Internet Society’s work in promoting a more accessible and secure Internet. This amounted to about $50 million a year, which was hugely helpful to the Internet Society but limited PIR’s ability to invest in improvements to the operation of .org or even the creation of new products and services for the non-profit community.

The idea that Public Interest Registry is cash-strapped because it has to send its profits to ISOC doesn’t hold water. PIR has been able to increase prices 10% per year for the past decade but hasn’t always done so. If it raises prices 10% this year, it gets another $10 million in its bank account that ISOC isn’t depending on. That’s not enough to invest in new products or services?

This isn’t to say the deal isn’t good for ISOC. Godwin does a good job explaining that domain name revenues aren’t certain, and this endowment gives ISOC certainty. That’s a selling point for ISOC and its constituents. But let’s be honest about possible ramifications of this deal.

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