Top Level Domain Holdings primed for the arrival of a "new Internet age"

“Today’s decision will usher in a new Internet age. We have provided a platform for the next generation of creativity and inspiration.”This is how Peter Dengate Thrush described an end of restrictions on internet suffixes such as .com, .org and .gov.

At the time of those comments he was chairman of ICANN - the Internet Corporation for Assigned Names and Numbers - which is the body set up to oversee domain names.

Dengate Thrush was speaking in June as ICANN’s Board voted overwhelmingly in favour bringing in hundreds of new top level domains.

Today he is executive chairman of AIM-listed Top Level Domain Holdings (LON:TLDH), one of a handful of companies gearing up for this new era.

Today just 22 generic top level domains, or gTLDs, exist – names such the ubiquitous .com, but also .info, .net and .xxx for pornography. 

In addition to the gTLDs, there are around 250 country-level domains such as .uk. After the change, several hundred new gTLDs are expected to come into existence.

The big brands and organisations, cities and other communities are expected to apply for their own domains when the window opens on January 12 next year. It closes on April 12 and first of the new generation gTLDs are expected to be in use at the end of 2012.

“If you are not in that window, you won’t get a new top-level domain until the next round – perhaps in five to ten years,” says Antony van Couvering, the chief executive of Top Level Domain Holdings.

TLDH has been waiting and preparing intently for this fundamental shake-up of the Internet.

When the first wave of domain names were issued from the late-1980s onwards it was a free-for-all.

Some very prescient speculators nabbed the .com names for certain big brand owners and auctioned them back.

Others made a mint by acquiring domains names and flipping them on. So for instance sex.com sold for US$13 million and candy.com made US$5 million.

This time around the brand owners and cities will have an immediate and automatic right to their name.

So Coca Cola will inevitably commandeer the .coke gTLD and Guinness the .guinness moniker, while New York will no doubt be first in the queue for .NYC .

After that will be a bun-fight with all-comers vying for the general TLDs such as .blog, .movie, .web and .news.

“After the application window closes we will have the big reveal, when ICANN publishes who applied for what,” Van Couvering says.

“Then the competitive landscape will be clear.  If there are multiple applicants, agreements will be made, otherwise the last resort is an auction.”

Top Level Domain Holdings, through its Minds + Machines business, wants to be a major service provider in the space, though the company will also make its own, targeted investments in gTLDs.

“We have signed an agreement with Mumbai, the world’s fourth largest city, and we are talking to Berlin, Bavaria, Rome, and several others,” says Van Couvering.

“Cities have the ability to announce without fear of competition.  They own their names without question, whereas generic terms may be competitive.”

There are a number of obstacles that prevent entrepreneurial start-ups moving into the space and gobbling up the cake.

The barriers to entry include the significant administrative costs involved, major investment in IT and the knowledge-base required to operate and thrive in the space.

And leaders in this sector such as TLDH have a critical piece of technical infrastructure called a registry that is difficult and time-consuming to build and test.

“Even if you have a registry platform, you still have to connect to all the different registrars, who are your sales channel,” Van Couvering explains.

“Our system is already supported by all the major registrars. You could in theory build one a registry from scratch, but getting it to function in the current ecosystem is another thing.”

Dengate Thrush adds: “It’s like saying let’s build an airline. You need landing slots, pilots and skilled engineers. You just can’t do it quickly, from scratch.”

And of course there is the investment that goes into acquiring a top level domain. The US$185,000 application fee is just the start.  “You going to be running a critical piece of infrastructure, so you have to show that you have the skill and the resources to do that properly,” says Van Couvering.

“One of the requirements is you post a bond held in escrow for three years of operating costs of core registry services. So it is not inexpensive.”

Top Level Domain Holdings has around US$12 million on the balance, or US$18 million if a batch of in-the-money warrants are exercised, so it has the financial wherewithal to achieve its aims.

We have gone this far without actually discussing the scale of the opportunity on offer.

The market for top level domains is dominated by US giant VeriSign, which acts as a registry for about half of the estimated 200 million second-level domains worldwide, and is valued at an eye-watering US$5.5 billion.

This suggests that the overall market is worth somewhere north of US$10 billion in total, according to Van Couvering.

“We expect the new gTLD program this to expand the market by between 25 and 50 per cent,” he adds. “Obviously this is a rough estimate, but it suggests that the total opportunity in the new top-level domain space is between US$2.5bn and US$5bn.”

Another way to look at it is from the bottom up. Take a top level domain such as .law. In the US alone there are 500,000 lawyers – many of them sole traders each wanting to market their wares.
It takes only 10 per cent of them to sign up for the .law top level domain at say US$100 a month to turn this one domain into a real money spinner.

Meanwhile the profit margins are 50 per cent and the renewal rates are near 80 per cent for many existing TLDs.

And these top level domains can be in any characters - Cyrillic, Kanji or Devanagari – which instantly creates a number of completely new markets. 

“The top level domain space has, up until now, been entirely English. It is now going to be Chinese, Japan, Russian and Hindi,” says Dengate Thrush. “This opens up a whole load of new opportunities.  It’s going to be transformative.”