[registrars] WLS pricing, revenue, and other issues

[Paul Stahura <stahura@enom.com>]

$40?
Daaang! 
In Montevideo, I supported the registry charging *something*
regardless of model implemented,
but I was thinking, like, a buck or two, not no $40.
I thought it was an error when I first saw the number.

Did I say "Daang"?

Please help me to understand that it costs $6 per name
cost-recovery to actually register 35 million names, 
and then maintain that it will cost $40 per name
to "waitlist" just 1.75 million names (5% of 35M).

Besides that, as I said on the icann-delete list, 
in Montevideo, and in LA, I still believe there
are more efficient methods to allocate dropped names 
than the wait-list service.

1) I don't think it is most efficient to pay snapnames a
royalty fee, or technology license fee, or intellectual-property fee, or
service fee, or whatever you want to call it, when there are a number
of better proposals that will solve the problem with much much less
(zero?) of these costs.  
If it is a question of money, Verisign, just increase the price 
charged for one of the other methods to equal, or even exceed the 
revenue generated by WLS, minus the fees paid to Snapnames.
At least this will be cheaper to consumers and increase volume too. 
Sorry snapnames, but this will save us all money, 
and be better for the consumer (not just price-wise), to-boot.

2) Registrar competition is fierce.  If the WLS system
was to be put in place, competition among the registrars
would force the margin we make to about $1 per wait-list entry.
It is a simple matter to send a one-shot command to the registry,
so at least one of us would probably not charge more than $1 for doing so.
Once one does, others will follow, because with WLS there is 
no way we can innovate and differentiate ourselves except on price.
I do not agree with statements that we registrars will 
be able to mark-up the price to say $49 and do any volume.

3) I don't believe that 5% of all names will get wait-list entries
Especially when the fee for an entry will be more than $40 each.
(see below for more reasons).
But, if Chuck's 5% number turns out to be true, this program will generate
about
.05 * 35M * $40 = $70M in revenue to Verisign (I wouldn't mind being you), 
with lets say half, or $35M going to SnapNames (or them in this case).  
Considering Verisign currently generates about $6*30M=$180M
per year in revenue on registrations, $70M would be a significant
portion of Verisign-GRS yearly revenue.
The registrars will get about 
.05 * 35M * $1 = $1.75M to split-up amongst us.
Or about 2.5% of the total revenue distributed among about 40 active
entities.
For many registrars, the revenue generated would probably not cover their
next ICANN trip travel expences.
Even if I was to charge $3 over cost, and get 10% of the market,
I'd only make revenues of $43K per month, and this,
I believe is very optimistic.  
There is little hope of convincing me that the registrars will make
more money with WLS than they do now, because:

A) at $40 retail, I think the number will turn out to be about 800K names on
wait-list
(which is still probably way optimistic considering .biz and .info only
*registered* about
600K "good" names each, at less than $6), or about 2.3% of the total so
divide 
all the numbers above by about a factor of 2.

B) I wont get 10% of the market by charging $3 over cost.
Don't kid yourselvs, these will be sold to speculators who are
trying to amass traffic by getting names that have a number of 
links already pointing to them.
Therefore, not selling to joe consumer so much, 
brand will matter less, and price more. So,
lets say 10 of us will charge $1 and each get about 10% of the market.
Therefore, I really figure I'll do about 
.025 * 35M * $1 * .1 / 12 = $8K per month in revenue,
subtracting expences, it may just cover eNom's ICANN travel 
expences each quarter.

Since I believe we registrars will charge about $1 over whatever price is
chosen, who cares what the prices is? $1, 20, 40, 100? The answer is
because a lower price, I believe, will mean more names are wait-listed,
(if that is the proposal implemented) hence we will all make more money,
and incidentally help solve the problem of reducing load on the current
system,
which I understand will stay in-place anyway with the WLS model,
and at the same time provide a lower retail price.

I don't blame Verisign or SnapNames for pushing this model,
obviously it will make money for them, especially at a $40 price point
(I said "Dang" already, didn't I?), which is the goal for all 
for-profit companies. 
Heck I'd probably be attempting the same if I were in their shoes.
Personally, I think SnapNames model is very innovative,
and I really like the SnapName "state of the domain" report, 
but that does not mean their model is best.
I especially don't think it should be imposed on everyone...
and not just registrars.  Everyone.

I guess, to figure out the best profit-making model (if that was the
criteria), 
Verisign should look at the
other players in this market besides SnapNames.  
It seems there are really three models:

Wait-list: SnapNames 
Auction: Like NameWinner
Service Fee: Like eNom's "Club Drop" where participants pay a monthly fee to
play

Which one is maximizing profits?
If I was Verisign, and I wanted to maximize profit, 
I'd forget about the SnapNames model, saving on IP fees right there, 
and I'd do an auction model, which would maximize
the fee paid for each name as well as the quantity of names wait-listed
and minimize the IP associated with the model to zero
(NameWinner, I assume, didn't invent the auction), and therefore
maximize the profits to Verisign, and probably to the registrars too
(we could innovate and differentiate ourselves a bit with this 
model in place at the registry, too).
Incidentally, since it maximizes the number of names purchased,
it would minimize the load on the current system.

If I wanted to maximize consumer benefit, diversification, and choice at 
lowest cost,  I'd impose a deterministic round-robin method, with a
cost-recovery
fee to play, shared equally by the players that month/year/whatever.  

If I wanted to limit the load on the current system,
I'd just keep what we got, but publish the dropped names list a day or 
two ahead of time, return better errors in the RRP, and do some other 
low-cost technical things like maybe deterministic round-robin.  

In any case, I would *not* choose the WLS model,
which is also a poor compromise.

4) I believe spending $35 million on a royalty fee, or technology fee, 
or intellectual-property fee, or service fee, or whatever they end up
calling it, 
is not in the best interest of consumers, especially, when there are better
methods 
that do not have this fee.   I don't think it is most efficient to pay
snapnames  
(or anyone) an IP fee when there are a number
of better proposals that will solve the problem without these costs.
This is one of the biggest problems I see to choosing this method.  
Not to mention that the consumer will
be sold wait-list entries that will never happen,  for one example, because
the name
is currently registered for longer than the wait-list period.  
And a host of other reasons.
At least with life insurance the person will die *someday*.
I'm surprised Verisign does not have consumer's interests in mind
especially after voicing concern about protecting the consumer from slamming
during
the whole transfer ack/nack issue.

5) If SnapNames gets a cut on each wait-list entry we all perform
then we will be paying our competitor, who will also, by the way, have a
monopoly. 
Wasn't there a big ICANN/DOC hub-bub to remove this kind of problem with the
Chinese wall, etc, at NSI? 
Even if we registrars sold them AT-COST, SnapNames could undercut us 
(even if not accredited they could do it via the lowest cost registrar
available) 
and still not only make a profit on all the names *they* sold, but also on
all the names *we* sold.
Where is the competition ICANN/DOC is trying to create?
Removing one competitor in this market, let alone promoting that
competitor to a monopoly position, is probably not the best method
to increase, or even maintain, the current level of competition.
This is another big problem I see to choosing this method.

In summary:
1) Consumers: WLS is not a cost efficient method for distributing dropped
names
creating higher costs to end-users, and presents no opportunity for
registrar diversity
2) Competition: WLS  decreases competition by installing another monopoly
(SnapNames)
and forcing the registrars to pay a competitor yet again.
3) Registrars: WLS decreases any hope for making money

Financially, I guess my gist is that the registrars have a better hope of
making
money if the total price paid for dropped names is less,
because the volume will increase and the registrar's piece of the pie
will be bigger relative to the registry/snapnames pieces since the
registrars will tack on about
$1-$3 no matter what the price is.  Also the volume will be greater
because the retail price will be less than it otherwise would have been.
This I believe will not only increase the registrar's share, although not by
a ton, 
but also coincidentally decreases the price paid by the consumer.  
If the method was not WLS, then Verisign would make more at 
the same retail price because they or anyone else would not have to 
pay SnapNames unless you chose to use their service.
$40 is just too dang much.
  
In other words, at some point in lowering the wholesale price, it would:
1) be in Verisign's best interests to drop the WLS proposal due to its
licensing costs,
and in their financial interests due to increasing volume.
2) be in the registrars best interest due to increase volume and larger
piece relative to the registry.
3) be in consumers best interests due to lower retail price.

I'm still curious:
1) How much of the $40 is going to SnapNames? Whatever it is, can't we
implement 
a better model that does not have this fee?  Why not disclose the deal
so we won't assume the worst, and so we can all make better comments?
2) If implemented would SnapNames still be allowed to "compete" with
registrars?
Get accredited?, or just kickback and collect royalties?
3) What happens to the wait-list names that SnapNames has already sold?
4) Why have a test-bed to test WLS when SnapNames is already "testing" it?
What aspect will be tested... the monopoly part?

Finally, I wonder, is WLS pre-ordained?  
If so, eNom'll shut-up and sell 'em for $40+$1 and make
our  0.1 * $1.75M/12 = $14K/month or whatever in revenue 
(assuming eNom gets 10% of the 
wait-list entry market, and the market is 5% of the total 
number of names registered now).

Thank you for the oportunity to comment 
and sorry for the length,

Paul
eNom, Inc.


Reasons why the number of names on wait-list will be less than 5% of the
total:
1) The market is not currently paying $49 as Verisign suspects
because there are competitors to SnapNames selling a somewhat equivalent
product for less,
therefore if the price is raised from the current level of, I believe,
much less than $49, the number of names on the list will decrease to well
below 5%.
A high registry price, by the way, will decrease the effectiveness of the
WLS method
on decreasing the load to the current system, which is part of what we are
trying to solve.
Heck, just crank the WLS price from $40 to $10,000 and we are nearly back to
where we started.
2) The WLS system will probably need to be limited, at least during a
start-up phase,
to WLS participants waiting on a particular name to the current registrant,
due to intellectual property concerns.  This will
decrease the demand for a particular name, especially since the current
registrant can just add 6 (six!) years at anytime (cost=$36) and still have
$4 change,
hence no real incentive to purchase a wait-list entry if you are the
registrant, 
besides FUD and confusion, which I'm sure people will produce in an effort
to try to get registrants to purchase a wait-list entry on their own name.
There will be no
"insurance in case it deletes on error" incentive because I assume if it 
gets deleted on error it will be returned to the registrant even if it is
wait-listed.
3) As time goes on, even though more and more names may drop, the 
more valuable names will likely not be dropping so
people willing to pay at least $40 for a name that may/maynot drop will
decrease.
5) The list of possible wait-list candidate names should be limited at least

to those names that have not been registered for longer than the wait-list
period,
otherwise there is no hope of getting the name, unless it is deleted
sometime during
the registration (not at the end).  In this case, it has probably dropped by
accident,
and therefore should not go to the wait-list person anyway, unless the
wait-list person
is the current registrant, in which case, it was definitely deleted by
mistake,
and the wait-list person is a fool for purchasing the WLS in the first
place.

Assumptions if WLS is implemented:
1) That the list of wait-listed names will be published and updated at least
once per day, 
along with the potential registrant's whois information.
2) There will be a delay (30 days?) after a name is deleted before
the wait-list person gets it, especially if it is deleted during the
registration period.
3) That the price be more like $2/name/year, or a monthly subscription
4) That the registrars will be allowed to cooperate and implement a system
whereby we can accomplish the same/similar thing during the 45-day grace
period
with names that have expired but that have not been deleted, and maybe
extend this period to 90 days.