Some New GTLDs Will Fail as Businesses, Experts Say

Several questions remain after the Internet Corporation for Assigned Names and Numbers unveiled 1,930 applications for new generic top level domains this week, long-time ICANN observers said.

While some of the new gTLDs will evolve into successful businesses, many others will not, ICANN watchers said. As ICANN begins to evaluate the applications, starting July 12, there will be questions about the business plans of some applicants as well as the technical ability of some to operate a new gTLD, they said.

The application process "almost seemed like a gold rush," said Richard Stockton, a lawyer with Banner and Witcoff, an intellectual property law firm. "There's going to be some [gTLDs] that perform and some that just don't."

Some of the new gTLDs will have benefits -- .pharmacy, for example, could help weed out counterfeit drug sales online -- but others don't have obvious business models, added Erin Hennessy, a partner in the technology group at the Bracewell and Giuliani law firm.

On the other hand, .biz and .info, launched in mid-2001 "have never caught on," she said. There are about 2.2 million secondary-level domains on .biz and 6.5 million on .info.

"Now we're adding .inc and .llc," Hennessy said. "I'm not sure they're that different from a .biz and .info. I wonder how they're really going to be used."

Hennessy questioned if companies will do something substantially different with the new gTLDs that they didn't do with their .com websites.

Forrester Research analyst Jeff Ernst, however, expects some innovative business plans. "It'll take awhile for the more innovative [business plans] to come to surface," he said.

Still, Ernst expects that some gTLDs will fail. "They'll probably have the same rate of success as any new business venture will," he said. "A certain number will fail because they misread the market, or didn't get enough support."

A handful of companies applied for dozens of gTLDs, startup Donuts for more than 300, and these gTLD portfolio companies seem to be betting on strength in numbers, he said.

"For them, if three out of 10 can be very successful and another three out of 10 break even, and another four out of 10 are not successful, then they'll probably still come out ahead," Ernst said.

Applicants running an open registry like .food as opposed to a closed, company-focused gTLD like .ibm, will have a lot of business competition, Ernst said. But the new gTLDs may not need "massive volumes" like .com has in order to be successful, he said.

"They just have to have enough of an annuity stream from a niche community around that term," he said.

Ernst downplayed concerns that some applicants won't have the technical ability to run a registry. ICANN should weed out some shaky applicants, and some others will likely withdraw their applications.

Other applicants without registry experience will likely partner established registry operators like VeriSign and Neustar, he said.

"Anyone with any intelligence, I think, is going to be using a third-party registry service provider, to manage all the technology infrastructure," he added.

Buyers of domains on these gTLDs will have to evaluate the operators of the gTLDs and decide whether to invest money in websites on the new gTLDs, Ernst said.

Website operators will be concerned about the "operational experience and financial resources" of new the TLD applicants, said Steve DelBianco, executive director of NetChoice, an e-commerce trade group.

"Registrants will be ill-served if their TLD fails or fades after adopting a new domain name," he added in an email. "And internet users everywhere will suffer if a TLD operator lacks the experience and resources to detect and deter malware and fraud originating from their domains."

In the shorter term, another issue to watch for is the competition for gTLDs. ICANN announced that there are at least two applicants for 231 terms. For example, .app has 13 applicants, including Amazon.com and Google, .home has 11 applicants, and .art has 10.

There are also multiple applicants for . book, .llc, .inc, .music, .baby, .ltd and several other strings. Google and Amazon are competing on 21 terms, including .game, .movie, .shop and .search.

There will be a lot of "horse trading" among applicants as the ICANN evaluation process plays out over the coming months, Ernst said.

Some applicants may agree to drop out of one competition in exchange for their competitors dropping out of another term they both applied for.

The negotiations will make for "lots of intrigue and maybe some legal fights among competitors," DelBianco said.

Ultimately, ICANN can auction gTLDs if applicants don't reach agreements. It will be in the applicants' interest to stay away from the auctions, Ernst said.

"ICANN would love to have Amazon and Google bidding against each other," Stockton added.

Grant Gross covers technology and telecom policy in the U.S. government for The IDG News Service. Follow Grant on Twitter at GrantGross. Grant's e-mail address is grant_gross@idg.com.

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