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[icann-eu] Domain Name Economics
- To: icann-europe@fitug.de
- Subject: [icann-eu] Domain Name Economics
- From: Thomas Roessler <roessler@does-not-exist.org>
- Date: Tue, 5 Jun 2001 14:14:36 +0200
- Comment: This message comes from the icann-europe mailing list.
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I'll try to paint the "big picture" of ICANN and related topics in
this message. Topics addressed include competition in the root
market, competition in the TLD market, user and domain name holder
representation. Note that all this may just be silly nonsense - if
so, please tell me about the flaws in my thinking.
The questions I'll be asking are mostly these: What does this or
that player have to sell? Why can the player sell that good? What
happens when multiple players try to sell the same good?
Registrars vs. Domain Name Holders
First, consider the relationship between registrars and domain name
holders. Obviously, registrars are selling sexy character strings.
Further, they are selling the visibility of the domain to the
Internet - including uniqueness. It's obvious that it's close to
impossible for the millions of domain name holders we have to go for
visibility and uniqueness individually - in this case, they'd have
to individually deal with all the DNS server operators on the world
- a task which seems to be virtually impossible for most of the
domain name holders.
The Natural Root Monopoly
Now, take this relationship one level up: Domain name holders become
ICANN-accredited registries (and their customers, the registrars),
and the registrar's role is taken by ICANN. Still, what's sold is
visibility, and uniqueness. However, there are only few players on
this level, and - today - most of them are quite powerful. Thus, it
may be affordable - but expensive - for these players to directly
buy visibility from DNS server operators (mostly ISPs).
It's interesting to ask what the situation would look like when
competing root service operators would indeed offer pointers to
conflicting versions of the same TLD. To let things look more
similar to today's situation, let's also assume that a certain set
of old TLDs is unlikely to be subject to conflicts - for instance
.com, .net, and some of the larger ccTLDs (.uk, .de, ...).
[The following sections are almost verbatim from a posting to
ga-roots.]
Assume that an established instance of, say, .web exists. Assume
that someone else creates a competing .web. In this case, three
things can happen:
- The second .web is perceived as nonfunctional for all the reasons
Kent Crispin's internet-draft lists, but does not strongly affect
the operations of the first one. This would probably lead to a
shutdown of the entity which offers the competing .web, resolving
the issue.
- The situation is the other way around: The new .web is launched
with a large base of possible users, say, as a new TLD in the
ICANN root, or in an independent Tucows root. In this case, it's
extremely likely that the earlier .web would be put out of
business - just like what's probably going to happen with Leah
Gallegos' .biz.
- Finally, both players may have similar strength in terms of
resolvers which access the respective root servers. In this case,
all the problems Kent lists in his ID will occur in the worst and
strongest way possible.
This effect would mean that both instances of the TLD are
preceived to be non-functional by end users and domain name
holders. Given the alternative of other TLDs (such as the
traditional gTLDs) which don't have these problems, registrants
will most likely go for these TLDs (Kent neglects this argument
when he talks about the Standards war - and indeed this is a
critical point because it means that an extended standards war
would be unattractive for players). The competing TLDs wouldn't be
economically interesting any more for any of the parties.
(Why go for .biz with all its problems when you can as well use
.com? I'd expect that this consideration would even override
political preferences for, say, English and French .biz'es.)
To summarize, this means that the introduction of competing
instances of the same TLD by weak players would ruin these players,
that the introduction of competing TLDs by extremely strong players
would ruin their competition, and that the introduction of competing
TLDs by several players of similar strength will ruin all of them,
by making the TLD unusable and by making all of the players unable
to deliver on their promises of visibility, stability, and
uniqueness.
In particular, we can conclude that plans of weak players to
introduce new TLDs when they know that strong competition may come
in the future (or even exists) avail to economical suicide, and can
most probably be neglected. (Sorry, Leah, but you don't have a
chance.)
Thus, only the strongest players could reasonably offer "alternative
TLDs". However, even for them it would be extremely risky to
introduce TLDs which compete with others' offers.
Assuming that the strongest players are of similar strength (and
they would be after a probably short time of chaos and destruction
;-), you actually arrive at an argument which is quite close to the
one which underlies the Mutually Assured Destruction doctrine (US
and USSR each need the potential to destroy the other one, so none
of them can afford to attack): Give all the strong players the
opportunity to introduce competing instances of the same TLD, and
they won't do this because they'd risk ruining themselves, or being
ruined by the competition.
As a consequence, it seems highly unrealistic that competing
instances would actually become reality in a way which would pose
all the problems Kent lists. Hence, it seems likely that, with an
uncontrolled root market, players would quickly agree on a common
ICANN-like organization. Hence, it is likely that some kind of a
natural monopoly would occur at some point of time on the root zone
and TLD market.
[end ga-roots excerpt]
Also, it should be noted that only such a root monopoly would enable
smaller players to participate in the TLD market: It protects these
small players from larger players who may try to squash them using
conflicting TLDs with - at least - a great destructive potential.
It also makes global visibility cheap.
New.net's White Paper
Let's compare this point of view to the New.net whitepaper on the
TLD market, where they are proposing their "Market/Consensus
approach", see <http://www.new.net/NewnetPaper.pdf>.
Basically, they are proposing that every player in the market should
have to bear the cost of making his TLD visible to users:
| Similarly, companies with new TLD or "alternative naming"
| strategies can use incentives to persuade ISPs to "turn them on"
| and reach Internet users. In addition, Internet users can ask
| that their ISPs enable their domain name servers to recognize
| New.net's or others' TLDs. The ISPs will be able to choose
| whether to do so based on the incentives in place and the demands
| of their customers. Yet unlike the cable situation, users can
| switch ISPs fairly easily (admittedly with some potential
| switching costs such as changing email addresses) to get access to
| domain names that the users want to access. Users also are
| empowered by the availability of software that enables them to use
| alternative domain names if they happen to use an ISP that chooses
| not to provide the user with access to such domain names.
| Accordingly, users are given a large amount of freedom of choice
| and control over how they wish to use the Internet.
| The benefits of a market-based approach are clear. By allowing
| companies to develop new ways of working within the DNS technical
| system, to raise capital, to market their products, and to do
| everything in their power to serve their users, ICANN and Internet
| users will benefit in two ways. First, ICANN will be able to
| conserve its resources and focus on developing better technical
| standards to enhance the DNS. Second, if a company is trying to
| serve customers without the shield of the virtual monopoly of
| being an ICANN registry, it will by necessity be more responsive
| to serving its users to gain acceptance.
In the discussion around these sections, the authors of the white
paper are talking a lot about the cost of "splitting the root". The
cost they aren't even mentioning is the greatly increased cost for
making TLDs visible on a global scale. In fact, new.net claims that
this cost is healthy because it will make registries and registrars
more customer-friendly.
Breaking the Monopoly
Next, we ask what could break the monopoly over the root which we
described as natural above.
First, what situation would lead rational players to the conclusion
that they should take the risk of buying together visibility
themselves, and bypassing the root supplier - just as new.net does?
The recent events surrounding ICANN give some indication on what
this may be:
- The monopoly could be unable to deliver its promises even to
strong market players - indeed, new.net is just one example.
Think about the Tucows representative who was talking about his
company being in a unique situation to launch an alternative root
system "as a defensive measure".
- The monopoly could be too slow, too reluctant, or too expensive in
adding new TLDs.
- The side effects of buying visibility from the monopoly could be
devastating.
Also, the monopoly could be broken or changed by external forces.
In particular, the following players in the game come to mind:
- ISPs. They could easily start to sell visibility themselves.
(Which is basically what new.net suggests.) This may have the net
effect of producing a different root zone monopoly, but mainly
under the control of the ISPs.
- Political and legal forces, which can change the rules according
to which the game is played - these are particularly powerful
since the United States Government still has a critical word to
say in the traditional root monopoly.
- Current "clients". Just imagine Verisign and the ccTLDs team up
to create a root service of their own, and don't pay money to
ICANN any more. This is, in fact, the card the ccTLDs are
currently playing.
It's worth noting who's missing from this list: End users and
domain name holders. I'll discuss these below.
Side effects of the Monopoly
What side effects does the root zone monopoly have on those at the
end of the food chain, end users and domain name holders?
First, let's note that it may indeed be quite natural for an
ICANN-like monopoly on the root zone market to impose certain
conditions on its clients - such rules of the game can even be in
the clients' best interests, in particular, when they help to defend
the clients' interests against some of the possibly destructive
forces listed above. They can also be economically reasonable since
they save clients from the costs connected with developping such
conditions themselves.
One of the best examples for such regulations is, of course, the
UDRP, which is being adopted by most of the new ICANN TLDs.
Such regulations in particular mean that domain name holders are
seeing a regulatory monopoly: Without competing regulatory regimes,
domain name holders don't have a choice, but to abstain completely
from registering a domain. This choice is, of course, quite poor
since the incentives for registering and using a domain are quite
strong, and since most domain name holders are not directly affected
by the regulatory regime (at least that's what they think).
The perception of the regulatory regime as benign by the large
majority of domain name holders also means that they won't pay the
costs it would take to buy services from a monopoly-breaking
registrar which offers a better regulatory regime.
Thus, in order to actually break the monopoly, the regulatory regime
would have to be extremely draconian, and in fact endanger the
ability of registrars to deliver on the promise of stability in the
perception of the domain name holders.
Finally, note that even with a new.net-like competitive model, model
regulations may emerge which are adopted by players in order to save
costs. In particular, the kind of competition they suggest wouldn't
necessarily lead to regulative competition!
Representing Users' and Domain Name Holders' interests
From the above, we can conclude that as long as domain name holders
are sort of satisfied by at least some registrars' offers, it's
unlikely that the root monopoly of which these registrars are part
would break.
Thus, there are close to no market-driven feedback channels for
users or domain name holders. Users and domain name holders are, in
particular, normally not among the possibly destructive players I
listed above.
Thus, they can only exercise influence by allying with destructive
players. Now, let's go over the list of possibly destructive
players:
- ISPs. As long as supporting the monopoly doesn't mean you are
losing customers to competition which doesn't support the
monopoly, there is no incentive to attempt to break it.
- ccTLDs. Since the more powerful ccTLDs can be assumed to be among
the TLDs which are unlikely to be attacked during a root split,
they are among those players on the market which are most probably
least interested in the monopoly, and possibly most interested in
destabilizing it.
Breaking the root zone monopoly and destabilizing the gTLDs would
in fact help the ccTLDs to squash a lot of competition.
In particular, the ccTLDs don't seem to have a natural interest in
helping to better adopt the monopoly's regulations to users
wishes. Just the opposite is, in fact, the case.
(A similar argument could be applied to the operators of other
well-recognized TLDs.)
- Legal/political interests. These are apparently the only ones who
are left. And, in fact, the business and intellectual property
constituencies seem to be demonstrating such an alliance,
frequently raising similar issues.
Consequences
As a consequence, we should not expect most of the powerful players
in the current ICANN process to support user and domain name holder
participation. In fact, a private-sector organization like ICANN is
unlikely to be bottom-up for purely economical reasons. If such an
organization is expected to serve the public good, and to take end
user and domain name holder interests into account, pressure is
needed by those political parties who are in charge of "nuclear
options".
As another consequence, the ccTLDs' move to become a supporting
organization of their own looks extremely natural. On the other
hand, the bundling of TLD operators, domain name holders,
intellectual property interests, and individual domain name holder
interests in the DNSO looks extremely unnatural.
--
Thomas Roessler http://log.does-not-exist.org/