Blog: vertical integration

Wherefore they are no more twain, but one flesh. What therefore God hath joined together, let not man put asunder. — Matthew 19:6

The ICANN Board has just voted to get rid of all co-ownership restrictions between registries and registrars. This is major news, with far-reaching consequences. ICANN’s announcement says:

“In the absence of existing policy or new bottom-up policy recommendations, the Board saw no rationale for placing restrictions on cross-ownership;” said Peter Dengate Thrush, Chairman of the Board. “Any possible abuses can be better addressed by properly targeted mechanisms. Co-ownership rules are not an optimal technique in this area.”

This is the only principled decision the ICANN Board could have come to, and they deserve a lot of credit for doing it. By “principled,” I mean taking ICANN’s stated institutional principles and following them to their logical conclusion.

The decision is a surprise (more below on that) and will fundamentally change and liberate what has become a stagnant commercial ecosystem. Restrictions put in place to break up the monopoly of Network Solutions had long since become a burdensome and pointless legacy. ICANN has restored the issue of competition to where it belongs by reserving to themselves the ability to “refer issues to relevant competition authorities.”

The decision has all kinds of consequences, most of them good:

• VeriSign or any other registry can now run a registrar (at least in theory), while GoDaddy and other registrars can run a registry.
• Brand owners that start branded TLDs won’t have to navigate a ridiculous obstacle course just to register their own names for themselves.
• Small cultural-linguistic TLDs will now be able to set up a public-facing registrar to service their customers in their own language, instead of going begging to registrars to carry their small-volume TLDs.
• Most important, it means that new TLDs will be able to market themselves. For many new gTLDs, this ruling will mean the difference between slow death and a profitable business.

This last critical point needs explanation. Any Internet business, which is most businesses these days, relies on being able to drive traffic to their site and converting a percentage of visitors into paying customers. Under the rules that separated registries from registrars, this would not have been allowed for new gTLDs, because registries would not have been allowed to sell directly to the public, and any marketing money spent on promoting their new gTLD would have had to be purely of the “awareness and branding” variety, which is very expensive, difficult to measure, and of uncertain effectiveness. The new ruling now makes it possible for new gTLDs to devise marketing plans that send customers directly to a website where they can actually buy the domain name being promoted. This change may well be the difference between life and death for many new gTLDs.

As for existing gTLDs, they will be able to play in this new reality, with some exceptions:

ICANN will permit existing registry operators to transition to the new form of registry agreement, except that additional conditions may be necessary and appropriate to address particular circumstances of established registries.

The decision was a surprise because betting men were giving odds that the Board would institute a cross-ownership restriction limiting registrars and registries to owning between 2% and 15% of each other. The two percent figure is what the Board voted for in March 2010, a vote widely understood to be a warning to the so-called ICANN community to reach an agreement on the issue. The fifteen percent figure is what had been lobbied for heavily by various powerful incumbent players, who buttressed their position with the argument that this was what had been done in the past. But the Board (rightly) cast that argument aside:

Whereas, historical contract prohibitions on registries acquiring registrars do not provide a compelling basis for principled decision-making….

The new landscape will require everyone in the domain name business to re-examine their business, their partners, their strategy. It will have consequences between those I enumerated above. It will re-invigorate the industry, and it will help establish the respect that ICANN has lacked for so long.

Those of us who have grown cynical from years of contrasting and comparing ICANN’s principles with its actions are feeling an uncomfortable sense of possibility — uncomfortable because in the past that feeling has always been a precursor to a cruel letdown. Let’s hope instead that this proper and even slightly courageous decision is actually a sign of ICANN growing up into the organization many of its founders hoped it could become. If so, this Board will be remembered as a group of people who loved the Internet and did what they could to help it prosper.

I would be remiss if I didn’t recall what was to me the spark for the spinefulness the Board has shown, and probably for the entire new gTLD process: the remarks by ex-Board member Susan Crawford during the debacle of the original vote on .XXX in March 2007, which she rightly called “weak and unprincipled” — using “unprincipled” in exactly the same sense that the current ICANN Board has acted in a principled way today. Both her stinging dissent and her later remarks set out all of the weaknesses and hypocrisy of the ICANN approach to gTLDs at that time. Her voice against ICANN’s culture of political meddling, censorship, ad-hoc policy-making, and craven concessions to intellectual property lobbyists was a lone one. But she said what many of us were thinking, and I think her cogency, reasonableness, and above all the plain-spoken rigor of her arguments was a spur to the reform of which we may finally be reaping the benefits. Thank you Susan.

The ICANN Board met on September 24-25 2010 in Trondheim, Norway, to consider and act on the impediments still in the way of the new gTLD program. They passed a number of resolutions that provide very clear indications of how things are going.

The short version is that the news is good for new gTLDs. ICANN is nailing down the final outstanding issues and the timetable is clearer than ever.

Predictions

1. The Board will make the new gTLD program happen by March 2011.
2. The official announcement will be at the ICANN meeting in March in San Francisco.
3. The final Applicant Guidebook will be published before the San Francisco meeting, which means that we’ll know a lot even before the official announcement.

The Board is determined to make gTLDs happen soon

On a number of contentious issues, the Board resolutions gave some finality. In general, they stuck with what they had already decided. Some highlights:

• Fees: fees will remain the same at $185,000 per application. No price breaks for anyone.
• Root Scaling: ICANN estimates that they can add 1000 new gTLDs to the root per year. Of course, they can take many more applications than that, but this is the number they think they can safely introduce into the wild. Most estimates put the number of new gTLD applications at 500 or under.
• Trademarks: trademarks will need to have “substantive review.” As with most things trademarkian, this is a little complicated, but in practice it means that you can’t just go register a trademark and then use it to challenge registrations: you must also have used it in trade.
• Morality and Public Order: On this issue, where the Government Advisory Committee (GAC) essentially vetoed the previous procedure, the Board was less than clear. A working group (which I participated in) came up with some recommendations, and the Board said that they would use “recommendations that are not inconsistent with the existing process.” So we don’t know exactly what this will look like. Unless you’re planning to inflame social hatred, however, your application is unlikely to be affected no matter what the outcome.
• Vertical Integration: The Board noted that the working group tasked with sorting this out (which I also participated in) could reach no consensus, and that they (the Board) would make a decision.
• San Francisco: the next ICANN meeting after December in Cartagena will be March in San Francisco. This is the big news that makes the timeline clear.

To give a sense of the Board’s determination, here’s an excerpt from ICANN’s post-retreat bulletin:

The detailed Board discussion was guided by recent community input and provided direction in the implementation of trademark protections, the new registry agreement terms, measures to mitigate malicious conduct, and ensuring root zone stability. The resolutions indicate that many important issues have been addressed, including trademark protection, morality and public order, and vertical integration.

Chairman Peter Dengate Thrush indicated that “The board made considerable progress on the remaining issues and has asked staff to prepare additional working papers and a modified applicant guidebook for public review prior to the upcoming ICANN meeting in Cartagena in December 2010. The meeting results represent a key milestone after years of work by the ICANN community as we prepare for community discussion and debate in Cartagena.”

Reviewing the Board direction, President and CEO Rod Beckstrom stated, “ICANN is prepared to implement this important new offering to increase consumer choice and to promote competition.”

The official kick-off will be at ICANN San Francisco in March 2011

The March meeting will take place in the front yard of the tech industry, which in general pays little attention to the domain name world. This time, they will be watching, and therefore this is a perfect place for ICANN leaders to cover themselves in glory and boast of their achievement in finally getting gTLDs going. It doesn’t require much of a crystal ball to predict that this is where and when the new gTLD program will get its final blessing.

Applicants will have plenty of information before March

It seems that the plan is to publish a version of the Applicant Guidebook before Cartagena, take comments, then release a final version sometime after the December ICANN meeting in Cartagena, Colombia. Since this will be the final guidebook, it should include all the information pertinent to an application, including the dates of the application window. The San Francisco meeting is likely to be a coronation, not an election. To the extent possible, everything will already have been decided, and everything will be choreographed. Which means we’ll probably hear about stuff well in advance.

Summary

We all know better than to say “sure thing” when it comes to ICANN, right? Right…

Still, the momentum is palpable and the timeline is clearer than it has ever been. The main risk factor is new obstructionism by GAC, fueled by lobbying by trademark owners, who continue to claim that the program will be too expensive for them. But it looks as if the ship is edging into the destination harbor at last.

ICANN’s 38th get-together, in Brussels, may become known as the meeting where the dust finally began to settle. Long-standing issues were settled, compromises were reached, no-one complained too much about the latest version of the Applicant Guidebook, and the Board stood by its project plan dates, even scheduling a Board retreat to solve remaining issues. Finally, there were no surprise “gotcha!” delays that gTLD applicants have been used to seeing at ICANN meeting. With one possible exception…

September Board Retreat – Good News

ICANN’s Board of Directors is going to take a special retreat, tentatively scheduled for September 2010, to try to sort out the remaining gTLD issues. This was publicly announced by Chairman Peter Dengate-Thrush and much discussed during the Brussels meeting. It is likely that the Board will hammer out some solutions on issues where opposing camps are insisting on their advantages and refusing to compromise.

The Board seems to be taking their task seriously, putting enormous pressure on various working groups (see my notes on the vertical integration working group, below) to produce proposals prior to their retreat. Applicants should be pleased with the vigor with which the Board has decided to address the remaining logjams.

.XXX Decision – Good News

The Board’s decision to green-light .XXX means new gTLD applicants can breathe a sigh of relief. The approval means that the new gTLDs program will not be threatened by .XXX-inspired court interference in the gTLD process. ICM Registry, .XXX’s sponsor, would almost certainly have sued ICANN if the decision had gone differently, and very likely they would have asked for an injunction to stop the introduction of new gTLDs — and they might have been successful. The ICANN Board decision to go ahead with .XXX, however heavily hedged with caveats, removes this threat. That’s good news for gTLD applicants.

Most of the press I’ve seen makes it seem as if .XXX is a done deal, and will be inserted into the root in short order. Unfortunately for the 162,000 reported pre-registration applications for .XXX, we are very far from that. One of the more intelligent analyses of the Board’s resolution is theTom Hymes story at AVN. To their credit, ICM’s blog has a thorough and fact-filled rundown of the remaining obstacles. My own assessment of .XXX isn’t very positive, but it is a good sign that ICANN is letting itself be compelled to following its own rules.

Intellectual Property Issues – Good News

Trademark advocates at ICANN will tell you that they are the reasonable ones, that the people who are unalterably opposed to new gTLDs don’t even show up at ICANN meetings. That may be, but members of ICANN’s intellectual property constituency have hardly been pushovers. Therefore it was a pleasure to witness hardline opponents to new gTLDs, including sharp critics from the BBC, Nestle, and the American Red Cross talk constructively about how they could benefit from them at a panel called “Brand Management in the Age of New gTLDs.”

For instance, Charlotte Walters of Orange (the phone company) had this to say:

I think we’re all about building and driving brand value, in which case if you have an asset that could become a mark of value and a mark of quality so that consumers would come to recognize that something that is dot Orange is genuine and that there is no risk of phishing or any other malicious acts underneath it, then that would be the ideal position that we are all aiming to get to. The question is, how long does it take you to get there.

In the meantime, I think that defensive registrations, which we’re all used to doing, is going to be an ongoing factor….

So on a longer-term view, yes, it — there is a lot of potential value. And from a marketing perspective, there’s a lot of potential value. But it will take a long time, I think, to educate internally and externally as to how to get there.

The intellectual property people fought hard for their position and achieved enormous gains, and now there is a sense that they should take their winnings quietly, which they seem to be doing. There are now several RPMs (rights protection mechanisms) in the Applicant Guidebook, including measures to shut down entire registries if they were found to be knowingly and systematically violating IP rights. The GAC (Government Advisory Committee) is no longer worrying that the sky will fall without more IP protections, and the Board opines quite openly that they see consensus in this area. Strident denunciations will continue, but at the meeting there was overwhelming agreement that we are finally past this hurdle.

Vertical Integration – Good News

The good news — and it is good news — is that the Vertical Integration Policy Development Process (VI PDP) is not going to delay new gTLDs. That doesn’t mean the results won’t affect new gTLDs, but it’s not going to slow things down.

Vertical Integration is another way of saying cross-ownership or control, and in this case the question is whether (and to what extent) a registry can own or control a registrar, or vice-versa. The Working Group (which I participate in) has a wide variety of entrenched positions, ranging from protectionist limitations on cross-ownership to a registrar-pleasing complete lack of barriers. The arguments are arcane, and because the limitations concern a future marketplace that no-one can really grasp, the proceedings are an anxious pandemonium of fears and doubts. But the Board has insisted on getting some kind of report in time for its retreat, and so the Working Group is likely to produce a very thin document that representing whatever consensus the group can achieve. The Board doesn’t want to decide this question on its own, but if it must, it will.

You can access the Working Group’s online resource page, or for a long slog you can read the Working Group’s email archives. A few weeks ago, I took the trouble to articulate the Minds + Machines position, which remains the same.

MOPO – Theoretical Knot with a Real-World Solution

MOPO, also called MAPO, stands for “Morality and Public Order,” which is the last big sticking point. Most did not consider it that big of an issue until this Brussels meeting, when the GAC first declared that ICANN’s whole approach to ferreting out immorality (having jurists decide if a TLD is immoral) was not acceptable and must be changed. They subsequently declared it was not their job to suggest anything in its place. Predictably, ICANN board members and staffers were annoyed, but must realize that ultimately they have to produce something that the GAC can live with. Watching the meetings, I didn’t sense that the GAC was using this as an issue to slow down new gTLDs; on the contrary, they seemed not to want to be seen as the reason for delay.

On the one hand, the GAC is right: the morality and public order module is a mess, bulked up with portentous phrases but basically passing the buck to some highly paid lawyers. On the other hand, the module fails precisely because it’s impossible to determine what’s immoral or not on a global basis — this is a circle that will not be squared. The debate is reminiscent of the struggles of the U.S. courts to define pornography, and the solution that was reached — local community standards — will serve here too.

A practical fix is needed, even if it doesn’t address the underlying (insoluble) problem. My guess is that, despite its overtones of censorship, ICANN will have to set up some kind of morality panel in judgment of names, and people it with diverse enough stakeholders to deflect claims of conspiracy. And the vast majority of TLDs will pass without a whisper of dissent. This panel will be just another objection chokepoint, joining the Independent Objector, the Geographic Names Panel, Community Objection and other procedures as a gateway that gTLD applications will have to pass through. Meanwhile, out in the real world, local jurisdictions may block some gTLDs locally if they find them offensive — just as they now block certain second-level domain names in .com.

Although MOPO is the most concerning of the remaining obstacles to opening the new gTLD process, and does have a chance of slowing down the process, there are a lot of committed people working on a solution. The real difficulty will be to shoehorn the practical solution into a theoretical framework that’s consistent with the principles everyone is keen to display.

The Bottom Line

The final shape of the applicant guidebook is becoming clear. With the possible exception of the MOPO issue, solutions to the remaining problems are visible in outline and in many cases in great detail. There are several efforts underway, including the Board retreat and various hurry-up working groups, to get the new gTLD program to the finish line. There’s always a chance that the timing will slip, but I would say not by much — we’re sticking to our timeline: most indications are that ICANN’s next meeting, in early December 2010 in Cartagena, Colombia, will finally produce a starting date for new gTLDs.

One of the pluses of being a veteran of ICANN meetings is the ability to pare down the schedule to what is relevant for our business plans. Minds + Machines will be focused on new gTLDs in Brussels. Following are my circled-with-a-big-red-pen session suggestions for those interested in new gTLDs.

Saturday, June 19

• 15:00 – 17:00 – The Government Advisory Committee (GAC) will discuss developments in the New gTLD process, including the latest Draft Applicant Guidebook (DAG 4), TLD categories, and geographic names. Many of the changes in DAG 4 are the direct outcome of GAC recommendations. If you want a preview of how the rest of the week will play out, don’t miss this meeting.

Sunday, June 20

The Generic Names Supporting Organization (GNSO) has two working sessions on New gTLDs.

• 09:00 – 10:15. Start the day observing the Vertical Integration PDP Working Group meeting with the GNSO Council. At the ICANN meeting in Nairobi, the Board pushed the community to resolve the debate on cross-ownership of registries and registrars by instituting a zero percent cross-ownership rule. This resolution disrupted some high-profile business plans. However, the Board will consider an alternate policy from the GNSO if one is created prior to the launch of the new gTLD program. Nearly 100 community members have participated in the Working Group to formulate a new policy.
• From 14:00 – 17:00 is the GNSO’s New gTLD Working Session. The GNSO will also be briefed on DAG 4 by Kurt Pritz, ICANN’s Senior Vice President.

Monday, June 21

Though some very important work is done during the three previous days, the meeting officially opens on Monday, June 21. If you are interested in the technical side of TLDs, drop in on the ccTLD Tech Day, where registry operators discuss implementing the latest standards and share experiences.

• 15:30 -17:30. Kurt Pritz will take the stage to brief the entire community on the status of the New gTLD program, the highlights of DAG 4 and — not to be missed — an accounting of the remaining open issues.

Tuesday, June 22

• 10:00 – 11:00. The new gTLD highlight on the schedule for Tuesday, a.k.a. “Constituency Day,” is the GAC’s discussion of Morality and Public order, a remaining overarching issue. Attend if you want a glimpse of how this issue could play out.

Wednesday, June 23

• 12:30 – 14:00. Update on Vertical Integration.
• 16:00 – 17:30. A panel discussion on “Reducing Barriers to New gTLD Creation in Developing Regions.” Board Resolution 20 in at the last ICANN meeting in Nairobi requested that the community “develop a sustainable approach to providing support to applicants requiring assistance in applying for and operating new gTLDs.” Working Group members will announce several proposals for consideration. Some of the proposals will be controversial as there is a requirement to recover the costs of new gTLD applications and on-going services to new gTLDs. Applicants, registry service providers, and incumbents will all benefit from attending this session.
• 16:00 – 17:30. Next door, at the same time, panelists will discuss “What brand protection and management measures entities need to consider before, during, and after the launch of the new gTLD program.”

Thursday, June 24.

• 13:30 – 18:00. You can sleep in Thursday morning, because the important public forum is scheduled for the afternoon. This is the time to speak your mind and ask questions directly to the Board before they lock down and decide how to vote on the issues Friday.

The schedule does change leading up to and throughout the meeting, so be sure to double-check the full schedule every morning to confirm dates and times.

Minds + Machines will have multiple representatives at the ICANN Brussels meeting, and we’d be glad to meet with you about our registry services, or just point you in the right direction. You’ll recognize us by our Minds + Machines lapel pins.

Minds + Machines’ parent company, Top Level Domain Holdings (AIM: TLDH), today sent out a press release summarizing our take on the recent ICANN Nairobi meeting from the TLDH perspective. The full text follows:

On Friday, 12 March 2010, at a meeting in Nairobi of the Internet Corporation for Assigned Names and Numbers (“ICANN”), ICANN’s Board of Directors clarified and progressed further the framework for the introduction of generic top level domains (“gTLDs”).

The ICANN Board resolved that there should be no cross-ownership between domain name registries and registrars. This prohibition will prevent existing ICANN-accredited registrars from owning or operating new gTLDs, thus limiting the number of prospective applicants. This continues a trend of increasing the barriers to application for non-experts as ICANN adds additional requirements and restrictions to the framework for the introduction of gTLDs. TLDH is unaffected by this policy and the Board of TLDH therefore expects that TLDH will benefit from this continuing separation between registrars and registries.

The ICANN Board also resolved that ICANN should focus on the full introduction of gTLDs later this year rather than implement an intermediate step by adoption of the Expressions of Interest/Pre-Registrations Proposal. The ground rules for application for new gTLDs are expected to be published by early summer 2010. Accordingly, as ICANN approaches the point where it will be able to proceed with full applications, the Expressions of Interest (“EoI”) program becomes unnecessary. ICANN staff reported during the Nairobi meeting that the next draft of the Draft Applicant Guidebook, expected to be issued in June, will be near final, and subject only to a final comment period.

While we were supportive of the EoI proposal, we welcome ICANN’s focus that the main objective should be to speed up the gTLD process, and the intermediate step of EoIs is unnecessary if ICANN is close to resolving the final details prior to the launch of new gTLDs.

With our substantial cash resources, low operating costs and our significant interests in prospective applicants for .eco, .nyc, .berlin, .bayern and .gay amongst others, and also with the restriction on competition that has been placed on existing registrars, we believe that TLDH is well positioned ahead of the start of the gTLDs application and award process.

Following the ICANN Board meeting, Rod Beckstrom, ICANN’s chief executive, provided further details on the gTLD process, which is available on-line at http://bit.ly/buru8z.