[registrars] What is a "reasonable" licence fee model for registrars

["Bruce Tonkin" <Bruce.Tonkin@xxxxxxxxxxxxxxxxxx>]

Hello All,

I have read with interest the postings on the latest ICANN budget.

With respect to the size of the overall increase, and the
disproportionate amount that registrars are paying through their licence
fees - I agree with many of the comments.

With regard to what is a reasonable way to distribute the fees - I have
given this some thought.

With the growth in competition in the domain name industry and with the
current regulatory environment there are several major business models
including:

(1) selling enough domains to retail customers at an appropriate price
to run a stand-alone profitable business unit (the original registrar
business model)
(2) selling domain names to resellers in very large volumes to run a
stand-alone profitable business unit (essentially relies on proividing
registrar functions at a lower cost than possible at the reseller)
(3) selling domain names at a loss with the view to selling other
services (e.g web hosting, email forwarding, private registration,
search engine submission etc) - an increasingly common business model
where the domain name business is a cost centre
(4) selling domain names as part of a consulting service (e.g corporate
domains)
(5) using registrar accreditation to have access to registry information
to provide information,   consulting or software development services
(6) using registrar accreditation as a test environment for developing
registrar software for sale either outright or under an application
service provider model
(7) selling access to registry connections - provided equally to all
registrars regardless of size

There are many "reasonable" methods of calculating the fee e.g:
(a) charging all registrars the same fee (this would match the
equivalent access model - ie same registry pricing and same bandwidth
allocation to all registrars)
(b) charging a transaction fee based on volume
(c) a combination of a and b
(d) charging a fee in proportion to the margin obtained in each business
model

Method (d) is the "fairest" but hard to measure.
For example a registrar that sells 100,000 domains at $7 has a net gross
margin of approximately $100,000.  A registrar that sells 10,000 domains
are $30 has a net gross margin of $240,000.  Or a registrar that sells
1000 domains via a corporate domain consulting service of $1000 per name
has a net gross margin of close to $1million.   Why should the registrar
selling 100,000 domains pay more, when it earns the least.

The old model (b) is no longer equitable given the new range of business
models.  The old traditional registrar is now a minority.

Method (a) would probably give the best consumer result - it allows
larger registrars to achieve economies of scale and thus offer lower
prices - but does make it hard for small registrars to enter into the
industry.

I support the concept of a fixed component to cover the regulatory costs
of registrars/registires (which scales more with number of registrars)
and a variable component towards issues such as root server
infrastrucute (which scales more with number of domains).

The change I would like to see is a higher transaction fee (e.g $1 for
the first 20,000 names) that drops to o.25 cents as volumes get above
20,000 names.  This ensures that the costs are not too high for smaller
companies.

Also I note that once ICANN starts enforcing the contracts - the number
of complaints it receives about registrars will most likely drop in the
longer term - and hence the $3.8 million will drop to a much more
manageable level.  It is the fact that it has done no enforcement that
the complaints about transfers etc have escalated to such high levels.
Most complaints are about business processes which are not proportional
to number of names.

The fixed component of $20,000 is actually about half the time of an
administration person.  Most of the biusienss models mentioned above
could cover this cost.

It is interesting to note that in our industry (IT generally) thare are
very few examples of price increases for the same service - so I would
expect that most of us will have to absorb the costs one way or another
(e.g by cutting our internal costs or finding more ways to raise
revenue).  Our customers expect prices to keep falling.   ICANN needs to
understand this environment and take real steps to broaden its funding
base (e.g auctioning gtld registry slots).

Regards,
Bruce Tonkin