How to distribute domains fairly?

This is the underlying problem in introducing any new top-level domain (TLD), second-level domain (SLD) or in fact any new domain space. There are mechanisms which are commonly used, including a sunrise period for trademark holders (and sometimes others who can prove their rights to a name) followed by a landrush phase which controls the volume of registrations at launch.

There are quite a few comments which suggest that there should be no sunrise period for trademark holders and that any distribution that takes place should be through a lottery, rather than an auction so that smaller companies stand a chance of getting these desirable domain names instead of them all ending up in the hands of major corporations.

“Rather than a sealed bid which seem to imply the highest bidder will get the name, how about just the winner being choose by a lottery.”

“Fixed price auction. In doing this, domain names are open to all to use. Poorer non-commercial entities can enter the auction as well as multi billion pound companies.”

“Any bidding process will always result in the person or company with most financial clout to win. If more than one application is valid then a simple lottery would be fairer.”

I have every sympathy with the aim of these respondents (and I might even agree it would seem to be a fair way to distribute them). It is in my view inevitable that almost all of the domains will eventually end up in the hands of large corporations or those who seek to profit from the domain itself rather than the product or service they sell which simply is referred to by that name. Whether or not this is ‘right’, it is the harsh reality.

Why should it be so? Well, let’s assume a gentleman called Bart Adams runs a business called “Bart’s Automobiles” and his logo is made up of the letters “BA”. It would require natural for him to want www.ba.co.uk as his website, after all short domains are generally easier to remember and type, especially on mobile devices which are growing in popularity these days. If Bart won the lottery, how long do you think the domain would remain with Bart’s company? I am sure there would be exceptions to the rule, but I would suggest that most of these domains will end up being sold off to large companies like British Airways. If Bart runs a small company, the amount that a company like BA would offer to him for the domain could well represent a year’s income. If they are doing well this year, then they may well resist on principle, but one day they may well want to sell this heirloom to raise funds.

This is why I believe that in the end most of these names will end up in the hands of large corporations, no matter what initial system is used to distribute them. The question then becomes who should profit from the release of the names; lottery winners (under the above suggestion), speculators, or say the Nominet Trust charity.

As a director of many small businesses, I have every sympathy with those looking to promote the interests of SMEs, but I am not convinced that these domains will remain in their hands for very long.

Prohibiting resale or restricting use

Another respondent made the suggestion of prohibiting resale of domains:

“These domain names should be checked and taken back into the public registration process if they registered for selling only, as soon as such domain names are offered for sale, the registration should be suspended and the domain name released.”

and another has suggested disallowing their use for selling sub-domains if domains like “uk.co.uk” are to be released:

“Great possibility for confusion. If they were to be released, I’d like some extra rules attached forbidding resale of subdomains (to avoid .uk.com situation)”

Again, these respondents are clearly trying to address issues which they see as ‘abuse’ of the domain name system; using the system in a way that it was probably not designed for by those who invented DNS. These try to impose additional rules on the use of a domain to ensure the reason for acquiring them is in line with the authors’ own morals and expectations of reasonable behaviour.

For almost ten years, we have seen some country-code top level domains (ccTLDs) promoting their TLD in a way which is more associated with the accident of the ISO-3166 abbreviation they were assigned by an international organisation in 1974. This has resulted in the countries of Tuvalu (.tv) and Turmenistan (.tm) promoting their ccTLDs as being suitable for television channels and trademark owners respectively.

So why don’t we prohibit sale of these domains or sub-domains for profit as these people suggest? This is the typical first reaction many of us who have been thinking about these problems for the best part of a decade have had. What it comes down to, is that people will work around those rules in such a way that Nominet would risk becoming the policeman of the Internet if it needed to enforce the rules.

Let’s say you can’t sell the domain; Instead you incorporate a new subsidiary company and transfer the domain to that subsidiary (which would quite legitimately have to be allowed as companies routinely restructure their businesses). You then sell that subsidiary company with all its assets (of which the domain would be the main/only one) to a third party.

Sound complex? There are already people registering company names so they can register generic “.ltd.uk” domain names, where the name of the company matches the domain within a very specific formula, and I am sure the trademark database could be used in the same way. It is unlikely such restrictions, no matter how well intentioned, would actually prevent the abuse. I say this as one of the effective co-authors (by virtue of my participation on the PAB) of some of the restrictions in .me.uk to encourage its use for individuals rather than corporations, which has had limited success.

Other restrictions

In similar vein, there is the suggestion that we should limit how many domains each registrant can register:

“First come first served – no more than one per person!!”

If I wanted to register two dozen names, what would I do? I could register lots of different companies. You might then suggest it should be possible to stop this by restricting it so if they are controlled by one party, they can only put in one application? Not only is this unworkable because there may well be multiple companies with quite legitimate claims to short names (e.g. if British Airways and American Airlines merged, they might want both ba.co.uk and aa.co.uk), but also because it would be impossible to stop abuse. I could register companies in the name of off-shore companies, friends, etc. You would struggle to link these together individually and have no chance of doing it on any scale.

The purpose of registering a domain

“Online auction – eBay style, so non-sealed bids, but in an eBay done properly way so that there’s not a rush of bids before it closes. If someone bids, extend the auction by X minutes. I appreciate the sealed bids idea has its own merits, but really, how can someone even begin to calculate the value of a domain such as those being proposed for release? There’s not really any historical information to go by. Maybe a Dutch auction as detailed below?”

This comment was rather interesting as it raises questions the reason for registering domains. It suggests transparency of auction amounts so that someone can “calculate the value of a domain”. Whilst I have no knowledge of as to the aims of the respondent, it made me think about why would someone need to judge a market value for a domain they want for their business (as opposed to domain arbitrage or investment)? It could be so they know what would be a reasonable offer to ensure a good chance of securing the name. An non-live auction system should certainly consider the benefits of an eBay style auto-bidding system which would price the auction just slightly above the second highest bid.

Conclusion

I am delighted to see people willing to take time responding to consultations to inform decisions–I wonder how aware some of them are of the lengths to which others will go to do work around rules designed to ensure a fair and equitable distribution of domain names.

I’m not sure that Nominet’s role is is to merely devise a system that generates maximum revenue, but one which is fair and promotes the public interest. These goals are of course anything but simple to achieve.

The decision on how to release these desirable domains to the market is very difficult and it is inevitable that there will be many who will be unhappy with whatever system Nominet go forward with. Hopefully we won’t end up with overly complex rules, and ensure these domains do not end up in the hands of a few domain industry insiders.

“I’ve just registered my domains with Company X because they allow me to use PayPal so I don’t have to give my credit card details to an unknown U.S. company”

I have intentionally left out the name of the company as this issue is not about the company (who I know nothing about) but about the perceptions of users as to the value of their domain. This particular user (who is very typical) feels uncomfortable giving their credit card details to an unknown company, yet they would trust the said company to manage their domain name. A well developed website is likely to be worth far more than the credit limit on many cards, and in any case credit card fraud costs are not directly borne by the victims.

Don’t assume that the domain cost (be it £1.99 or £99) is actually the same as the value of the domain, and treat it based on its value, not its initial cost.