Dr Thies Lindenthal, a researcher in virtual real estate at the Massachusetts Institute of Technology, submits the following post to FT Alphaville.
The piecemeal roll out of new virtual space is unfair, risky and detrimental to the user-acceptance of new space on the internet.
June 13 will host the next event in a sequence of steps that will eventually lead to a virtual Big Bang — the rapid expansion of virtual space, as envisioned by ICANN, the California based organisation overseeing the internet. Next week, this independent non-governmental organisation will publicly announce a list of applications for an estimated 2,000 new global domain extensions.
The future of domains
Today, the web is sliced up into only 22 of these so-called global Top Level Domains (gTLD) like .COM, .NET, or .XXX (not counting the country-specific extensions). If ICANN’s plans pan out, in about a year online marketers will be able to choose from a colourful menu of extensions when deciding about the virtual real estate to develop an online presence at.
So far so good.
At least for ICANN, each new gTLD means big business. The fees for filing a new extension are $185,000 to start with. The handsome $370m in revenues will further grow as applicants face additional costs down the road for owning their share of the web. The substantial sums at stake should be justification enough to provide for a fair and efficient application process.
ICANN, however, is about to get it deeply wrong. An extensive screening shall separate good from malicious future virtual land barons, which will take about 20 months for all 2,000 applications, according to ICANN’s own estimate. Given the organisation’s suboptimal track record in setting up an orderly process so far, there may be further delays.
The importance of the journey taken
To keep the wheel spinning and to show some quick progress, ICANN decided to review the applications into batches of 500. This strategy might be well-suited when handing out drivers licences, but not for products whose success or failure is determined by network effects.
For domain extensions, the timing of market entry relative to one’s competitors is vitally important. The first batch of domains will receive a head start of up to a year which will be difficult for latecomers to overcome. Think of the acceptance of each new gTLDs as a self enforcing process — every new digital dweller makes the extension more renown and popular, increasing the benefits of earlier settlers who find it easier to promote their location. Their ‘locations’ gain in value. For example, if more and more lawyers used LAW for their websites, their peers will consider moving into this ‘network’ as well. In economic terms, each new member increases the utility incumbents derive from being in the network. Virtuous circles evolve.
Any network effects are thus path dependent. Being early does matter. Why can Google Plus not close to the gap to Facebook (yet)? Does it not have to do with how late to the game it was? Why are we all using COM addresses and not the shorter and more userfriendly CO? Simply because COM was there first. Just imagine what the internet would look like if COM and CO had started off at equal footing…
In case you are not convinced yet, consider two extensions that are in the current application process: GREEN and ECO. Both gTLDs target similar audiences. Each’s chance of becoming the champions of the environmentally conscious internet hinges upon being first. If GREEN ends in the first batch and ECO in the last, the latter will face a steep uphill battle. And vice versa. For consumers, it means that not necessarily the ‘best’, but maybe only the earliest, extensions will succeed.
Did somebody call the lawyers?
Quantifying the disadvantage of a late start is difficult, but smart lawyers will for sure come up with a huge amount. Maybe this is why ICANN has earmarked $120m in a “Risk Contingency Fund”, according to their planned 2013 budget. This is money that could be spent on speeding up the application process instead — something that would surely serve the applicants better and actually reduce risk for ICANN.
Economists no likey your arbitrary button-pushing game
Speaking as an economist, if releasing all applications at once was not an option, the selection into batches should not be decided on the basis of what is, effectively, a game of digital archery. Here’s how it works: having submitted a substantial amount of (digital) paperwork to ICANN, and parting with $185k, one needs to generate a “timestamp” for said application. Bows at the ready…
Step #1: Inform ICANN of the date on which you are going to log back into the system to click a button. Also give the exact hour and minute.
Step #2: Log back into the system and hit the “submit” button as near to the time as you said you would as possible.
The difference between the target time for the button-clicking and the actual time that it was clicked will be used to determine when one’s application for a new TLD is processed. That’s right, those with shaky hands or a slow internet connection will go to the back of the queue, to be processed in a later batch. Perhaps it’s time to put a call into the friendly high-frequency trading firm? The land grab may well turn into an arms race. But why do things this way at all?
Frankly, anything is better than this
If batching and the inherent competition distortions really were inevitable, new extensions that have the highest chance of changing the mindset of current users should have the first shot. All new TLDs jointly face the challenge of users being used to just memorise the keyword in front of the .COM and to automatically add the suffix later.
In the new domain space, one has to remember both the keyword and the extension. It is like moving from a village where everybody is known by first name to a city where both first and last names are necessary. If Google used its muscle to educate internet users that DOCS, YOUTUBE or LOL (why on earth did they apply for that one?) are valid alternatives to the ubiquitous COM, it could break the ice for all other new extensions.
Introducing more variety in domain space will be easier once the dominance of COM is successfully curbed. No doubt, an allocation based on expected marketing impact certainly would be arbitrary and grossly favour already strong players. Still, it would advance the common cause, as the new domain spaces would have an easier start overall.
The internet community could have it both ways: fair competition and strong players paving the road for new domain space, if only ICANN retired the batch idea.
On Rushes and Riches: The “Wild West” Era for Internet Domain Names Is Over as Efficient Markets for This “Virtual Land” Have Emerged – Scientific American
The price of land on the interweb – FT Alphaville
Internet domain names, .combat – The Economist