Is The Internet Domain Land Rush A Land Rush At All?

Transcript

ARUN RATH, HOST:

There's a land rush going on right now.

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RATH: At least that's how everyone seems to be describing the opening up of vast amounts of Internet real estate. Pretty soon, there's going to be a lot more than .coms out there.

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UNIDENTIFIED WOMAN: Move over .com and .net. Soon we may be serving .google and .lol.

UNIDENTIFIED MAN: ...put out a list of potential new domain names. Getting one of them is neither easy nor cheap.

RATH: A lot of big companies and a few upstarts are bidding huge amounts to get the new Internet addresses. That's our cover story today: the domain name land rush. Who is selling, who is buying, and are you missing out?

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RATH: I registered my first Internet domain name last year. I don't have big ambitions, but I figure that with a billion Indians, it was only a matter of time before someone snatched up arunrath.com. To do this, you go through a commercial domain retailer, like GoDaddy or DomainNames.com. But who owns the address you're buying? Well, that's never totally clear.

You may think that you're buying it from the government, that the sale of these new domain names is like selling parts of the radio spectrum for TV or radio broadcasts. And it would make sense to think that. The U.S. government did create the Internet in the 1980s. But in a move with staggering implications, we gave it up to the world.

Brad White is a spokesman for the organization that sprung up to administer the sale and designation of domain names. It's called ICANN, and it's the only governing body that does this in the entire world.

BRAD WHITE: It would've been very easy for the U.S. government to have said, you know what, we invented the Internet, so therefore we're going to control this addressing system. Instead, came up with this system, and they said, let's create this nonprofit public benefit organization. Everybody will have input and we'll create this sort of bottom-up system of policymaking.

RATH: Charles Severance teaches information technology at the University of Michigan and has followed this movement since the beginning.

CHARLES SEVERANCE: In the very earliest of days when the two-letter country codes were created, they basically said we're going to create .ly. And we're going to delegate everything to the left of .ly to be managed by the Libyan government. Whoever presents themselves as the designated official representative of the Libyan government is allowed to manage the name space from there on.

RATH: If they want, the country or territory can just sell that space, and many have. If you tweet an NPR story, you might notice the URL starts n.pr, then some characters. That PR originally belonged to Puerto Rico. TV stations and lots of other companies buy these links because we need short URLs. They're easier to deal with and way easier to fit into a tweet. That's why domains can be so valuable and why so many people are excited about the new domains.

The problem with the land rush analogy, though, is that this isn't land or anything even like land. Land is a physical thing. So one of Tony Soprano's favorite axioms about investing, buy land because the good lord isn't making any more, doesn't apply to the Internet.

ICANN can simply make more virtual real estate, which is exactly what they did. So what is this virtual land worth, and are you missing out on a great opportunity? Well, only if you've got a few million dollars to spare and are willing to take a bit of a risk.

Jeff Sass is the marketing director for the newly minted .CLUB. He can say that now because his company successfully bid on the .CLUB domain.

JEFF SASS: The fee alone was $185,000, and then, of course, there's legal costs and financial, you know, papers and other things that have to be done as part of it.

RATH: After paying hundreds of thousands of dollars for the application and legal fees, they had to bid for .CLUB in a private auction. Every day, they had to log on and see if the other companies bidding for .CLUB were still in the running. It was nerve-racking.

SASS: And this went on for several days until finally we were victorious.

RATH: And can I ask how much you ended up spending?

SASS: You can certainly ask, but I won't be able to tell you exactly. What I can say is that, you know, .CLUB domains has raised $8.2 million to date, so that's what we raised for our company. And that money was to apply for, obtain the name, market the name, et cetera. And we've certainly spent in excess of $5 million to date on the whole process.

RATH: And the losers in the bid process, they're just out that application fee and everything else?

SASS: Well, actually, that's really interesting, because in this case, the way the private auction was structured, the winner, in our case .CLUB, pays the winning price. And actually, the proceeds of the auction are split between the other contenders.

So in our case the - whatever amount that we paid for the domain name, less the cost of the auction, was actually split between the two parties who lost the auction. So one could argue that they both won and lost at the same time.

RATH: Did you catch that? The losers of the auction were paid by the winner. Now, if you're thinking that sounds like a screwy way to sell something, you're not the only one. We talked to David Mitnick, an intellectual property lawyer who specializes in domain law. He explained the money that losers make off auctions often finds its way back into the bidding market.

DAVID MITNICK: Some companies have done quite well. There's a company called Donuts that is a - that's applied for over 200 registries. They're what we call a portfolio player, and they're making a substantial investment into a number of different registries and hope to own basically a large slice of the Internet. And they have made quite a bit of money actually losing auctions. And the money that they've been able to get from losing those auctions, I imagine, is being siphoned back into their operations and actually to bid for properties that they may think are more valuable than the ones that they lost.

RATH: So is it worth it? Is shelling out this kind of money for the perfect name a good strategy? Well, in cyberspace, property value is what you make of it. Again, Professor Severance.

SEVERANCE: Will .soda for soda pop vendors, will that be valuable? Well, I think it'll be more about how they make it valuable rather than just getting it.

RATH: There are people that are putting in a fair amount of money with the idea that there's going to be a big payoff in owning one of these domains. What's the thinking behind that?

SEVERANCE: I've been here since the beginning, and I had a friend who registered internet.com in 1992 and sold it for a quarter of a million dollars. But that is the only person that I know that made any money by speculating on domain names. And so that's the thing about sort of cyber-squatting. Maybe you got lucky and you bought internet.com at the exact right time and you were the first person and then yeah, you get paid off.

But in general, just holding on to a four- or six-character string, unless you've made it valuable, you have to invest in making it valuable.

RATH: In other words, this may not be the kind of land rush that opens up opportunity for everybody. In fact, Brad White of ICANN doesn't think you should think of it as a land rush at all.

WHITE: Land rush, sort of, in my mind, infers this everybody running in at the moment and seizing property in the hopes of getting rich overnight. I don't know that that's necessarily what is happening here.

RATH: You talk about this expansion of territory. But throughout history, when someone's territory is expanded, someone else tends to lose. Are there losers here?

WHITE: Well, I think in almost anything in life there's winners and losers. But I don't know that I would necessarily structure it in that sort of oversimplified sense in this particular case. Cyberspace, the addressing system, is pretty big and pretty open, and there's room for a lot of expansion. One of the reasons that we launched into this program is because there was some concern that some of the most popular top-level domains - take .com, for example - some of the prime names were hard to get that people wanted.

RATH: There had been cases of businesses changing their names so they can have a website that matches. By some accounts, Internet real estate is tight. But this doesn't mean there won't be losers as the new frontier opens up. David Mitnick is an intellectual property lawyer who advised companies buying and selling domain names. He says there are potential losers in this game. The biggest one is a company called Verisign. Every .com site out there was sold by Verisign.

MITNICK: I think 80-something percent of all domains right now exist in the .com space of - about 280 million. And the .com registry operator Verisign was not thrilled about this idea that there was going to be more competition. There were only 22 top-level domains that existed before this program was started. Now, there could potentially be an infinite number.

RATH: However, there is one change in the new Internet address system that is certain to have a huge impact. Imagine that whenever you went online to do a search, buy shoes, whatever, you had to type the web address in Arabic or Mandarin or Tamil? Well, that's what the rest of the non-English speaking world has to go through when they go online.

MITNICK: When you start thinking about doing things that are appropriate for consumers, publishing URLs in Korea, why is it that you can see something all in Korean and all of a sudden there's this URL and has to use a Latin character set? And that's jarring.

And, you know, 6- and 7-year-old children looking at educational resources won't have to learn a foreign language just to find their way to educational resources is the kind of positive benefit that's not really a speculation. We're not making a bunch of money here, but we are changing what's possible to be done.

RATH: And in some ways, that's the most exciting part of this new frontier.

(SOUNDBITE OF MUSIC) Transcript provided by NPR, Copyright NPR.