BUSINESSWEEK ONLINE : NOVEMBER 13, 2000 ISSUE
INFORMATION TECHNOLOGY The Domain Name Biz: www.dud.com New laws and stiff competition have taken out the zest It's the Internet's next frontier, and lots of folks want a piece of it. On Nov. 13, the quasi-federal agency that governs the online world's address system will meet in Los Angeles. It will select up to 10 new top-level Web domain names, such as dot-pro and dot-inc, to add to the ubiquitous dot-com, dot-net, and dot-org. At stake for companies that want to manage these new addresses: a growing bucket of cash, worth $36 million this year and expected to double in each of the next three years. If they get control of new addresses and are allowed to run the big supercomputers that dole them out to Web surfers, many think they'll have a ''license to print money,'' says Malcolm Corbett, a corporate director at British Internet service provider Poptel Ltd. Don't count on it. Even though the registration of new Web addresses is expected to grow 100% a year for at least the next three years, few companies will be able to turn a profit from it. Why? Cutthroat pricing and the frightening cost of building a computer mega-network capable of supporting domain names. The profit picture also looks gloomy in the secondary markets for domain names, where both cybersquatters and legitimate wholesalers sell names they've bought. Industry insiders think those markets are worth at least $15 million a year, but that estimate may not take into account the increasing hostility of courts, corporations, and celebrities. ''We would pay them some modest amount of money for a domain,'' says Caroline Vanderlip, executive vice-president at ProAct Technologies Corp., which just received what it considered a ''ransom note'' from a squatter who had registered similar names, including proacttech.com. ''But nowhere near the amount of zeros they're looking for.'' MESSY MARKET. Even that may no longer be necessary. Last year, Congress passed a law to protect businesses from those who register company trademarks as Web addresses and then try to sell them for profit. Violators face $1,000 to $10,000 in fines per domain name. The courts have gone a step further. Last November, Barry Diller, CEO of USA Networks, won a judgment against a company that was trying sell Barrydiller.com for $10 million. And pop star Madonna is embroiled in countersuits over the use of her name on a site that for a time was linked to a pornographic site. The bottom line: With legal means to fight, companies don't have to pay squatters. So some experts see prices in the secondary market--which average $10,000 per name--falling a few percentage points a year. The primary market is just as messy. The 70 or so domain-registration companies that have popped up since Network Solutions Inc. (NSI) lost its monopoly last year are already sputtering. Register.com, perhaps the best known and one of the few that are publicly traded, is selling for an anemic $6 per share. In the past two months, it has been downgraded by three Wall Street analysts because of concern about its long-term future. ''We'll see enormous consolidation,'' says Matt Lake, a consultant who tracks the domain-registration business. ''It's not clear at all why all these companies are needed.'' IN A HOLE. Why the gloom? After all, registering a site name, which can cost anywhere from nothing to $35, is a $210 million market that is growing at 100% annually. Problem is, the upstarts are killing each other. Some, such as Register.com and NameZero.com, offer some names for free as a come-on to sell other services. That puts them in the hole on everything they sell because NSI still has exclusive control of a giant database for all dot-com, dot-net, and dot-org names. So for every name upstarts register, they still have to pay $6 to NSI. That's why the domain summit, run by the Internet Corporation for Assigned Names & Numbers (ICANN), will be a hot ticket among cyberprospectors. More than 60 companies from around the world are vying for a chunk of this next big build-out of the Net. The hope is that young companies, thanks to the new domains, will be able to get out from under the $6 fee to NSI, now a division of VeriSign Inc. But that doesn't begin to cover domain-name overhead. NSI's 13 supercomputers handle 1.8 billion address requests a day. It plans to spend $100 million a year over the next three years to maintain and upgrade its network. ''I don't think people realize how expensive it is,'' says VeriSign CEO Stratton Sclavos. For NSI and its parent, which has more than $1 billion in the bank, that's a digestible capital expense. For an upstart, it's a pipe dream. By Jim Kerstetter in San Mateo, Calif. _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ BACK TO TOP					RELATED ITEMS The Domain Name Biz: www.dud.com TABLE: Gloomy Picture INTERACT E-Mail to Business Week Online

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