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By Jeffrey Gangemi

Will Your Web Site's Name Cost More?

For small businesses, a proposed fee increase doesn't appear to be cause for alarm. For industry players, though, big money is on the table

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There is a debate raging on Capitol Hill about the legality of a deal between ICANN (Internet Corporation for Assigned Names & Numbers), the nonprofit organization responsible for coordinating the management of the Internet's Domain Name System, and VeriSign (VRSN), the company that enjoys a monopoly over the registry of all .com and .net domain names. The deal, if approved by the Commerce Dept. and the House of Representatives, would allow VeriSign to raise fees on .com domains by up to 7% annually for four of the next six years, without demonstrating justification for the hikes.

The Small Business Committee in the Commerce Dept. held a forum on June 7 addressing the effects on small business of the ICANN and VeriSign deal. "Granting a monopoly and an infinite ability to raise prices to American small businesses, with only the approval of a regulator that is now getting a slice of the price increase, is an unworkable situation; it's unacceptable," says Champion Mitchell, chairman and CEO of Network Solutions, one of the companies that sells domain names to end users. "And yes, American small business will pay."

These guaranteed price hikes would bring in up to $280 million in annual revenue to VeriSign over the next six years, if domain registration continues at the current rate. Much of that windfall would be footed by America's small businesses, an estimated 10.5 million of which own at least one domain name.

REGISTRARS' RESISTANCE.  Despite the calls for alarm, small-business owners can take heart. Even if a 7% rate increase on a domain name were to happen each year for four of the next six years, as the contract between ICANN and VeriSign specifies, the extra cost would only be $1.86 per year per domain name.

And since it would take until 2012 for that to happen, it hardly breaks the bank of small-business owners. Indeed, 81% of 1,239 small-business owners surveyed in late May in a Zogby International poll were either "not very" or "not at all" concerned about the $1.86 increase.

Many of the registrars that sell .com domain names to end users adamantly oppose the deal because it erodes their margins. They allege that ICANN and VeriSign get to cash in at the expense of the general public, small businesses, and themselves. The deal includes VeriSign's agreement to pay ICANN $6 million the first year and up to $18 million by the sixth, says John Jeffrey, general counsel for ICANN.

RATE HIKE?  In response, small-business owners worry that registrars like Godaddy.com and Network Solutions, two of the largest, might raise rates to the end consumer. Mitchell says that will be determined less by the 7% increase than by market factors and competition among the 688 registrars worldwide. "The marketplace will determine what we do with price, as it always does. If there is enough of a price increase, it will hurt the end user in one way or another -- they'll either get less service or a higher price," he says.

But Steve DelBianco of NetChoice, a coalition of e-commerce leaders and other trade organizations that commissioned the poll, says small-business owners are much more concerned about being exploited in other ways.

Some registrars, like Godaddy.com, charge almost 10 times the signup fee of $8.95 for failing to reregister. Small-business owners resent that kind of behavior. One thing that's disconcerting is when [the registrars] leverage their position to do something that diminishes your business. [Paying that extra fee] is kind of like a punitive damage, says Jens Francis, managing partner of Fault Line Group, a San Francisco company that builds Web-based application software.

VERISIGN COUNTERS.  Indeed, other types of questionable domain-name practices are hurting small business even more (see BusinessWeek.com, 6/5/06, "Getting the Drop on Domain Name Abuse"), like domain kiting, a process by which companies and individuals buy large numbers of domain names and keep the ones that get the most traffic and return the rest before the five-day grace period ends. That leads to a lot of cybersquatting, in which individuals buy targeted domain names and sell them to businesses for excessively high prices. According to the same poll, 59% of small-business owners surveyed are very or somewhat concerned about the practice of cybersquatting.

VeriSign says its primary concern is the safety and security of the Internet for all users, something it says the registrars couldn't care less about. For the registrars, this isn't about protecting small businesses, it's about protecting their own margins. They are placing their own business interests above the Internet's security and stability, says VeriSign spokesman Tom Galvin, who adds that the company has experienced 100% up time in its servers in the past seven years.

That kind of track record speaks to small-business owners, particularly those who run Web-based businesses and rely on the Internet for their livelihood. [The $1.86 addition to the] price is not a concern, compared with what it costs to start and run a small business, says Francis.

Gangemi is a reporter for BusinessWeek Online in New York

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