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Secondary Market White Paper

  • To: revised-settlement@xxxxxxxxx
  • Subject: Secondary Market White Paper
  • From: Roger Coleman <colemannroger@xxxxxxxxx>
  • Date: Sun, 19 Feb 2006 19:04:43 -0800 (PST)

  A fair amount of this debate has been over the secondary market and what 
impact the settlement will have on it. It is worth reading Richard Henderson?s 
white paper on the secondary market. It provides a very clear understanding of 
the business model, which is largely built on gaming the system and creating 
shell registrars. In his opinion, the rules should be changed to eliminate the 
incentives of Pool.com and SnapNames to manipulate the system.
  I submit the following paper (also posted at www.atlarge.org) on the release 
of deleted domains. I would appreciate it if you could distribute this paper 
and allow for its presentation at ICANN's Capetown meeting. 
  I have been an active member of the At Large for several years and have 
contributed in detail on the development and evaluation of New gTLDs. It would 
be advantageous if the issue of releasing deleted domains could be clarified 
prior to the Agreements being created for the next round of gTLDs. 
  I also have a good first-hand understanding of the Deleting Domain market and 
processes, having monitored them for a number of years. In my presentation, I 
review the status quo and offer a number of possible solutions. 
  With kind regards, Richard Henderson 
  * * * * * * * * * * * * * * * * * * * * * 
  For some time, the market for selling deleted domains has been substantially 
captured by secondary agents who use selected or created registrars to increase 
their access to the Registries at the time names are released. This has 
arguably handicapped the rights and opportunities of people to a fair and open 
process, using the registrar of their own choice. In the past year this process 
has resulted in the creation of approximately 100 "shell" registrars set up 
solely for the purpose of increasing access to Registries for their parent 
company. This, in turn, may have contributed to the decision of certain bona 
fide registrars to take matters into their own hands and develop their own 
policies for the re-distribution of domain names which were previously 
registered with them. 
  The leading "catcher" of deleting domains used to be Snapnames. They 
succeeded by using a fairly large number of registrars to run scripts and snap 
desirable deleting names. Snapnames got their cut and the Registrar got their 
cut. But they succeeded because statistically if you have the largest number of 
registrars running scripts for a deleting domain name, then you get the 
reputation as the best company to pay into to get the name you wanted. 
  Then POOL.com emerged, with what was arguably a better business model than 
Snapnames because you didn't have to pay anything up front - only if you got 
the name (provided you could outbid any other people who also wanted the name). 
To succeed in this business, POOL needed to have more registrars working for 
them than Snapnames had working for them. 
  Initially Namescout was used as a proactive registrar and "holding warehouse" 
for these incoming names. POOL realised they needed more registrars to run 
their scripts for deleting names, so what you got was a proliferation of new 
registrars who were set up with the intention of running scripts for deleting 
domains. The more registrars, the more chances of getting names, so just create 
scores of new registrars for your company! 
  In short, I imagine most of these new "Registrars" are just the same 
registrar, operating under a different name, but getting extra privileges and 
extra access to the Registries to obtain deleting domains. 
  ICANN seems to have unquestioningly accredited all these "registrars". But 
then, other registrars have operated very similarly before, like Domain Bank 
which seemed to set up Domain Pro as an extra "registrar" so they could have a 
second "short list" to submit to the .info Landrush 2 and the .biz launch. Both 
DomainBank and DomainPro operated from the same offices with the same phone 
numbers and the same accounting outlet, but they "counted" as 2 registrars, so 
they got twice as many lists into these newly launched TLD round robins when 
they launched. Just think what fun and games the 98 "Namescout/POOL" registrars 
will have if there are more round-robins for .eu or .travel in the future! 
  In its MoU with the Department of Commerce, ICANN is obliged to ensure the 
fair distribution of domain names to the internet public. I wish to offer a 
number of Proposals which may make the market in Deleting Domain fairer both 
for the public and for mainstream registrars who help maintain the smooth 
running of the DNS, and do not merely exist to exploit registrar privilege and 
access to Registries and capitalise on the deleting domains market. 
  At present, the deleting domains market is dominated by a fairly small number 
of buyers who have understood the processes and cornered the market for premium 
deleting domains. The ordinary member of the public, or average company, may 
well be unaware of the names which are "On Hold", then "Expired", then in 
"Redemption", then "Pending Delete". I propose that Registries should be 
obliged to publish lists of ALL domains which have expired, reached redemption, 
  finally are pending delete (with clear date provided for when they will be 
  These lists should be published and accessible on their Registry websites so 
that ordinary internet users do not have to scrabble around, scouring 
deletedDomains.com or other sites to glean their needed information. There 
seems to me to be no good reason why we cannot "open up" this part of the 
information - at Registry level - so that the whole world can easily see which 
domains are coming up for deletion. What possible reason can there be for not 
creating this open public access? 
  The round-robin method used at the time of the .info Landrush and the .biz2B 
demonstrate that it is possible to operate a process where names which are 
becoming available can be distributed *through registrar applications* in a 
manner which might more fairly reflect the market reality of existing 
registrars and their relative size and contribution to the DNS industry. 
  (i) Release of Deleting Domains through a Registry-level "Round Robin" model: 
coupled with the open lists from Registries proposed in PROPOSAL 1, deleting 
domains could be released in monthly "batches" using a Round-Robin model. This 
would enable registrants to apply through their regular registrars, rather than 
getting a released domain through an unknown entity with the problems that may 
occur. It would also entirely by-pass companies like POOL.com and Snapnames, 
whose services (in my view) are not really needed and tend to distort the 
market in these names. Certain problems would need to be resolved if the 
Round-Robin model was to work in a manner which was helpful to registrants and 
fair to Registrars... In the Landrush 'Round-Robins' it became clear that the 
process could be "gamed" by some registrars (like Signature Domains and 
DomainPro) submitting unusually short lists and effectively queue-jumping those 
registrars who opened their lists to all the public. To overc!
 ome this,
 I propose the insertion of "blanks" in each 
  Registrar's list to top up their actual applications, so that all registrars 
have a statistically identical chance of procuring a particular deleting 
domain. The market would then reward registrars in proportionate relation to 
the number of customers they can attract. 
  (ii)Release of Deleting Domains through a Registry-level "Auction" model: a 
possibly simpler model would be an Auction of all deleting domains at Registry 
level, coupled to the advance posting of names by the Registry (proposed in 
PROPOSAL 1). To protect the interests of Registrars, each bidder would be 
required to nominate a Registrar of choice, to whom payment would be made and 
through whom the name would be registered, in the event of winning the auction 
for that name. The impact of this process would be to exclude the secondary 
market profit made by companies like Pool.com and Snapnames, and reward 
Registrars and Registry directly. It would also redress the balance in favour 
of regular and well-established Registrars, because people would tend to 
nominate a Registrar they knew, trusted, and possibly already used. It would 
render the 100 or more "shell" registrars superfluous, because why would people 
want to nominate these completely unknown entities? The auction model!
  might be
 set up on a name by name basis, as names came up for deletion; or the deleting 
domains could be batched on a weekly or monthly basis. Once again, the whole 
process should be based on open advance access to information, and open access 
to the process of obtaining a domain name. 
  I am by no means sure about this third proposal, but I offer it for 
discussion and consideration. Under the plan recently floated by Tucows, domain 
names due to expire/delete would be offered for auction prior to this process, 
and a share of any profit would be distributed to the previous registrant. This 
model could also work if the Auction was operated at the Registry level that I 
propose in PROPOSAL 2. 
  At present the DNS is hindered by the large number of domains that get 
"warehoused" by mass-registrants. I believe that a model that offered a 
proportionate share of the profits from the deleting domains market to current 
registrants might have the effect of freeing up the supply and creating more 
fluidty in the domain market (so that a higher proportion of domains might 
actually get used). I am not wholly convinced by this proposal because it may 
add complexity to a process which should ideally be simple. 
  I thank you for reading, and perhaps discussing, this Paper. I particularly 
commend PROPOSAL 1 and PROPOSAL 2(b) to you. In all my comments, my uppermost 
thought is what will make the supply of the DNS most open and fair for the 
people who actually want to use it. In addition, I recognise the role and 
livelihoods of established registrars (who provide a wide range of services 
beyond just grabbing deleting domains) and who deserve a process which reflects 
their commitment to the wider DNS market and its services. In achieving this, I 
advocate the removal of secondary businesses like Snapnames and Pool from the 
process, and the disempowering of the scores of "shell" registrars which have 
recently distorted this part of the market (and may also create havoc when .eu 
and .travel finally come onto the market with round-robins etc for the launch 
of their names). By using a Registry auction, where bidders nominate their 
regular Registrars, there will be little further need for th!
 recently created registrars which have merely come onto the scene to 'game' 
the system. 
  With kind regards, Richard Henderson 
  richardhenderson (at) ntlworld.

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