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January 2001
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Web Trends

New TLDS: Will dot.com Domains Become Beachfront Property or Swampland?

ICANN selects seven new domain names. What will be the ramifications?

By Ron Wiener

New TLDS: Will dot.com Domains Become Beachfront Property or Swampland? BY NOW you've probably heard that the Internet Corporation for Assigned Names and Numbers (ICANN) has selected seven new suffixes, or top-level domains (TLDs), for new cyberspace addresses: .pro, .biz, .info, .coop, .name, .museum, and .aero. (At press time, ICANN said it expected to complete negotiations on the new TLDs by Dec. 31, 2000.)

ICANN's decision to add the new TLDs was designed to create new opportunities for Internet commerce. Of the new domain names, only one -- .info -- is expected to be completely unrestricted.

The others are targeted to meet specific needs (.aero is restricted to air transport companies; .biz to businesses; .coop to non-profit cooperatives; .museum to recognized museums; .name for individual sites; .pro for accountants, lawyers and physicians). (See www.icann.org/tlds.) According to ICANN, these sites are expected to be operational approximately 2Q 2001.

Prior to this, "dot-com" was perceived as "the only TLD you must have" for any business with a major consumer or online brand. For many companies, the difference between GreatNewBusinessName.com and GreatNewBusinessName.net could spell the difference between being a viable, thriving online business or being yet another e- business venture doomed to mediocrity.

But this is just the beginning. Domain industry insiders predict that ICANN will eventually approve hundreds of new TLDs, once these first seven "test bed" TLDs go through their shakedown cruise.

Are the new TLDs just a new twist appealing only to those who missed their chance at a dot-com name, or are they vitally important marketing battlefronts requiring action ASAP?

The only certainty is that registrars and registries make money when virtual property changes hands. The more property sold, the better for the domain industry. That includes, of course, domain name investors (a.k.a. "cybersquatters"), lawyers, and other beneficiaries -- not just the registrars.

What kinds of issues will surface as a result of the new TLD -? For starters, take all the legal and trademark issues under the umbrella of domain disputes, and increase their complexity and costs of litigation exponentially. Just three years ago it was commonplace for an attorney to call a corporate client and recommend securing a company's domain name before a "cybersquatter" got there first. More enlightened attorneys went a step further, suggesting that all of their clients' trademarks and servicemarks be secured in domain form, not just the company name. And maybe they should register .net and .org along with .com, just to play it safe.

Indeed, the typical corporate registrant has secured 16 distinct names, and the average will likely triple this year. Some companies, like IBM and AT&T, have registered tens of thousands of names, in a rush to protect their intellectual properties and corporate brands.

Nowadays, savvy attorneys warn clients, "First, we need to secure every single brand the firm owns -- both active and inactive -- plus any brands even remotely on the drawing board -- in at least 10 TLDs, not just dot-com."

"Second, we'd better secure all the multi-lingual variants in Chinese, Korean, Japanese, and any other character set in which the brands make sense. Third, let's be sure to secure as many "country code" TLDs (ccTLDs) (i.e., .uk, .tv) as we can muster, to the limits of our budget -- because even if we have trademark superiority in the U.S., that won't help us a bit in the vast majority of foreign countries where first-to-register has superior rights. We also need to figure out the most common misspellings and mistypings of our brands and secure them before a typosquatter registers them and siphons traffic away from our site."

In other words, what used to cost $70 three years ago for the registration of a single .com domain can now ring up tens of thousands of dollars in legal bills and registration fees to completely protect a company, or even just a single brand.

New firms have sprung up (e.g., 1globalplace.com) to assist corporations in securing country codes requiring substantial legal footwork, occasionally racking up six-figure invoices to secure a single brand, internationally, drum-tight.

Beyond Dilution

How good is that protection? According to a recent survey taken by Gigalaw.com, 85 percent of U.S. companies already have faced a domain name dispute, either over a trademark confusion issue, malicious hacking or accidental mishap to one of their domain names.

Spend all this money on protecting the "space" around a domain name and you may still fall victim to cyber-jacking, accidental loss because of clerical error at the registry or registrar, accidental cancellation because of a missed renewal payment, or illegitimate take-over of your domain name by a disgruntled former employee with the access codes to the domain record.

By the way, don't expect to be able to recover damages from your registrar. By the rules reflected in the fine print of your domain name registration terms and conditions, they're generally not culpable. No registrar has been successfully sued in any of these situations and the courts have proven their indemnifications impermeable hundreds of times over.

Companies as big and savvy as J.P. Morgan, Microsoft Corp., Nike Inc., At Home Corp. (Excite), adidas-Salomon A.G., and many others have been hit by one or more of these domain maladies. Chances are your firm or your clients' firms have already been affected, and if not, it may only be a matter of time.

What does all this have to do with the value of dot.com versus other TLDs? Potentially, quite a lot. Some of the new registries (the "central database operators" of the TLDs) will be built upon different system architectures than the original .com/.net /.org structure operated by Network Solutions Incorporated (NSI). Because of the break-up of NSI's monopoly on domain names registrations a year ago, spawning nearly 200 ICANN-Accredited Registrars, this original system carries a lot of baggage. That translates into security gaps that make it possible for ill-intending hackers to wreak havoc. Some of these new registries may actually be more secure than NSI's current architecture. Or, they may lack the technical and financial resources of this huge VeriSign division, and actually be weaker in security aspects.

It's hard to say with any certainty whether the level of security for each new registry will be an element in the value of new TLDs. However, it is easy to conceive that some attorneys may steer their clients towards what they believe are more secure registries, based on the argument that they'll spend less in legal fees fighting off hackers and correcting "accidents." Each registry's policies towards trademark owners ­ the so-called "sunrise" or "daybreak" policies" ­ may also influence whether the I.P. legal community shuns or embraces a new TLD realm.

Michael McCrory, president of Training Dynamics of San Ramon, Calif., coaches companies on how to maximize their promotion on the Web. His take? "If you're counting on the average businessperson ­ not engineer ­ to actually remember your Web site address, too many of them may get confused by all the new TLDs and type in the wrong extension. My advice is get every TLD you can qualify for and drive all the hits to your .com site, and pay as much as you have to for that dot-com address ­ that's the one your customers are most likely to try if they can't remember the extension for your Web site."

McCrory worries that keeping up with the implications of new TLDs is going to be challenging. This is how cybersquatters got a leg up on established businesses, procuring domain names and holding them for ransom (which happened to McCrory himself with his own trademarked name).

Of the seven new TLDs, not all are "global" or "generic" (often referred to as gTLDs). Some are chartered or restricted. For example, to get a dot.museum domain name, you'll have to prove you're a real museum. This kind of TLD won't do you any good if you're a manufacturer of truck parts. In fact, there are already a number of restricted TLDs, like .edu for educational institutions, .gov for government agencies, and .mil for military organizations. These won't enter into the equation for the most part. It's unclear at this moment just how it may be possible for one company to get dibs on a restricted TLD domain name versus another company. Some of the new TLD applicants spoke of a "round robin" lottery system. Some registries argue that all domain names are not created equal, and that they should be allowed to sell names to the highest bidder. Others insist that all domains are created equal (a charming notion but the industry may eventually abandon this idealistic thinking) and will sell all names for a low, flat fee. There are plenty of auction operators and cybersquatters out there to prove these registries overly generous.

That leaves the other global TLDs, such as .info, .pro and .biz.

Leading edge advertising agencies and branding consultants are now advising clients to drop the e's, i's, x's, z's and dots from their name. After all, what you're trying to build is a business, not a Web site. Last year, underwriters were telling I.P.O. hopefuls to add .com to corporate names to drive up market valuations; today they're begging companies to do the opposite if they hope to even entertain the notion of an I.P.O. Let's face it -- if your brand can't stand on its own two feet without the .com after it, it may not be strong enough to survive in the newest new economy. So are .com values likely to ascend or tumble as these new TLDs increase in popularity? Many domain name investors, attorneys, registrar executives and corporate marketing executives, believe that .com will gradually increase in value, as the plethora of other TLDs become so befuddling that most consumers default to trying the .com suffix first when guessing at a Web resource rather than any other new mutation.

One seasoned domain I.P. attorney argues, "Experience overrules intuition." Yet some venture capitalists suggest that .com values will be diluted by new TLDs. Whichever way it goes, lawyers are likely to thrive on the additional I.P. work from clients, while the VCs may pay dearly if they fund the wrong marketing strategy for next year's e-commerce plays.

Neil Cohen, marketing pundit of ClickZ, an e-newsletter for online entrepreneurs, argues "whatever happens to .com values in this new era, clearly the value of a 'bundle' of names, containing multiple TLD variants of the same domain, will exceed the value of stand-alone names. If the bundle is missing the all-important .com variant, however, you might as well pack up and go home." Cohen suggests that many companies have paid way too much for domain names, placing too high a value on "time-to-market advantage" versus the lower cost of obtaining the same market share through less costly marketing methods. He emphatically advises online entrepreneurs to select wide-open domain names that can be secured in as many TLDs as possible.

The bottom line: Time will tell!

Ron Wiener is chairman and CEO of Portland, Ore.-based SnapNames.com, Inc.

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