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The real Internet addresses, for locating web servers are 32-bit numbers. Domain names are used because they are easier to remember and key in than numbers, and because they provide a more permanent identifier than an IP address. A critical part of the Domain Name System (DNS) is to translate a domain name into its associated numerical address. That process is known as domain name resolution and is performed by name servers.

Distributed coordination is the key to the functionality of the DNS. The relevant IETF RFC describes domains as "a region of jurisdiction for name assignment, and of responsibility for name-- to-address translation." At the top of the hierarchy there is a "root server" (generally called "the root" or "the dot"). The root stores an authoritative list of top-level domains (TLDs), which will be explained in detail below. For each TLD, the root provides pointers to name servers that contain authoritative lists (often called "zone files") of second-level domain names-bcr, microsoft, syracuse, etc.-registered under that TLD. For each second-level name there is a pointer to two or more name servers that can resolve the name, and so on down the hierarchy.

The root is divided into 250 top-level domains (TLDs), and there are two broad classes of TLDs. So-called country-codes (ccTLDs) are two-letter codes based on the ISO3166 list of recognized countries. The six generic identifiers (gTLDs), most notably .com, are based on a simple taxonomy invented in the mid-1980s by the Internet's pioneers. The distinction between ccTLDs and gTLDs is based entirely on semantics and policy. It has nothing to do with how either operates. Both are simply text entries in a database with pointers to name servers.

Restrictions on the number and type of TLDs also are administrative, not technical. At some point, expanding the number of TLDs might break down the hierarchical nature of the DNS and create routing and congestion problems. But there are no serious technical objections to the addition of, for example, 5,000 new TLDs. Indeed, there are strong reasons to believe the system could accommodate as many as 1 million new TLDs. Whether there is any need or market demand for that many is an entirely separate matter.

In today’s Internet business world, decreasing development times, readily available financing, and increasing number of highly-skilled and experienced IT professionals with entrepreneurial spirit have made it is virtually impossible to establish any kind of sustainable competitive advantage. Vital building blocks of any “dot com”, ranging from a business model to the source code, can be replicated in less than a month. However, it is clear that several successful companies have managed to retain market leader positions for long periods of time, while being fiercely attacked by similar or sometimes even superior competitors. The major reasons for their success are the first mover advantage, network externalities effect and high-quality domain names. One of the greatest challenges for any online business is to bring new visitors to the site and make them come back again. A good domain name indeed helps to solve this problem. In many cases, instead of using a search engine or a directory service, potential visitors simply goes to a site with a domain name, which best describes the desired information, product or service. The traffic for sites with such descriptive high quality names as sports.com, sex.com or cars.com is measured in hundreds of thousands and millions hits per day. Therefore, potential savings resulting from having a good domain name (say one company is paying $0.06 per clickthrough, while the other one has a million hits per day because of its domain name; this results in $1.8 million per month in comparative advertising savings). The net present value of these expected savings is the actual value of the domain name. In many cases, including those when the domain names are purchased in the expectation of selling the m in the future, a domain name can be compared to a stock option and valued in the similar way using a binomial model.

The three key factors that affect the value of a domain name are memorability, length and industry, product or service focus. The domain name, which is short, meaningful, relevant and easy to remember, it is also very “intuitive”, easy to find and adds a lot of value to the firm.

Several companies have attempted to formalize this approach for valuing domain names by coming up with complicated formulas incorporating many different factors. Examples of such domain name valuation (appraisal) tools are: DotComDealers, Dominame, ShoutLoud.com, etc.

(Please see CLICK HERE for the categorized listing of major domain name auctions and appraisals)

The exponential growth of eCommerce and scarcity of short and meaningful names have led to creation of a secondary market for domain names. Some of the most famous domain name transactions (please see Exhibit 1) are business.com ($7,500,000), AsSeenOnTV.com ($5,000,000) and Korea.com (5,000,000).

GreatDomains.com – one of the largest domain name auctions has been in business since November 9^th, 1999 and on October 25, 2000 has been acquired by VeriSign Company. GreatDomains.com has represented most of the high-profile domain names transferred including loans.com for $3 million, drugs.com for $823,000, and cinema.com for $700,000. Even large old-economy companies like Procter & Gamble have registered hundreds of non-strategic domain names (P&G has over a hundred domains registered including flu.com, beautiful.com, scent.com, dry.com and thirst.com). Several international banks have recognized the value of a domain name and started offering mortgages backed by domain name collaterals (CLICK HERE to see the related article).

After demonopolization of the domain name registration industry, there are substantial disagreements about which companies performing domain name registration should be called accredited registrars.

The quote from NSIRegistry.com (<= click on the link to see the full version): "An Internet domain name registry is an entity that receives domain name service (DNS) information from domain name registrars, inserts that information into a centralized database and propagates the information in Internet zone files on the Internet so that domain names can be found by users around the world via applications such as the World Wide Web and email. VeriSign Global Registry Services[i] is the exclusive registry for the .com, .net and .org top level domains". According to the abovementioned quote, the only accredited registrar for gTLD’s[ii] is Network Solutions, which was acquired by VeriSign and renamed to VeriSign Global Registry. However, there are registrars, accredited by ICANN[iii], which have legal right to use the Global Directory and can also be called accredited (please CLICK HERE to see a complete list of ICANN accredited registrars). There are also registrars accredited through a CORE[iv] system, which are able to perform domain registration and are not affiliated with larger registrars.

Affiliate domain registrars are websites that do not perform domain name registration by themselves, but instead use services of accredited registrars. Most accredited registrars have standardized the procedure of becoming an affiliate by introducing formal affiliate programs (e.g. Register.com, NetworkSolutions.com) and paying 15-30% commissions for every registration by a referred customer. This opportunity to generate comparatively large profits with virtually no investment, gave birth to thousands of sites offering domain registration services.

There are two types of affiliate registrars: sites that redirect customers to accredited registrars and do not deal with domain name management and customer service and sites which outsource just the registration functionality, manage the domain and provide customer service.

Increasing competition caused the accredited domain registrars to come up with even more sophisticated expansion strategies. After Tucows.com Inc. became accredited by ICANN (even though domain registration is not its primary business), came up with DomainDirect.com – its retail domain registrar, which offers a regular affiliate program and OpenSRS.net – the wholesale domain registrar. OpenSRS provides businesses with a quota and a customizable interface for registering domain names. Businesses (later called outsourcing affiliate registrars) pay for the option to register a specified amount of available domain names and undertake the responsibility to manage these domains as well as to provide customer support. The price of a domain name for a business can be as low as $10 per year, depending on the volume. Some of these registrars also offer affiliate programs or have multiple virtually identical mirror sites, which help them compete for “uneducated traffic[v]”.

Short and meaningful domain names are probably the scarcest resources on the Internet today. Virtually every word in the Oxford English Dictionary and combinations of the most commonly used words and phrases have already been registered in the expectation of selling the domain name or using it in the future. People, who wish to start an E-Business or take their current business online, find it extremely difficult to find a suitable name for their future website. Domain generators are designed to solve these problems by providing flexible and easy to use domain registration systems with categorized vocabulary and the ability to perform multiple customized searches. The idea of creating a domain name generator is over five years old. In 1996, a student at Queen’s university has implemented a simple offline domain name generator and then transferred it to the web. A prototype of this web-based implementation can still be located HERE.

The most primitive form of domain name generators. Ask users for x number of keywords, create various permutations, and check them for availability.

More advanced x-word combinators, which allow users to control the combination method and use more keywords in the process.

Example: no good online examples have been identified. RandQuery is a good offline domain generation tool.

The most advanced form of domain name generation. Allows a user to enter a keyword, which he/she wishes to be present in the domain name, select a domain extension (i.e. .com, .net, .org ), select a category, which is the most applicable to his/her business area (i.e. internet, consulting, etc.) and choose a combination method(i.e. prefixes or suffixes). A system would combine a keyword with the applicable prefixes or suffixes from a large database, query Whois (the central domain name database) using combined names, displa the availability results and offers to register the desired names.

Using various rules of English language, a database of common suffixes, prefixes and connections, create English-sounding domain names according to user specifications (e.g. length, noun/verb, etc.).

Example: There are no examples of such system at this time. The system is under construction and soon will be featured at Domain Fellow.

Domain generators are almost always offered by accredited and affiliate registrars as for free in order to assist potential customers in their quest for good domain names as well as to differentiate themselves from competition. There are no pure-play domain generators, which do not offer domain registration services. Therefore, it is be more reasonable to estimate the size of the domain registration market, the approximate percentage of all registrars, which provide domain generation services and relying on educated assumptions, estimate the approximate revenue stream coming from domain generation.

The price for registering the domain name varies from registrar to registrar and lies in the range of $9.99- $35.00 US per year. $9.99 prices are offered by the outsourcing affiliate registrars or their affiliates, defined earlier in the report, and charging heavily for essential services. Most of the accredited retail registrars fix their prices at $35 per year. When estimating the market size for domain registration, the value-added services such as e-mail, hosting, design, etc. were not included into the model. However, it was assumed that since services such as domain forwarding, 24/7 customer support, and domain name transfer are offered by most accredited registrars for free and are charged for by affiliate registrars, the average price per registration should be assumed to be $35 per year.

A careful analysis of the sites in the Netscape Open Directory Project’s (dmoz.org) Computers/Internet/Domain_Names/ category and ICANN’s list of accredited registrars, it has been identified that approximately 9% (~82/912) of all affiliate registrars (valid[vi]) and approximately 17% (~24/143) of active accredited registrars have at least some domain generation functionality. For 1.9% (17/192) of affiliate registrars, domain generation is a core business competence.

If we conservatively assume that 50% of all registrations are performed through affiliate registrars (the chart 1 below shows that 71% of all domain name registrations in August 2000 were performed by the four major accredited registrars), then the total percentage of registrations potentially related to domain generation is 0.09*0.5 + 0.17*0.5 = 0.13 (or 13%). According to the recent survey of 12 people who cumulatively purchased total 169 domains in 1999-01 period, only 32 domain names or ~19% were created using an online domain name generator. Therefore, the total percentage of registrations directly related to domain name generators is 0.19*0.13 = 0.024 (roughly 2.5%).

Since the domain name fee is paid every year, cumulative domain registration statistics will be used in the calculation.

The total number of domain names registered as of 22 January 2001 was 35,158,339. Therefore, excluding growth in the domain name registrations, the worldwide annual revenue of the domain registration market is $1,230,541,865 US. The total number of “.com” domains registered was 21,243,588, which translates into $743,525,580 US per year. Taking into consideration the percentage of domain registrars providing domain generation services, the annual revenue directly related to domain generators is 0.025*$743,525,580 US = $18,588,139.5 US.

However, another theory suggests that domain generation services do not substantially relate to the already registered portion of the domain registration revenues, since domain name owners pay the fee in order to retain their already registered sites. These services used to attract customers to register new domain names and therefore, the market size should be estimated taking into account only revenues from new registrations. This theory is supported by the growing number of affiliate domain registrars, providing sophisticated domain generation services and redirecting customers to accredited registrars for a one-time commission. The number of gTLDs registered in 1999 had surpassed 6.6 million, by July 2000 it reached 19 million and by January 22 passed the 21.2 million mark. The unofficial number of new registrations in the year 2000 was estimated to be 13,320,466, which translates into $466,216,310 US. Taking into consideration the percentage of domain registrars providing domain generation services, the annual revenue directly related to domain generators is 0.025*$466,216,310 = $11,655,407.7 US.

Taking into consideration the incredible growth in domain registrations (see chart 2 for growth analysis), the above figures should be continuously revised on a monthly basis.

As mentioned earlier, since domain generation is offered for free as part of the domain registration process, the industry analysis for domain generators’ and for domain registration will be the same. However, there are substantial differences between affiliate registrars an accredited registrars, which require two separate industry analyses to be performed for both groups.

Affiliate Registrars

Threat of New Entrants

In most cases the volume of registrations of an affiliate registrar substantially affects its cost of registration. Therefore, large firms, often operating in other business spheres (i.e. web hosting, web design, consulting etc.) have competitive advantage over smaller businesses. Most of these large firms have established brands (e.g. Interland – VeriSign Global Registry Services affiliate) and can offer incentives for registering domain names or cooperatively advertise registration with other products or services. Event though large firms have a clear advantage competitive position and dew to the high market growth, new entrants are highly unlikely to affect their current sales, from the technological or financial perspectives, barriers to entry are virtually nonexistent, since it extremely easy to set up an affiliate account with one of the accredited registrars and does not require any financial investments except for primitive web development, hosting and maintenance. Customers do not incur significant costs in switching suppliers and the distribution channels are readily available.

Bargaining Power of Buyers

Domain name buyers are highly sensitive to price and do not face any significant costs when switching the registrars. There are thousands of alternative registrars that can be located through online directories or search engines and buyers can easily switch between registrars. Most of the potential buyers know about the registration procedure and have all the information they need to make educated purchasing decisions with respect to domain registration. Many high-volume customers develop web sites and become affiliate registrars in order to capitalize on commissions from the accredited domain registrars or to qualify as resellers for wholesale accredited registrar and buy domain names at a highly discounted price.

Even though buyers are very powerful, branding strategies create some level of customer commitment. Accredited registrars like VeriSign Global Registry Services (Network Solutions), Register.com or Tucow’s DomainDirect.com and openSRS attract customers with their names and the perception of reliability and quality.

Other two very positive factors are the large number of buyers relative to the number of registrars, which decreases their overall bargaining power and the presence of uneducated first-time buyers, which bring revenues to many affiliate registrars that are well positioned with search engines and in online directories.

Threat of New Products or Services

At present the only substitute for a domain name is an IP address, which does not represent a significant threat due to the reasons described earlier. However, there is a limited number of gTLDs available, with “.com” being the most popular one. The new alternatives to current gTLDs are “.biz”, “.info”, “.firm” and others. These new extensions may affect the domain generator market, since there will be more meaningful names available for registration; however they should not substantially affect affiliate registration business.

Power of Suppliers

Since there are many accredited registrars with affiliate programs, it is very easy to switch without any technological and/or financial loss. For outsourcing affiliate registrars that outsource the domain registration capabilities from wholesale accredited registrars the switching expenses may be higher due to the need to integrate another registrars’ systems with their web sites; however in most cases this can also be easily done.

Levels of Rivalry

Virtually nonexistent switching costs and lack of differentiation are causing the registrars to compete with all possible means. However, it is very hard to compete against a large number of companies of the same size especially when the costs of registering a domain name are very close.

Affiliate domain registrars compete primarily for search engine positions or online directory placements and try to achieve the optimum balance between sales, income and registration price.

Explosive triple digit market growth also attributes to lower levels of rivalry.

Overall Industry Outlook: Positive

Accredited Registrars

Threat of New Entrants

In order to receive an ICANN accreditation, the company must go through a thorough inspection process (please see http://www.icann.org/registrars/accreditation.htm#HowtoBecome for more details), pay for licensing and obtain an assurance of performance ($100,000 US). This represents a substantial barrier to entry for most affiliate registrars or other companies.

Established accredited registrars do not have cost advantage over new entrants in terms of payments to InterNIC. However, several registrars have created strong brand names, which provide them with substantial advantage (i.e. Network Solutions and Register.com).

Bargaining Power of Buyers

Threat of New Products or Services

Absolutely the same as with affiliate domain registrars. However, the effect of the introduction of new domain name extensions will be very positive. Many “.com” holders will secure their names with alternative extensions and result in a substantial revenue stream for registrars.

Even though the supply of domain names is controlled and regulated by ICANN, virtually no unfair competitive advantage can be gained on the supply side. ICANN does not give preference to any accredited registrar and should follow its own bylaws and standardized procedures for decision making.

The level of competition among accredited registrars is much higher than among their affiliates. This is primarily due to the smaller number of them and the need to expand price sensitive affiliate bases.

Affiliate registrar and one of the most advanced domain name generators on the market. Provides sophisticated categorized and advanced x-name combination capabilities.

v Custom domain query: combines user’s own prefixes or suffixes to generate names

Due to the absence of the marketing budget the main strategy is search engine positioning and online directory listing. Comes up first when searched for on google.com with the words “domain name generator”. Participates in link exchanges. Featured in several online publications.

Affiliate registrar providing domain generation services. Develops advanced technologies for generating domain names. Provides cheap, but lower service/reliability registration services.

v Number of prefix/suffix categories used for domain generation: 1 (does not offer any choice)

The site has the largest marketing budget of all domain generation sites. Registered and well positioned with major search engines and in online directories. NameBoy also pays several portals dedicated to domain name industry coverage, for higher category placements of its link and heavily invests in banner advertising. NameBoy has successfully created partnerships with several other domain name related sites and started its own affiliate program. Another successful attempt to gain publicity was NameBoy’s partnership with www.Reglang.com, which provides pre-registration services for “.biz”,”.info” and ”.pro” extensions.

A site, which is very similar to DomainFellow. Provides similar categorized domain generation services with a bit less functionality and alternative generation methods.

v Categorized domain name generator (displays only available names, hence no owner’s info)

The marketing budget is very small or nonexistent. Well positioned with search engines and

in online directories. Participates in link exchanges and advertises on other sites.

A subsidiary of Wyith Ltd – a large, privately held web hosting and eCommerce company. Features a good, but not categorized domain generator. Provides many services outsourced from the companies partners.

v Number of prefix/suffix categories used for domain generation: 1 (does not offer any choice)

Acts as a referral service for wyith.com. Moderately well positioned with search engines and in online directories. Advertises with other sites.

v Non-categorized domain name generator (displays only available names, hence no owner’s info)

Low marketing budget. Very well positioned with search engines and in online directories. No evidence of advertising on other sites or participation in link exchanges.

Listed with dmoz.org and therefore, with major search engines and other directories.

Domain name auction site and affiliate registrar providing categorized domain name generation services. Its Name Seeker advanced search uses the keywords and categories, along with optional additional search criteria to find many possible combinations.

in online directories. Participates in link exchanges and advertises on other sites. Engaged into many partnerships.

Domain generation is the primary business function. Provides non-categorized domain name generator.

in online directories. Participates in link exchanges and advertises on other sites. Engaged into many partnerships. Advertises on other sites.

The emergence of wholesale domain registrars further increased the competition within the industry and forced registrars to use all possible means to maximize their market shares. In order to differentiate and to increase the probability of users registering new domain names, many existing sites have already successfully adopted the concept of domain name generation. As the growth of eCommerce slows down and the number of domain registrations follows, the levels of rivalry among competitors will reach new heights and more players will adopt domain generation capabilities.

Another factor, which will most probably have an effect on growth in the domain generation and registration market, is the introduction of new domain name extensions. In the near future ICANN plans to launch some of the following potential new extensions:

v .web - For entities or groups providing services related to the World Wide Web

The introduction of any of these extensions will create an enormous number of new registrations as existing domain name owners will rush to secure their names as soon as possible. The current estimate is for the names to be released between January and June of 2001. ICANN however has not released the exact time and date. The anticipation for the release of the new top-level domains is generating tremendous excitement among those in the Internet community. Registrations are expected to hit record numbers when the names are released for registration.

Another major development is the possibility to register multilingual domain names. It will also affect the scarcity of good domain names and decrease the need for domain name generators. However, English character “.com” names will always remain in high demand(see chart 4 for domain distribution), since they are closely associated with eCommerce and easier to use internationally. Even taking into account the explosive growth in domain registrations in 2000 and scarcity of good domain names, the percentage of “.com” relative to “.net” and “.org” dropped only 2%.

Even after the deregulation of several TLDs like “.cc” or “.ws”, the growth in the “.com” market did not show any signs of slowdown (see chart 4 for weekly registrations analysys).

There are also attempts to associate domain names with telephone numbers because they are easier to remember and key in than numbers, and because they provide a more permanent identifier than telephone numbers, which often change. This technology, if approved and implemented, will boost the growth in domain name registrations and hence for domain name generation services.

1. Threat of new entrants (How easily could other firms enter your industry?)

	Yes (+)	?	No (-)
1. Do large firms have a cost or performance advantage?	+
2. Are there any proprietary product differences in the industry?			-
3. Are there any established brand identities in the industry?	+
4. Do customers incur any significant costs in switching suppliers?			-
5. Is a lot of capital needed to enter the industry?			-
6. Is serviceable used equipment expensive?		?
7. Does the newcomer to the industry face difficulty in accessing distribution channels?			-
8. Does experience help to continuously lower costs?			-
9. Does the newcomer have any problems in obtaining the necessary skilled people, materials or suppliers?			-
10. Does the product or service have any proprietary features which give you lower costs?			-
11. Are there any licenses, insurance or qualifications, which are difficult to obtain?			-
12. Can the newcomer expect strong retaliation on entering the market?			-
13. Is the industry growing fast enough that the newcomer does not have to take market share from existing players?	+

High barriers to entry = 3 (+) factors (favourable to firms already in the industry)

Low barriers to entry = 9 (-) factors (unfavourable to firms already in the industry)