How Domain Prices Are (Not) Protected
The money you pay a domain name registrar such as Namecheap for a domain name doesn’t all go to the registrar. The registrar has to pay a portion of it to a domain name registry.
Domain name registries are like wholesalers and domain name registrars are like retailers. Here’s how both entities work together to make domains available and how the price of a top level domain is set
Registering a Domain
When you register a domain name through Namecheap, we reserve the name through the wholesale registry. We then pay a fee to the registry for each year of registration you sign up for.
There’s a lot of competition among domain name registrars. Namecheap is known for its low prices, and if we were to charge a lot more than competitors, we know you’d take your business elsewhere.
So, practically speaking, the amount Namecheap charges for domain names is kept in check by competition.
Registries, however, are the only supplier of the domain names within their top level domains (the part to the right of the dot in domain names).
If you register a .COM domain at Namecheap, Namecheap has to get it from the .COM registry (called Verisign) and must pay whatever wholesale price Verisign charges for this. The same goes for all other domain extensions.
Four Types of Domain Names
Before understanding how wholesale pricing works, it’s important to split top level domain names into four buckets.
- New top level domains – These domains launched starting in 2014. They include .XYZ, .WEBSITE, .CASH and more.
- Country code top level domains – Two letter domain names that belong to countries, including .CA and .DE.
- .COM – This TLD has unique pricing controls and deserves its own bucket.
- Legacy top level domains – For the purposes of this article, these are the older top level domains you’re familiar with, including .NET, .ORG, .INFO and .BIZ. While .COM is also a legacy top level domain, it’s unique given its market-dominating position.
Pricing works differently for each bucket of domain names, and it has changed over time for some of the types of domains.
New Top Level Domains
New top level domain names have no price restrictions. The companies that run these domains essentially “bought” the top level domain names from ICANN, the non-profit that oversees the domain name system, and are free to charge what they want. That’s why Namecheap charges only a dollar for some domains in these extensions and hundreds or thousands a year for others. For the expensive domains, Namecheap has to pay more to the registry.
However, ICANN still mandates rules about how price changes are implemented. ICANN requires registries to give notice to registrars before increasing prices. During that time, people can renew their domains at current prices for up to 10 years in advance.
Country Code Domains
Country code domain names are two letter domains such as .CA and .US. They are, in effect, “owned” by the countries to which they correspond. This means that there’s no overarching control over the price they can charge. There’s also no uniform rule for how they have to notify customers of future price increases.
This means that country code domains are the least restrictive in terms of pricing.
Pricing for .COM domain is the most complex because it involves two different groups: ICANN and the U.S. government’s National Telecommunications and Information Administration (NTIA).
The U.S. government plays a role because of the unique role of .COM in the history of the Internet. It was created in the early days, prior to being assigned for registry services to Verisign, and it now dominates the market. As one of the original top level domains, and the most-registered, many companies believe they must register a .COM domain name for their Internet presence.
We explained this complex arrangement in a post last year.
To summarize, the wholesale cost of .com domains has been limited to $7.85 per year since 2012. (Namecheap also has to pay 18 cents to ICANN for each registration.)
In late 2018, the NTIA changed its agreement with Verisign to allow it to increase prices by 7% per year in the last four years of each six-year contract extension.
But NTIA is just one party to the deal. ICANN also has to agree to these price increases. Unfortunately for consumers, early this year, ICANN published a proposal to allow Verisign to increase prices in line with the NTIA’s approval. It didn’t hurt that Verisign offered ICANN a $20 million cash bonus in conjunction with its approval to increase prices!
While Namecheap and other registrars are fighting this, ICANN is likely to allow the price increases despite overwhelming negative feedback on the plan. The first price hike could occur this year.
Historically, ICANN controlled the prices of domains like .ORG, .INFO and .BIZ. These controls were in place because of the unique nature of the domain name market with a single registry controlling these domains.
Like .com, which is also one of the legacy top level domains, these domains had an early-mover advantage to build up a registration base prior to there being much competition. Compare this to new top level domains, which have all been released within the past six years and must compete against each other and the legacy top level domains.
The contracts between ICANN and the registries have a presumptive right of renewal, meaning that the registry operators can operate the domains forever. ICANN doesn’t put the contracts out to bid to keep prices for consumers down.
Therefore, ICANN limited prices on the domains. The operators of these three top level domain names could not increase wholesale prices more than 10% per year.
That is, until last year. That’s when ICANN abandoned its price controls. Despite significant opposition, ICANN removed the 10% caps last year, allowing the registries to charge whatever they want.
ICANN explained that it wasn’t a price regulator, although it didn’t explain why it used to control prices and was giving up this control. In fact, its contract with Verisign to run . NET still maintains 10% per year price caps. At least for now.
Some registry operators had taken full advantage of the previous generous price caps and raised prices by 10% each year. Others, such as Public Interest Registry, the non-profit that runs .ORG, did not increase prices every year, and when it did, it didn’t raise them by the full 10% each time. The wholesale price of a .ORG domain has been $9.93 for several years now.
After ICANN removed price caps, Public Interest Registry published a statement saying that it had no plans to increase prices on .ORG domains.
But shortly thereafter, the group announced that it was being sold to a private equity company for $1.1 billion!
That private equity company has promised to not raise prices more than 10% per year, on average, for the first eight years of its ownership.
While it’s comforting to know that it won’t significantly increase prices overnight, a 10% per year increase means that prices would more than double over the next 8 years! And it’s a far cry from the registry keeping prices in check as it has done historically.
So, in addition to. ORG prices going up, expect prices on .BIZ and .INFO domains to continue to increase, and perhaps by more than 10% per year. For now, .NET prices increase 10% per year.
There’s a lot of uncertainty in domain name pricing. ICANN seems to want to get out of the business of controlling prices. Unfortunately, there are few outside forces to keep registry wholesale prices in check.
There’s only one registry supplier for each domain name. And we know that, once you set up a website on a domain name, it’s very difficult to switch. So registries have a captive market for their domains.
Namecheap is working hard to keep prices as low as possible. Stay tuned for updates and ways you can get involved.
With the looming economic crisis, we heading for a protracted downturn. Businesses will go bankrupt, and those of us who make no money from our personal websites will have less money to spend on non-essential purchases. Now is the time for ICANN to do the decent thing, in line with measures that governments around the world are taking to protect the economy. If they can’t, then they need to break up what is essentially a monopoly and allow the free market to reign.