The gTLD Allocation Problem
(short assignment for October 16)
The Internet Corporation for Assigned Names and Numbers (ICANN) is responsible
for coordinating internet domain names, IP addresses, and similar identifiers. A few
years ago, ICANN decided to expand the existing set of “generic top-level domain
names” (gTLDs), beyond the current .com, .net, .org, .edu, etc.
Last spring, companies and individuals were allowed to submit applications for new
gTLDs. For a $185,000 deposit, you could have staked a claim to .book, .app, .blog,
.beauty, .trust or any other string. If you applied for two strings, you need to pay two
deposits, and so on. But applicants later will have an opportunity to withdraw and
get their deposits back, so an application was not hugely committing.
The applications were revealed in June 2012. There were 1930 applications filed.
Roughly a dozen companies, including Amazon, Google and a private equity start-up
called Donuts, filed a lot of applications. Google filed for 101 names and Donuts for
304. Many others filed a few applications, and potentially some these applicants
may not be very serious businesses.
Some names were claimed by only a single applicant. For instance, Google was the
only company to file for .dad. In these “uncontested” cases, the sole applicant can
purchase ownership of the domain name by paying the $185,000 deposit. Other
gTLDs received multiple applications. There were 13 applications filed for .app, 11
for .inc, 10 for .art, 9 for .book, and 3 for .taxi. Overall there are 229 “contested”
gTLDs where two or more applicants have placed deposits.
ICANN has proposed a process for resolving the contested claims. They plan to hold
an auction next Spring for each contested gTLD, each which each applicant for the
given name can participate. If an applicant enters the auction, it has to pay its $185k
deposit before bidding. Alternatively, an applicant can withdraw, skip the auction,
and get its $185k back. If only one applicant continues into the auction, the auction
price will be zero, but if multiple applicants enter the auction, the price will rise
until only one bidder is left. Then this applicant becomes the winner at the final
auction price. So if the the final auction price is $200k, the winner pays the $200k in
addition to the $185k, and gets ownership of the domain name. Applicants that
entered the auction and lost are out $185k.
There is, however, an interesting and unresolved twist. ICANN also announced that
applicants could get together in pairs or groups prior to the auction and cut deals to
resolve conflicts, or design their own private auctions. The usual types of rules
against competitors talking or cooperating seem not to apply here.
This should be advantageous for the applicants. Suppose Google and Amazon were
the only two filers on .map, and that both value it somewhere in the range of $1-2
million. If they both enter the auction, perhaps Google might win and pay $1.2
million to win the auction, plus they would both pay their entry fee / deposit and
hence be out $1.2m + 2 x $185k = $1.57m in total. Instead, Google could agree to pay
Amazon $500k, and Amazon could withdraw its application and get back its $185k
deposit. Then Google would be the only applicant and would get ownership for
$685k ($500k to Amazon, $185k to ICANN). And Amazon would get $500k in cash.
Here is the problem to think about for class and write up your ideas on. Suppose you
were working at Google and Larry Page calls you into his office. He tells you how
much he would pay for each the gTLDs that Google has applied for, and tells you to
contact the other applicants and set up a mechanism to resolve the contested gTLDs
in a way that avoids the companies paying ICANN huge amounts.
Questions: (1) What sort of mechanism might work? (2) Could you use some kind of
auction? (3) Do you need to get all the companies involved to make your mechanism
work, or just a subset? (4) What sort of problems do you anticipate?
To make things very concrete, you might want to consider a special case, say where
there is only one contested domain name. Take .book as an example. In this case,
there are 9 applicants, including Google, Amazon, Donuts, one or two other “serious”
players (i.e. who have a real business plan and a high willingness to pay) and 4 or 5
non-serious players (i.e. with low willingness to pay).
Here are a couple of points to get you started: (a) even if you do nothing, some of the
non-serious players might withdraw rather than pay $185k to enter the ICANN
auction in the spring; (b) if you cut a deal with Amazon but no one else, and Amazon
withdraws, you may still have to bid against other serious players, so you’ll have to
pay whatever you agreed to pay Amazon, plus the deposit for the auction, plus the
auction price (assuming you actually win).
If you want further information on the ICANN process to think this over, you can go
to the web page: http://newgtlds.icann.org/en/applicants. We’ll discuss your ideas,
and some related theory, on Tuesday.