The Domain Name System (DNS), a 1985 technical invention, was transformed into critical global infrastructure by the policies of the United States government beginning in the 1990’s. While some challenges remain, the light-touch regulation promoted by both parties has proven highly successful.
Rarely discussed in an election year is bipartisan policy success; after all, it offers no point of difference between the parties. Cooperation runs counter to the ad-selling news narrative of political division. All the same, since 1985 the Domain Name System (DNS) has played a critical but underappreciated role in global commerce as the DNS is mostly an invisible layer of critical internet infrastructure. However, despite the remarkable success of the DNS under a light-touch regulatory model, some consumers face challenges from unchecked price increases in the retail and secondary marketplaces.
The DNS is the technical infrastructure that allows the internet to work efficiently by mapping human-friendly names (domain names like ProMarket.org) to their corresponding internet protocol (IP) addresses (a string of numbers), which allows internet users to access resources (websites) on the internet. Since the late 1990’s, the Internet Corporation for Assigned Names and Numbers (ICANN), a California non-profit, has been recognized by DNS stakeholders, including governments, as the central coordinator for the DNS. ICANN coordinates the development of DNS policies through a multistakeholder process that has maintained a safe, secure, and resilient DNS.
Beyond ICANN, there are two important types of entities within the DNS. The first is a registrar, which functions essentially as a retail domain name storefront. Here, consumers can buy a domain name for their website, as ProMarket did. The way this works is that a customer will request a domain name, and if it is available, the registrar will secure it, and sell the registration to the customer. Registrars are integral to the creation and maintenance of a marketplace for domain names.
The second type of entity to know is a registry, which is responsible for managing the infrastructure that supports the technical operation of registered domain names in a particular top-level domain (TLD—e.g. .com or .org) that are offered for sale by registrars in the retail market. Registrars are retailers and registries are the wholesale providers of domain names. The registry also provides secure directory (resolution) services that allow internet users to find websites. Registries for generic TLDs (as compared to country code TLDs such as .uk and .us) are governed by agreements between the registry operator and ICANN. An organization can be a registry operator of a TLD. For example, there are hundreds of generic TLDs operated by companies like Amazon (.book, .author, .coupon, etc.), Google (.youtube, .app, .dad, etc.), and Microsoft (.azure, .bing, .hotmail, etc.). Identity Digital, a privately held company, operates some 250 generic TLDs (.apartments, .football, .reviews, etc.).
Open Access Enables DNS Secondary Markets
My own introduction to the DNS was accidental; in July 2018, I was a witness at a Senate hearing on the impacts of internet regulation. One witness was a policy executive at the world’s largest domain name registrar, GoDaddy. At the hearing, the GoDaddy executive James Bladel called for action to stop any increases in the wholesale price of .com domain names (the registry operator for .com domain names is Verisign). Bladel said that GoDaddy’s experience as a retail outlet showed that small businesses would be harmed if wholesale prices were allowed to be raised. The .com TLD is the world’s largest and most popular with over 150 million domain names registered worldwide. Like all generic TLDs, .com is governed by a registry agreement with ICANN, and domain name registrations are sold only by retail outlets such as GoDaddy. Unlike other TLDs managed by ICANN, the .com TLD is also governed by an agreement with the United States Department of Commerce. This agreement is the only remaining oversight exercised by the U.S. government over the DNS. Since the 1990’s, this oversight has been continually reduced in view of ICANN’s role as the central coordinator of the DNS. An important reason for continued oversight is price regulation of .com domain names.
The Department of Commerce has at times permitted limited price increases so that the wholesale price of $6 for a .com domain name in the mid-2000s is now about $10. While the initial access (or wholesale) price for .com domain names is regulated, the rest of the .com market – including the retail and secondary market – is unregulated. In some cases, retail price increases bear no relation to wholesale price increases.
For example, within months of Bladel’s 2018 testimony and his claim that price increases harm small businesses, GoDaddy raised its renewal price for .com domain names by 20 percent, even though there was no corresponding increase in wholesale price. Significant and extreme price increases in the secondary markets have been ignored by industry commentators. Also concerning from consumer protection and policy perspectives is that while open access governs the initial purchase of a .com name, the large and growing secondary market remains unregulated and can be abused by registrars. This is an issue which could be reviewed by ICANN or others.
It is estimated that the secondary market for .com domain names generates $2.1 billion in annual revenue, according to Massachusetts Institute of Technology economist Dr. William Lehr, lead author of Changing Markets for Domain Names: Technical, Economic, and Policy Challenges. This is almost twice the size of the wholesale market. The current secondary market would likely not exist if not for price controls at the wholesale level. For example, TurnCommerce, a domain name registrar, has accumulated millions of .com domain names at the wholesale price while offering them for resale on their storefront at prices far above standard retail pricing. GoDaddy, in addition to being the world’s dominant retail outlet, is also a major player in the secondary market, holding hundreds of thousands of .com domain names for resale usually well above standard retail prices.
Lehr details significant pricing abuse in the secondary market, noting that the average price for a domain name on the secondary market is $1,660, whereas the retail price is about $10. While these represent a minority of transactions, such usurious resale practices do not create legitimate economic value. Moreover, they undermine the consumer protection function of the wholesale price regulation. Secondary market players buy large volumes of domain names, predicting which will be desirable in the future, thereby limiting availability to the public. For example, one platform called NameBright lists “pricealert.com” for $620,095 and “mypayments.com” for $249,095.
Policy Implications
Lehr observes repeated calls for ICANN to play a more active role in internet governance and to investigate the economic and policy implications of rules that permit domain name hoarding and price gouging in the secondary market. In the meantime, some policy problems have been solved while news ones have emerged. For example, TLDs are no longer scarce and no longer limited to only .com and .org. On the other hand, the wholesale price regulation meant to ensure a low price for consumers for the most popular domain names has been upended by secondary market resellers who buy up domain names at a low cost and resell them at vastly higher prices.
In addition to these pricing issues, there is evidence that some secondary market actors create security risk in the DNS. Security remains the DNS’s leading challenge, as it is exploited by increasingly frequent, sophisticated, and dangerous cybercriminals. An extensive European Commission report on DNS abuse in 2022 noted how unregulated secondary market actors may willingly facilitate domain name registrations for malicious purposes. While resellers profit from the DNS, they do not contribute to the cost of maintaining its security and infrastructure. Moreover, secondary market actors have historically opposed the limited, controlled pricing increases for .com domain names using front organizations to influence policy makers. It is questionable whether policy makers are fully aware of the financial interests behind these efforts and the distortions they create.
Conclusion
Today, every enterprise, organization, and person relies on DNS to be safe, secure, and reliable. The DNS has proven to be a tremendously flexible and resilient internet technology. Over 40 years, it has grown through light-touch regulation into world class, industrial grade infrastructure—notably with limited government control—a trajectory confirmed by both political parties. While ICANN has policy challenges including those posed by the secondary market, the vision articulated by the 1998 White Paper has been a bipartisan success.
Author’s Disclosure: The author reports no conflicts of interest in writing this article. Please see here for our disclosure policy.
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