[ This entry is also on CircleID. ]

One thing that amazed me about the ICANN community is the creativeness in finding new business models. I am not even talking about new technology like Internationalized Domain Names (IDN), the number of business models created from the vanilla DNS (actually just .com) are just mind boggling.

ICANN was formed in 1999 and introduced the concept of registries and registrars model to the DNS business. With that, we witness the rise of register.com, an IPO darling in the dotcom days, in the early 2000s and subsequently overtaken by the ultra-cheap high-volume reseller model of GoDaddy. We also see new registries like .info and .biz and several others that didn’t do so well.

There are also after-market (aka ebay) for domain names like afternic and registry outsourcing, DNS hosting, Dynamic DNS etc.

That’s about what most outsiders know of DNS business models, mostly revolved around the registry-registrar-reseller model. But there are really more and I shall discuss two not-so-well-known but interesting models below.First is what insiders called traffic redirection. Basically, one would register thousands of domain names and then apply google optimizing tricks on them so as to get these domain names higher on google rank for certain keywords (top 10 hits of the google results).

Domain names like dns.com or lawyer.com are ideal because it can generate a lot of hits on its own with little optimization. Or they may scoop up (some called it napping or even stealing) just expired but high-hits domain names.¹

The purpose is to get more traffic – hits or eyeballs – to the site. These portfolios of domain names are aggressively monitored for their hit rates and those that didn’t make it are dropped and others fill in the pool (like nature selection). Because this requires thousands or more domain names, the parties involved would often go through ICANN accreditation to become registrars so as to enjoy US$6/name but also direct access to the .com (Verisign) registry.

Now, eyeballs sound so dotcom’ish and many considered it a doom business model. But surprisingly, they are extremely effective in turning eyeballs into revenue. The easiest is to use google advertisement that generates the highest pay-per-click (PPC) but for larger ones, they do their own rank auctions. To understand rank auction, go to dns.com and notice the recommended links? Well, companies there would bid for the recommendations – the highest would get the first rank and so on.

Crazy business model? Well, tell that to UltSearch (aka Name Corp), a pioneer of this business model, who was sold for US$164M to Marchex (NASDAQ: MCHX) in Dec 04 (see also Marchex press release). At the time of sale, UltSearch have over 100,000 such domain names in their portfolio. In other words, each one is worth (ave) US$1,640 when the initial investment is US$6. Calculating RoI is left as an exercise for the readers.

The second business model is known as Waiting List Service (WLS). Pioneered by snapnames in early 2000, they provide a service that allows you to “secure” domain names that is about to be expired for a non-refundable fee. But no guarantee you’ll get the domain name however.

Things are fine when snapnames was the only player in the market but as other catch on, the first-to-snatch become a who-get-the-most-hit to the registry on name release time. The technique involved spawning multiple connections to the registry and then banging on the Verisign registry constantly, as quickly as possible, which obviously cause a burden on the Verisign registry and slowdown other normal operations. Verisign then restrict the number of connections each registrars can get – they got around by getting multiple ICANN accreditions.²

The debate on WLS started in 2002 and continues till today. And while Verisign and the WLS registrars fought over how to do WLS properly, the business model continue to evolved itself – Read this blog entry on How to Snatch an Expired Domain Name to get a feel how it is like today.

So I placed a backorder through GoDaddy for $18.95 thinking that was all I needed to do. During the week that followed, I learned a lot about the domain expiration process. Two and a half months and $369 later, I am the proud owner of a shiny new domain. A really really good one … Pool.com is the Scott Boras of domain name grabbing — the brilliant, yet conniving agent that players (domains) love and team owners (prospective domain buyers) hate. Pool plays off the power of the unknown in such a fiendishly clever way that you don’t know whether to hug them or kill them. Here’s how it works:

Obviously, the process is neither open nor transparent. So whom can a consumer like Mike turn to?

We seldom hear ICANN board talk about these in open discussion. ICANN board members (and staffs) are smart people so it is hard to believe they don’t know what’s going on. Thus, the more likely explanation is that they choose to ignore them instead.

But ignoring these business models wouldn’t make them go away. Ignoring them does not help consumers like Mike Davidson who are made to go through the not-so-transparent process to get domain names they want.

Above all, been stubbornly focus only on registry-registrar and continue to exclaim how DNS was designed to be, and how business shall be conducted, would not stop innovators from creating new business models, now or future.

¹ A variation of the business model would ask domain names owners to park their unused domain names with them.

² Actually I briefly mentioned these in my blog before.