Nominet has announced that it is to increase its prices for UK domain names.
The announcement states in essence that prices will rise from a minimum of GBP 2.50 per year per domain (i.e. GBP 5.00 for two years – the same per annum for longer periods) to a minimum of GPB 3.75 per year per domain, which is a 50% price rise (assuming one was previously renewing each two years). Nominet note that the price hasn’t changed since 1999, so this is equivalent by my calculation to a (compound) 6% per year price rise. The cost increase is then potentially reduced by new co-marketing programmes. Note that the one year registration price was already GPB 3.50 per year, but that’s a relatively new introduction; if you were renewing domains this way, the price increase is smaller.
I’ve been asked what I think about this, and specifically I’ve been asked to sign this petition, which (as far as I can tell) is calling for an EGM of the company to vote on the price changes and some form of consultation. I’m against the former, but in favour in principle of the latter (for the reasons set out below), but as such I won’t be signing the petition.
Those hardest hit by the price rise are those maintaining large portfolios of domain names where the domain names fees are a high percentage of their cost base. Most ‘normal’ domain name registrants won’t give two hoots if the price of their domain name increases by GPB 1.25 a year, or even five times that. But those whose business relies on keeping these portfolios in order to speculatively sell a fraction of them, or to attract traffic (and thus ad revenue), are going to be affected significantly. Let’s call this group of people “domainers” (although some don’t like that title). The EGM petition appears to have been started by domainers, and signed by many domainers. In many quarters of the industry, domainers are not a popular group. My personal view is that it’s a legitimate business model (if not one I want to be involved in) provided IPR is not infringed, no consumers are deliberately confused, no animals hurt during filming etc.; but others have different views.
Nominet’s handling of this issue has been a mess. However, so poor has Nominet’s handling of this issue been that it has succeeded in getting several people to sign this petition who normally would have nothing to do with domainers.
Here’s what I think and why (skip to the end for a summary):
- Prima facie, Nominet should have the right (somehow) to change its prices. It’s not reasonable to expect a supplier to maintain the same prices ad infinitum. The question is how.
- Those who construct business models which rely on a single supplier for a huge percentage of their cost base, where that supplier has the freedom to change its prices, need to educate themselves on business risk. In this instance, they can renew at the old price for up to ten years (until the new prices come into effect), which will clearly have a cash cost. However, this was a risk that should have been evident from the point Nominet began (certainly since 1999). I’m afraid I have no special sympathy here.
- All of the justification for this price rise appears to have looked at supply-side issues, i.e. how much it costs Nominet to register a domain. Let’s briefly look into that. As far as I can tell (and as I raised at their last AGM) their average cost and marginal cost per domain appear both to have risen reasonable substantially since I was on the board many years ago. Whilst I accept that there must have been some inflation pressure (e.g. in wages), and the need to maintain an infrastructure handling more load, technology prices have fallen and processes should have been automated. The latter point is why the average wage at Nominet should have (and has) risen; because it should be employing fewer (relatively highly paid) people designing automated systems, not an army of (relatively low paid) administrators doing things manually.
- However, despite Nominet’s emphasis on the above, I suspect the real issue is that buried within the accounts are the costs of doing lots of things that do not directly involve .uk registrations. Nominet is attempting to diversify. This might be good, or it might be bad. But Nominet should have been clear as to how much of the increased cost is going towards expenditure in servicing .uk domain names, and how much for other purposes such as increased costs elsewhere (e.g. diversification), or building up reserves (increased revenue without increased costs). Nominet hasn’t published any figures, so we don’t know.
- The unexamined side of the equation is demand-side. As far as I can tell, Verisign’s wholesale price is $7.85 per annum (GBP 5.85 per year), and that’s for a thin registry (where the registry provides far fewer services, and the registrar far more). Clearly on this basis Nominet’s prices are and will remain well below market level. It would thus seem that Nominet is providing a fuller product (perhaps a better product) at a far keener price than its main competitor, despite have fewer economies of scale. And it is a product generally loved in its target market (the UK). Why on earth Nominet didn’t use this as the centre-point of its argument, I don’t know.
- I don’t think as a general principle price changes should have to be put to a vote of members. This is how things were (for a while) whilst Clause 19A (the ‘Hutty Clause’) was incorporated into Nominet’s articles. I was and remain in favour of its removal. Having members vote on every price change encourages the perception that Nominet is some form of cartel, and fetters the discretion of the directors. It also makes changing prices an unnecessarily difficult business, meaning it is hard for Nominet to respond to changes in the market place (arguably this can’t have been too much of a worry given the number of years without a price change since it was removed). But Nominet is a commercial organisation, not a golf club, and therefore its pricing should be set by its management.
- However, there is the question of how the management should set the prices, i.e. what objective are they attempting to achieve? Verisign is a public company, and its directors set prices to maximise profit in the long term. Nominet cannot distribute its profit to shareholders, so how should it set its prices? Should it too maximise profits? For many years the principles were long term cashflow neutrality, long term P&L neutrality, and maintaining a sufficient reserve for legal challenges and market downturn; these were called ‘the Bligh principles’, because (cough) I came up with them, and they seem to have survived a long while, for better or for worse. Prices were then meant to be set to accord with these principles. Some would argue the principles are still relevant, some would argue they have problems (I have a foot in both camps). But the point is that there were transparent principles that everyone knew about, and if they didn’t agree on them, well, they didn’t in general have a better suggestion.
- I am of the view that any change to these guiding principles should be carefully and transparently consulted upon; this is not because I’m particularly attached to the principles above, but because deciding which principles drive Nominet’s behaviour is a key matter of governance. Note this is a different matter to a change in prices (following the guiding principles); I’m happy to leave that to management provided they explain how the change better satisfies the guiding principles. If Nominet don’t publish these principles, or an explanation of how a price change better satisfies them, there is no way members can hold them to account. And whilst I recognise members can occasionally be a pain, there is no one else who can hold Nominet’s management to account. Quite apart from that, transparency is in itself a good thing. As is avoiding the appearance of something that might be problematic to the competition authorities.
- What appears to have happened now is that there are no guiding principles, or at least none that we know about. The suggestion that prices are set according to cost recovery principles (never particularly felicitously worded) is simultaneously being removed from the terms and conditions. Is the principle now profit maximisation? If so, please come out and say it. Is the principle now ‘whatever the management feel like’? That is not in my view acceptable. But the principles seem to have disappeared. Prices appear to be being set on the basis that ‘Nominet think they should be higher’. If this is not in fact the case, then Nominet has a communications problem.
- Lastly, there seems to have been some bizarre criticism of the co-marketing programmes proposed. The objection is that those who register the most domains get the most co-marketing, and that this is unfair. It seems to be me self-evident that those who register the most domains should get the most co-marketing funds, as they are meant to be put towards registering domains. Rather, my problem with them is that the co-marketing funds for the larger registrars are too small. How do I work that out? From the site calling for an EGM: ‘Registrars with over 250,000 domains under management can now claim up to £80,000 per registrar. Smaller registrars with under 5000 domains can only claim £2000.’ This completely misses the point. For an organisation with 250,001 domains, Nominet’s providing GBP 0.32 per domain back, reducing the price for that year to GBP 3.43. For an organisation with 4,999 domain names, Nominet’s providing GBP 1.25 per domain back, reducing the price for that year down to GBP 1.25. Or to put it another way, if you have 4,999 domain names as a registrar, and claim your full co-marketing allowance, you will be far better off than before (even if the number of domain names stays the same); if you have 250,000 domain names, you will be worse off than before, unless you increase the number of domain names you sell quite substantially. Every co-marketing program I’ve seen before scales in the other direction – i.e. the larger you are, the better deal you get per item sold. Rather than a bulk discount, Nominet is applying a bulk penalty! Whilst I am sure it has its reasons for this, I have no idea why smaller registrars are complaining it’s unfair on them. Of course not all registrars may be eligible to apply, but that’s not dependent on the size of the registrar. And the co-marketing is presumably directed at generating new registrations rather than renewals (this is co-marketing, presumably meaning it is dependent on Nominet related marketing spend from the registrar); whilst that may hit those with domain portfolios they are not growing harder, that’s not dependent on size either, and is presumably a desired result (encouraging people to grow the number of domains under management as opposed to merely renew an existing portfolio).
So, back to that petition:
- Yes, Nominet should have (and should now) consult on any change to its pricing principles, and not change the prices until it has done so; but
- No, Nominet need not consult (let alone have a vote) on the price change itself
But I think it unsurprising that people are annoyed.