The Future of Nominet (AGM report)

Nominet, the not-for-profit company that manages most of the .uk domain space, has been worrying me of late. It replaced a naming committee in 1996 as the volunteers that run it started to become overwhelmed by the workload, and was set up be self-sustaining by charging for domain name registrations. Based in Oxford, it now employs 140 people.

They’re worried. Anyone who wants a domain name pretty much has it – or it’s being sat on by a cybersquatter. Either way, Nominet’s getting the residual income from having registered it in the first place, and this is now fixed. Or worse, as the enthusiasm for registering names in the hope of making money from it later wanes, their income may fall as people unload their speculative “investments”.

As well as Nominet employees no longer being kept in the manner to which they’re accustomed, this presents a problem for those dealing in domain names commercially. Call them cybersquatters, domainers or parasites as you wish – domain dealers are making money out of buying and selling domain names. Their portfolio losing value as the bubble bursts could be problematic for them. With new top-level-domains now available, and the importance of a particular domain name falling, this is inevitable.

So, unsurprisingly, Nominet has been talking about expanding in other ways. At today’s AGM, new CEO Russel Harworth, was taking about expanding in to adjacent markets. What could this mean? As well as providing domain names, the obvious answer is hosting or other Internet services. Nominet members are going to have a problem with that: Nominet has a monopoly position issuing domain names, a big pile of cash and no way would it be good for anyone if they started competing with UK Internet businesses.

I pushed Russell Haworth on his choice of words. “I have no intention of competing with the channel”, was the emphatic reply. He explicitly rejected the idea of hosting: “It’s not our core business and never will be. The margins are very tight anyway.” This will be a relief to the hosting companies, who know all about tough margins. He continued “I’d like to see us add value to the channel. For example, we sit on a lot of data. We can aggregate that data. There is an opportunity to look at big data. [and derive value from it]”.

Basically, the plan seems to be to analyse domain registration data and DNS traffic, and use it to target areas such as SMEs with a view to selling them something. Quite what they were selling wasn’t spelled out exactly, but domain name registrations seemed to be the only example.

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It seems that the current thinking is to sell DNS products, which won’t compete with anyone much (apart from anyone selling DNS products). Why anyone should pay for DNS products is beyond me; but if you can’t manage your own DNS I suppose its possible for companies to outsource it. But I really don’t see this replacing the revenue stream, as new domain name registration income stops rising.

Rob Golding from Astutium asked what many of us were thinking – what’s so wrong with the status quo? Why not stick with one revenue stream. Nominet isn’t supposed to be a business and has no need to expand; it’d be okay to contract. Unsurprisingly, Nominet’s view was similar to that of turkeys towards Christmas. “It would be foolish not to look at opportunities to diversify”. Speaking about the saturation of the .uk namespace and future projections, Haworth continued “It’s Darwinian – we’ re not going to sit and watch things fall apart. If we see domains trending downwards, Nominet can add value to adjacent markets.”

This is an interesting situation, especially when you see who controls Nominet. Things are voted on, ultimately, by its members. This is weighted to the number of names they have registered. It’s pretty obvious that the large domain name registration businesses are going to have a far greater say than the majority of small members; those that represent the general Internet industry and general public. The big domain dealers will have millions of votes; a normal small ISP might have a few dozen. To counteract this, Nominet limits the votes of any one member to 3%, and has mechanisms in place to stop the big companies simply joining once and splitting their domain portfolios to get multiple 3% blocks. However, one still suspects that, although there appears to be no evidence that the domain dealers don’t collude in their voting, they’re all going to have the same interests and will naturally vote together – this effectively tending to control Nominet towards policies that support their business model.

Unfortunately there’s no easy way around this. Even if it was one-member-one-vote, large organisations could swamp the membership with their friends. So what keeps Nominet working in the public interest? Ultimately, scrutiny. If it went too far, an outcry could get the Government involved.

It’s also hard to see what Nominet can do in other fields. Their charter requires them to engage only in worthy projects. But according to Haworth, “This doesn’t mean yo can’t be commercial.” However, given that Nominet has a huge, secure revenue stream for investment, it clearly does have a commercial advantage over anyone else who has to raise funding through normal channels. We’ve heard this before – Bill Gates famously said that Microsoft was about making the world a better place. Whether that’s his personal philosophy or not, from a corporate perspective it has a hollow ring.

In the mean time, Nominet is intent on expanding its revenue streams. The supposed block votes of the domain dealers (all those 3%s added together) is going to limit Nominet’s ability to compete with them. 123-Reg is never going to allow Nominet to start hosting web sites and damage their own business. So what next? I, for one, will be keeping a close eye on it. I was very much heartened to see that was the general consensus of those present, including Trustees and the board.

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