In our Domain Name Industry Report for April 2015 Afnic studied the major trends in the domain name market in 2014.
It seemed interesting to try to extend these trends for "Legacy gTLDs" or traditional generic TLDs such as .biz, .com, .info etc., and ccTLDs corresponding to territories such as the .de (Germany), .fr (France), and .uk (United Kingdom)...
For the purposes of this study, Afnic relied on ICANN reports for Legacy gTLDs and ccTLDs, and on the statistics of members of the Council of European National Top Level Domain Registries (CENTR) with more than 50,000 domain names in stock. Since the new TLDs introduced to the market in 2014 are still something of a "new development" Afnic has not included them in this edition of the Afnic Domain Name Industry Report, but it is quite obvious that they will have to be included in the future.
Afnic considered two sets of annual data for each TLD segment: firstly, the sum of creations, and on the other the sum of deletions. Afnic then extended the trend until 2020 using a calculation function.
Figure 1 shows that for the two segments of TLDs, the pace of creation is less dynamic than that for deletions. This indicates that all other things being equal, the level of deletions should reach and exceed the level of creations in H1 2017 for the two segments of TLDs. Naturally these are averages: some TLDs were already in this situation in 2014 and others may only be affected by it after 2017.
Fig. 1. Projections of annual creations and deletions per TLD segment (excluding nTLDs)
The situation is of concern for market players as it means that overall growth, which has already posted a marked slowdown since 2012, will be close to zero in 2016 and probably negative in 2017, reflecting a decrease in the number of domain names filed (excluding nTLDs).
Market consolidation: a surprise?
The coming consolidation cannot be considered a surprise. In a period of high growth such as that experienced by the domain name market up until 2012, while the Retention Rates (or Maintenance Rate) remain constant, the volume of deletions in principle increases in step with the stock, offset by one year. For this reason, what we are discussing here is only the visual translation of a combination of the "mechanical" phenomenon with the overall slowdown in the momentum of domain name creations in the TLDs concerned.
The average Retention Rate for Legacy TLDs was stable at 76.4% in 2014, as it was in 2013. The problem facing Legacy TLDs, therefore, is caused less by the abnormal growth in deletions, than by the downturn of the momentum of creations. If we measure the ratio between the number of creations and the stock at the end of the period, the Create Rate increased from 26.3% to 25.4% in 2014, and has been continuously declining since its peak of 30.4% in 2010.
For ccTLDs, the average Retention Rate (or Maintenance Rate) was 82.8% in 2014 against 81.4% in 2013, indicating a more controlled trend of deletions than for Legacy TLDs. The Create Rate on the other hand dropped from 22.3% to 19.0%, reflecting the same problem in creations as that experienced by Legacy TLDs.
An acceleration of the phenomenon before the introduction of nTLDs
The change in the ratio of deletions / creations shown in Figure 2 demonstrates that the degradation of the Deletions / Creations ratio can be observed from 2012, two years before the introduction of nTLDs onto the market. If these "newcomers" may inevitably be the cause of "disposals" when domain names are created or renewed, henceforth they must only be considered as a factor liable to accentuate a trend that was already active when they first appeared.
Fig. 2. Change in the Deletion / Creation ratio per TLD segment (excluding nTLDs)
Uncertainties and intangibles
The projections shown are on the basis of "all other things being equal". Many factors may intervene by 2017 that influence changes in creations as well as deletions. The impact of nTLDs is probably the factor most present in people's minds, but other issues should be recalled such as the health of the global economy, the development of uses promoting domain names or limiting their scope and the strategies of the major players (search engines, etc.), all of which may influence the domain name market.
Consolidation is neither inevitable, nor a sign of ill health
The 2017 deadline is not a fate carved in stone. It can be postponed, or brought closer, by the actions of market participants as well as by exogenous events. But it should probably not be considered a sign of the market’s poor health. It is logical and no doubt fairly healthy for a period of explosion like that of the decade 2004 - 2014 to be followed by a slower phase during which the domain names filed without any real utility are abandoned by their holders before being taken up by others.
All in all, it is certainly better to be a medium-sized TLD, but whose domain names are frequently used – ensuring a high renewal rate in the future – than a TLD that has focused its development on a volume strategy, but which now has to face the volatility inherent to that kind of strategy. It is those TLDs that have most to fear from the increased competition and consolidation that for some of them has already begun.