Donuts Predicts A Renewal Rate Of Greater Than 80% For Its New gTLDs

Paul Stahura, founder and CEO Donuts Inc., wrote an article on CircleID about the upcoming New gTLDs renewals.

Shahura said that he conservatively predicts an initial renewal rate of greater than 80% for Donuts gTLDs.

Here are some highlights from the article:

In legacy domains like .COM, registrants renew at a rate lower than that of many other gTLDs. But because early registrations in any gTLD, especially now in new gTLDs, are based on the semantic value of the underlying terms, and not merely the traffic the name might generate, the purchase motivation for any buyer is different than those purchasing in .COM.

Accordingly, the first 50,000 or so names in each TLD will have an extremely high semantic value, and thus a high renewal rate, regardless of who the registrant is.

This is what he said about domainers:

Domainers are an unusual market segment. As the “fire-starters” of any registration trend, they not only are hyperaware about TLDs but act as an unpaid sales force by selling domain names to other types of users at a margin above what they paid the registrar for the name. In the first year of any TLD the proportion of domainer registrations is therefore skewed to a higher percentage. But over time, and this is happening steadily already, domainers get good names into the hands of end users.

Why are these domainers registering names in .COM and in new TLDs? To satisfy one or both of two criteria: 1) semantic value, and 2) traffic value.

Domainers register cheap .COM names and park them, hoping to make more per year in PPC traffic than the few dollars they paid to register the name. Will domainers renew a .COM address at the registrar’s $8 renewal price for that second year? Not if the traffic value is less than $8. They won’t even renew for $1 if the traffic degrades below that value.

Now let’s look at why domainers register new names in new TLDs. It’s not because of the traffic, because there is almost none yet. The entire TLD is new, so no residual or legacy links to currently unregistered (but previously registered) names, or any other source, even exist. In fact, according to our own analysis of six of the earlier released Donuts gTLDs (.PHOTOGRAPHY, .EMAIL, .COMPANY, .TIPS, .TODAY, GURU), usage of registrations for PPC declined by an average of 9.36 percent over a four-month period ending November 1. So the reason for domainer interest is the other component of domain name value: the semantic content of the name itself. It’s meaning these domainers are buying, not traffic.

The domainers bought the names because they believe they’ll be able to re-sell the names for a higher value later (the names are only parked because there is nothing else to do with them while waiting for TLD awareness to increase and the names to be resold at a profit). They are speculating. And they are paying 10x (or more) for these new TLD names, compared to .COM names.

Traffic fluctuates over time, but meaning does not.

Unlike the quantity of traffic to .COM names, the meaning of words does not change very fast. “Pizza” means “pizza” all over the world — it meant the same thing last year and it will next year. The meanings of “Fast.PIZZA”, “Chicago.PIZZA”, “Order.PIZZA” do not change, so they hold their value. With increasing awareness of the .PIZZA TLD, or more Google attention for semantically valuable names, semantic value on the Internet increases. This is why domainer registrants will largely renew, because a) to not renew means losing their investment, and more importantly b) they believe the name’s future value (minus the future renewal fee) is greater than its present value.

He concluded by saying:

In March 2015 we’ll see the renewals start on hundreds of thousands of short, descriptive, meaningful domains that were purchased for real money by a wide variety of registrants, and were not purchased for traffic harvesting purposes. The semantic value of these names is not decreasing, and usage of these names and general awareness of the TLD increases steadily every month. Based on the factors discussed here, we conservatively predict an initial renewal rate of greater than 80% for Donuts gTLDs.

I have a lot of comments on this article that I will post tomorrow but one first comment is that the first New gTLDs such as .guru will start expiring in January and not March 2015. Actually, renewals should start being aggressive a lot earlier than this if Donuts wants to get that 80%. Maybe even now. And I feel the renewal rate will be a lot lower than 80% for vanity New gTLDs such as .guru.

Have a look at my latest poll and see what domainers think about New gTLD renewals.