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

donutsPaul 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.

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About Konstantinos Zournas

Konstantinos studied Computer Engineering and Computer Science in London and lives in Athens, Greece. He works on domain names, websites and software development. Has been online since 1995 & domaining since 2002.

12 comments

  1. This is not an increase in fees.
    This is expected renewal rate of all registered domains when they are up for renewal on year 1.

    • Hmm, ya, i am not buying it at all. I think it will be blood bath for donuts, considering they do premiums and very agressive reserves, talking about 80% ?!?! is ultra aggressive. Considering most of their premium names are 100s-1000ths of $ and compering to traditional gtlds that are 10-20$ a year?! i think he just trying to create sense of safety for people who invested in donuts.

      • Premium and reserved domains is one problem that Paul doesn’t mention.
        He says that new gtlds have a few thousand domains that are the best and will be renewed anyway.
        But what happens if these are not registered? I bet this 80% he predicts will take a hit just from that fact.

      • I am glad you mentioned that, because I read nothing regarding “Premium” domain renewals…Many people predicted “Premium” names will see a significant increase in renewal fees over time. This is a definite cause of concern for the Domainers mentioned in the article as “fire-starters”……..I hope this is not the case and this issue is put to rest at some point, without increase, so domainers are not burned by fire……

  2. These guys can’t predict anything right, they shouldn’t start again now. There are a lot of guys that went into this with an all in attitude, usually is the case, they are willing to go down with the ship.

    What we saw from previous releases such a mobi biz name etc.. It takes a few years usually about 3-4 for people to completely give up, and drop them. The renewals used to be about $25, then stepped up to $79, then $150, then $250, then $500+, now they run about $55,000 if you are lucky on the quality names. Donuts might be asking for your liver, or heart on the 2015 releases, not sure yet.

    Time for a reality check, sure domain names are great marketing tools, but even they have a level of elasticity where they are not worth X amount. We have reached that point, in about 2 years there will be another flood, with more of the same. Either the retailer educates the consumer, or simply gets sick of registering every domain for brand protection.

    GTLD’s have cute uses in marketing, but to anchor a site .com is still King. They will never concede this because if they do it is lights out. They will keep telling you everything you want to hear. I am sure many of these guys have exit plans to get a revenue stream, then look for exits before year 4 hits, and renewals start dropping.

    • Haha. I know someone going down with the ship! 🙂

      All contested auctioned New gTLDs will have extremely high prices. How else can they get back the millions spend?
      I have no idea who is going to buy them. Well maybe I do know but renewals are a different thing.

  3. Glad to see a registry agree with what I’ve long said about domainers being their volunteer sales force! Kudos to Mr. Stahura for that.

    But the Donuts CEO’s assessment of why domainers register .COM domains in 2014 is way off. As somebody who hand-registers domains regularly, I can say that — for me personally — traffic from parking never even crosses my mind. Most domainers are thinking about branding, lead gen, development potential, and resale prospects. The guy who follows buzz words in the news hoping to capitalize on traffic spikes rarely gets anywhere.

    Statistically speaking, very few domains that a person can hand-register today will earn 100% or more of their renewal fee from parked-page PPC. Domainers know that, and their motivation for registering domains reflects the broad reality. I’m guessing Mr. Stahura is remembering what the situation was like many years ago when parking earnings were much higher and temporary domain tasting was commonplace. The situation for domainers today is utterly different.

    The rationale for registering domains is no different for a .COM versus an nTLD. Domainers register both for basically the same reasons. I didn’t buy Herbal.beer for “semantic value” and HerbalBeer.com (in spite of having zero “semantic value”) for parking revenue. There’s no such distinction.

    What if we take Mr. Stahura at his word? Isn’t he implying that .COM domains get more traffic than nTLD domains? I don’t think that’s necessarily true. But it’s a very weird argument for the CEO of Donuts to be furthering!

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