Why ISOC sold .ORG to VCs

https://easydns.com/blog/2019/12/06/its-called-f-you-money-for-a-reason-why-isoc-sold-org-to-vcs/

by StuntPope • 7 years ago

237 86 7 years ago

tekacs• 7 years ago

Since the site seems to be struggling: http://archive.is/0aOfz

spullara2• 7 years ago

Ethos Capital, as per their website and business model, is a private equity firm, not a VC firm. Very different things. Hard to take people seriously when they don’t know the difference.

jessaustin4• 7 years ago

Are you here to argue that PE people are somehow more ethical or better at business than VC people? That's going to be a laugh line for anyone who has ever been exposed to them.

spullara2• 7 years ago

Nope. Just trying to help people distinguish the two businesses. PE companies acquire private companies and run them. VC companies invest in founders and they run the company.

zarriak• 7 years ago

Calling it a VC firm is a much nicer thing to say than PE.

herodotus2• 7 years ago

If I understand the article correctly, ISOC took a reasonable decision based on (a) they are not supposed to be a registry operator; and (b) "a bird in the hand is worth two in the bush". That is, the $75m/annum profit from .org may not last for long, but the $1.1135 billion will be a great endowment fund.

The flip side is the implication (and I hope I read this correctly) is that a bunch of smart but possibly ethically challenged individuals infiltrated ISOC (a non profit) in order to create investment opportunities for themselves down the road.

slantedview• 7 years ago

Both can be true:

- That ISOC was reasonably justified in taking a lump sum rather than operating a registry.

- That the sale of the registry was corrupt and not in the public's best interest.

Rebelgecko• 7 years ago

Considering that the price of a .org will almost certainly be going up soon, I think that $75m/year will soon be $82million. I don't think it's sustainable to pull that amount of money every year from a 1.1 billion endowment.

herodotus2• 7 years ago

From the article (not my view): "And yet, those of us in the technology business understand viscerally that nothing lasts forever. What seems like a steady cash cow today may be obsolete sooner than anybody suspects. Personally I think even DNS will be disrupted in the future by some kind of distributed ledger technology beyond even blockchain, like hyperledger or hashgraph or some post-singularity quantum foam."

wongarsu• 7 years ago

Back-of-the-envelope I would expect to pull a steady 50 million/year out of a 1.1B endowment. That's certainly less than 75 or 82 million. I guess the endowment gives you more security and flexibility.

lallysingh2• 7 years ago

It's easier for a PE firm to raise the price over ISOC, too.

cameldrv• 7 years ago

If "they are not supposed to be a registry operator", why did they bid on the contract?

GordonS• 7 years ago

That is, the $75m/annum profit from .org may not last for long

Why wouldn't it? .org is one of the most well-known TLDs, and I see know reason why there would be an exodus away from it (well, apart from this sale itself!) - it's as sure a thing as there can be.

BinaryIdiot2• 7 years ago

I'm convinced that TLDs will slowly fade away. They're not very intuitive, especially if they're not a .com and the user is not very technical. I know Google would love for search to basically replace the need for them but I doubt that'll entirely happen. But I don't think they are long for this world.

sb8244• 7 years ago

The article argues that nothing is forever. There may be technology changes in the future that make DNS providers obsolete. So that money is less guaranteed over time than an endowment.

jacquesm• 7 years ago

No, that's not why they did it. They did it because they thought they could get away with it. But the charter of ISOC never was to make a mint of the .org TLD by selling it, and as far as I'm concerned this deal will be reversed at some point or we should simply set up an alternative root and a pox on both their houses.

e2le5• 7 years ago

OpenNIC would be that alternative root although often are they at odds with ICANN creating new tlds that conflict with their own. It seems like the DNS system in it's current form is broken and I'm not convinced an alternative root is the solution but perhaps part of one.

troquerre2• 7 years ago

Handshake.org is trying to create an alternative root that is better (along the dimensions of security and governance) than the current system. I can see it gaining adoption especially in light of recent events.

duskwuff3• 7 years ago

As I've said previously in other discussions, OpenNIC is, quite simply, in no position to replace ICANN. They're a tiny amateur operation with no organized governance, no formal registries, and very little infrastructure. (Many of their "root" resolvers are hosted on small VPS providers like Linode and DigitalOcean.)

stefan_• 7 years ago

The "devils advocate" first part misses that ISOC was already not operating .org, all of that was outsourced to Afilias, PIR was essentially a vehicle to pay some more graft to another set of musical chairs people that travel freely between ISOC, ICANN, PIR and Afilias.

paul7986• 7 years ago

TLDR: Rich get richer

ICANN owner who also owns Donuts, Inc (they own all the new TLDs .donuts, etc) buys .org from former owner (ISOC) who is also now much richer.

simias• 7 years ago

Honestly if that analysis is correct then on one hand I concede that it does make the decision appear less like pure bribery than I initially thought but on the other it's even worse for .org users.

Maybe I'm wrong to consider this a zero-sum game, but surely if ISOC made a good deal selling .org that means that Ethos Capital got the short end of the stick. That means that eventually they'll realize that they can't make as much money out of it as they had hoped. And then what will they do? Agree to continue operating the TLD at a loss? ell oh ell. It's more likely that they'll either attempt to extort more money from people who can't actually afford to migrate or "strip" the TLD for parts somehow.

On the other hand if ISOC bet on the wrong horse they've lost the Goose that Laid Golden Eggs, and they'll be in a worse position to help the open web. From the point of view of people believing in the ethos (ha!) of what .org is supposed to stand for, it seems like a lose/lose situation.

I still don't really think it made sense to greenlight that deal for purely monetary reasons, I think the people on that board lost track of their objective, which I think is what the author acknowledges in part in his conclusion.

manwe150• 7 years ago

Maybe I'm wrong to consider this a zero-sum game, but surely if ISOC made a good deal selling .org that means that Ethos Capital got the short end of the stick.

The field of economics, and pretty much all monetary transactions, are about demonstrating that sales (and thus wealth) are not a zero-sum game. Whether that’s true for any particular case, such as this one, can be debated forever still, just often not based simply on that assumption.

TeMPOraL• 7 years ago

The field of economics, and pretty much all monetary transactions, are about demonstrating that sales (and thus wealth) are not a zero-sum game.

Yes, a good chunk of them are really negative-sum games, once you include all secondary stakeholders in the calculations.

commandersaki2• 7 years ago

If you were on the savedotorg call by NTEN it honestly felt like that anyone supportive of the sale were pretty much bought & paid for.

Link: https://vimeo.com/377655043

The only voice of reason was at the tail end of the video where someone voiced: it is all very good and well to talk about assurance and promises and future guarantees, the problem is we have a conflicting timeline and effectively what we've been presented with is we're being asked to accept the deal on the basis that our concerns will be dealt with, and I don't think it is reasonable and would like to ask that Ethos and ISOC and so on consider simply delaying it long enough to put in place the binding commitments they are clearly willing to undertake before we finalise the deal rather than the other way around.

I raised a similar question but rather asked why they couldn't delay the deal to allow for community and public scrutiny and why everything has to be rushed. I got a response from someone saying the deal is dead in the water if it isn't done by April 1st next year.

mlyle2• 7 years ago

I think the deal isn't good for the internet and ICANN shouldn't allow it to proceed. But...

Maybe I'm wrong to consider this a zero-sum game, but surely if ISOC made a good deal selling .org that means that Ethos Capital got the short end of the stick

Lots of transactions like this aren't zero sum. ISOC gets everything they want to continue their mission forever and escapes a major source of uncertainty/risk. Ethos Capital gets an asset for less than its expected value and tries to leverage the risk to make it worth more.

MaxBarraclough• 7 years ago

eventually they'll realize that they can't make as much money out of it as they had hoped. And then what will they do? Agree to continue operating the TLD at a loss? ell oh ell. It's more likely that they'll either attempt to extort more money from people who can't actually afford to migrate or "strip" the TLD for parts somehow.

If they have the option of 'stripping' the TLD for cash, do you think they'd ever decline to do this?

ajkjk• 7 years ago

I would love for the people who did this to lose a ton of money on it.

e2le5• 7 years ago

How often do people notice domains? I've seen many users use Google or similar to find their desired site such as facebook without typing the URL. If it were only an IPv6 address, would people even care?

bad_user2• 7 years ago

I notice domains. And I don't trust domains that don't end in .com, .org or a recognizable national TLD.

Besides, the point is irrelevant.

When you build an online brand, you build it by having links distributed on the web, to get the Google juice going, on social media, on forums, etc. Even in business emails you add your domain there for easy reference later.

Then if you have to change the domain, all of those links will be broken.

As they say... Cool URIs don't change ;-)

https://www.w3.org/Provider/Style/URI.html

e2le5• 7 years ago

Perhaps it was incorrect of me to claim that users don't notice domains. I suppose the issue I was getting at was users don't appear to memorize the domain and instead use Google or similar for finding the site they are looking for.

jl6• 7 years ago

The sale of .org brings us one step closer to the web apocalypse where that URI is forced to change.

mavhc• 7 years ago

But we created a system where every x years you're forced to pay whatever the owner of the tld says you must, basically you're being held hostage and can never be freed.

rocqua• 7 years ago

Domains matter in email addresses.

Domains matter in links.

Domains matter because they name a thing. This allows us to create an expectation. This is also what certificates are based around. They certify that "The server you are talking to really has this name". This is important because names have meanings to people.

rnhmjoj• 7 years ago

Can someone explain to me what actually operating a registry means? I have always assumed that it basically consists of maintaining a database replicated across a few authoritative servers and handling WOIS information but this can't possibly warrant $25M of yeary expenses.

jessaustin4• 7 years ago

Administration can consume any amount of money, so long as it isn't getting in the way of the money coming in the door. Just look at universities in USA. They're not doing anything now they weren't doing in 1980, yet tuition inflation was 7% over for most of the period since then. Where did the money go? They hired more assistant administrators, to justify higher salaries for the top administrators. Also the perks are pretty nice.

einpoklum• 7 years ago

I doubt even your numeric figure is exact; source?

Anyway, supposing that it is - how do you know that's where the money went? And - how do you know the money went mostly to the same place in most universities?

This sounds like a baseless generalization.

PS - I'm not from the US.

glofish• 7 years ago

I have come to believe that the claim that administration increased dramatically is a myth.

Take a university that provides decent statistics:

http://irp.dpb.cornell.edu/university-factbook/employees

click workflow trends. The workforce composition is virtually unchanged over the past 20 years.

toast0• 7 years ago

The technical pieces are running the authoritative NS servers for the tld (lots of sites, anycast, etc), running the whois servers (not so hard anymore, now that post GDPR, they don't return much), and running the registrar facing apis that interface with the live database.

Administratively, I'm sure there's a rather enormous number of customer service requests to deal with from registrars and law enforcement/court orders. Also accounting related to the registrars.

If they were running it themselves, $25M/year seems within reason to me. Affilias can probably do it for less, because they're running a bunch of tlds, so the capital costs of operating the registry are amortizable across all of them. However, PIR could have (and should have) bid that out occasionally, so I'd guess there isn't an obscene margin here.

wmf• 7 years ago

One thing I noticed in PIR's annual report is abuse. They take down thousands of domains per year due to court orders and all of those need to be reviewed by lawyers. That could be millions of dollars a year.

You also need lots of lawyers just to keep up with what's going on in ICANN (which looks a lot like a full employment scheme for lawyers, lobbyists, and policy wonks). Then they spent over $1M on marketing. It adds up.

kevin_thibedeau• 7 years ago

If they've been rolling $75M in profit for the past 15 years, why couldn't they have built their own endowment from that? Where did that money go?

liability• 7 years ago

It went up their noses.

pge• 7 years ago

FWIW, the economics of .org are easy to look up in the PIR 990, as of 2017. The 990 shows ~90m in revenue with ~75m in profit - which was split 40m to ISOC and 35m to ISOC foundation (a subsidiary of ISOC).

emn133• 7 years ago

This analysis is highly suspect. It's a great sales pitch sure - but it's false.

So first of all: the overhead for running the registry is unreasonably high. You'd expect there to be considerable room for reducing costs, so the 75M$ per year is artificially low; revenue is around 100M.

Secondly, that revenue is artificially (but reasonably!) low because the price is capped. But guess what? That price cap was just removed; so the actual price may rise considerably; certainly it is not reasonable to assume that under the terms specifically changed for the deal the revenue will stay at just 100M a year.

Thirdly, the risk of .org evaporating is pretty absurd. The cost of a domain is (and should be) pretty trivial compared to the value most people can extract from it; the fact that this is a for-profit business at all is highly questionable - it's as if your street address were owned by a third party, and you can't have anything shipped their at your cost without the acquiescence of a third party. I'm not sure anybody is seriously buying this story of .org becoming irrelevant to the point that people won't pay 10$ (+margin above wholesale) for a domain. But even if you're unsure - the very fact that a private party snapped this up is evidence to the contrary.

Fourthly, it's entirely unreasonable for ISOC to earn even a penny off of this deal. What exactly did they do to earn the right to profit of other people's valuable contributions? Right, nothing - they were just there are the right time. There's no reason they should even be an exclusive party at all, let alone one that operates with a profit motive.

Fifthly, the people involved, and the timing, stinks. If this were all above-board, it should have been public and not have been bought out by insiders almost immediately after those same people are involved in enabling the deal. It's not at all transparent what those insiders were doing, but if it's not plain old highway robbery again, perhaps some transparency would have helped.

Frankly, the whole cartel (DNS, not merely .org) should simply be dumped; there's just no reason this is private to start with, and most certainly not run with a profit motive; that's just asking to reasons to distort the far more important markets with rent-seeking behavior here. If chrome+safari were to sponsor an alternative to DNS, I'm sure the rest of the browsers would follow; e.g. by using a different protocol (not http(s)) to disambiguate, and by forking the existing (as of some fixed date) DNS domains. Good riddance to those leaches.

commandersaki2• 7 years ago

Pretty sure PIR outsources their DNS management to afilas or something, and they even negotiated a cut of the fees by 50% in a recent bid.

ulkesh• 7 years ago

The real loser in this deal is us. Not only is trust lost (or already has been from other past DNS goings-on), but we, the registrants, end up paying more, financially and otherwise.

Generally speaking, the underpinnings of the Internet (protocols, certain levels of infrastructure) should always and forever be public, not-for-profit, "open-source", and not patentable, in order to protect the integrity of the system. I'm no expert, so maybe a lot of it is this way already, but DNS seems to be a bastion of for-profit greed.

All of this walks hand in hand with Net Neutrality, in my view -- governance to protect what is a fundamental human right, the free (as in freedom, and to some degree, as in beer) flow of information. And in an ideal world, objectively factual information.

troquerre2• 7 years ago

Agreed. IMO no organization should be able to collect rent on what’s basically public infrastructure at this point.

colorincorrect• 7 years ago

dumb question, but if VCs decided that the venture is profitable under a certain model (aka: no limits pricing), then why doesn't the domain registry just do so themselves?

IshKebab• 7 years ago

But hey: if somebody offers you 11X revenues. You’re going to take it. I know I would.

Not if it's only 15x profits!! And those profits are more or less guaranteed.

nikolay2• 7 years ago

I haven't yet heard the point that if .org prices go up too much, nonprofits could abandon it and switch to .ngo, which is better anyway. Many will keep their .orgs even if prices go up 10-fold or more, but what percentage is that from all .orgs?

walrus01• 7 years ago

Why should organizations be forced to change their business cards, website address, all email addresses, letterhead, signage and such because the new venture capitalist vulture owners of .org are a pack of shady rent seekers?

To quote Michael Bolton from Office Space:

Samir: Hmm… well why don't you just go by Mike instead of Michael?

Michael: No way. Why should I change? He's the one who sucks.

hjkhtroeiupwq• 7 years ago

For once, .ngo is more credible. From wikipedia:

Unlike the more prevalent .org domain, which is also managed by the Public Interest Registry, .ngo will require validation of the registrant's non-governmental status

nikolay2• 7 years ago

We've witnessed many companies abandon .ly and .io with time. Plus, .org means "organization". Commercial entities are also organizations, so, not sure why it was chosen for nonprofits. NPO and NGO are way more meaningful abbreviations anyway.

hosh• 7 years ago

Isn't the ISOC the same group that initially sponsored the Lets Encrypt program?

joveian• 7 years ago

If the mission of the Internet Societies is to connect people to the Internet, one question is why they want to connect people to the Internet. The .org sale communicates that the reason is to extract as much money from them as possible. What they really have a problem with is the people extracting money paying to develop standards, so they strive to extract as much free labor as possible from people as their money is extracted.

samstave• 7 years ago

TLDs are interesting, intriguing and hard.

TLDs serve as a classification structure for various aspects of human interest, knowledge, creativity and commerce...

Where should the canonical for TLDs come from?

Should a particular interest have its own TLD, regardless of topic - how to measure when to provide a TLD -- is it scale of interested people? is it ideologically based?

As such, should there be a .dem and a .gop? if so, then should them be a .socialist? .nazi? .zionist? etc?

Some of the current TLDs are silly, to me, but what is the barrier to entry and what is the criteria for approval?

And most importantly, WHO APPROVES? Like literally - the names of the people who actually make TLDs happen?

gambler• 7 years ago

I don't want to be aware of relationships between zillion different companies and organization just to be able to understand how much it will cost to map a string to a number and what BS hoops I will have to jump through to keep that mapping "operational". It's totally absurd.

DNS is a rotten system. It's rotten technically, politically and administratively. It has to be replaced by something distributed. Step #1 is to collectively admit this.

lllr_finger• 7 years ago

If you're a .org owner for personal use and aren't happy with this change - what are the feasible alternatives that others have settled on?

Animats• 7 years ago

The whole concept that the registry owner has an ownership interest in domains is just wrong. Registrars have gotten uppity. Here are the current terms from Network Solutions:

"Web.com expressly reserves the right to deny, cancel, terminate, suspend, lock, or modify access to (or control of) any goods or services (including the right to cancel or transfer any domain name registration) for any reason (as determined by Web.com in its sole and absolute discretion."[1]

You don't have to put up with that overreach. Compare Gandi:

"You are the owner of the domain name, i.e. the individual or legal person who is declared as the owner as soon as the domain name is registered and visible as such in the "Whois" domain name directory"[2]

[1] https://assets.web.com/legal/English/TermsOfUse.pdf [2] https://contract.gandi.net/v5/contracts/18056/DomainNameCond...

jtl999• 7 years ago

Gandi has had a "moral clause" in their ToS in the past. Don't know if it's ever been enforced or not.

ksec• 7 years ago

Adding an additional pieces of Information to the mix.

Donuts, Inc, was bidding for .Web in 2016, and lost to Nu Dot. Nu Dot then sold the name to Verizon. Somehow this was unfair and they decide to sue them. ( What ? )

Had Donut got .Web, they would have floated the company and make a return of Investment. Since they lost, they figure out their next step / solution was .ORG. And the timeline in 2017 and 2018 seems to confirm that.

rdlecler1• 7 years ago

It would be nice if the author knew the difference between VC and PE.

Why ISOC sold .ORG to VCs

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