The Domain Name System (DNS), a technology invented in 1985, has been transformed into a critical global infrastructure by U.S. government policies since the 1990s. Although some challenges remain, the loose regulation promoted by both parties has been a great success.
Bipartisan policy success is rarely discussed in an election year because, after all, it is not about party differences. Cooperation runs counter to the ad-sold news stories of political division. And yet, since 1985, the Domain Name System (DNS) has played a vital, yet underappreciated, role in global commerce because it is an invisible layer of critical Internet infrastructure. Yet despite the DNS’s remarkable success under a lightly regulated model, some consumers have suffered unchecked price increases in retail and secondary markets.
DNS is the technical infrastructure that enables the Internet to function efficiently by mapping human-friendly names (domain names like ProMarket.org) to corresponding Internet Protocol (IP) addresses (strings of numbers) that allow Internet users to access resources (websites) on the Internet. Since the late 1990s, the Internet Corporation for Assigned Names and Numbers (ICANN), a California non-profit organization, has been recognized as the central coordinator of DNS by DNS stakeholders, including governments. ICANN coordinates the development of DNS policy through a multi-stakeholder process that has maintained a safe, secure, and resilient DNS.
Besides ICANN, there are two other important organizations in the DNS. The first are registrars, which essentially act as retail stores for domain names, where consumers can purchase domain names for their websites, just like ProMarket did. How it works is that a customer requests a domain name, and the registrar secures it if it’s available and sells the registration to the customer. Registrars are essential to creating and maintaining the marketplace for domain names.
The second type of entity to know about is a registry. A registry is responsible for managing the infrastructure that supports the technical operation of domain names registered in a particular top-level domain (TLD, e.g. .com or .org) that are sold by registrars in the retail market. Registrars are retailers, while registries are wholesale providers of domain names. Registries also provide secure directory (resolution) services to help Internet users find websites. Registries for generic TLDs (compare with country code TLDs such as .uk or .us) are governed by contracts between registry operators and ICANN. Any organization can become a registry operator for a TLD. For example, there are hundreds of generic TLDs operated by companies such as Amazon (.book, .author, .coupon, etc.), Google (.youtube, .app, .dad, etc.), and Microsoft (.azure, .bing, .hotmail, etc.). Privately held Identity Digital operates around 250 generic TLDs, including .apartments, .football and .reviews.
Open access enables a secondary DNS market
I came across DNS by chance. In July 2018, I was a witness at a Senate hearing on the impact of internet regulation. One of the witnesses was a policy director at GoDaddy, the world’s largest domain name registrar. At the hearing, GoDaddy executive James Bladel called for measures to block wholesale price hikes for .com domain names (Verisign is the registry operator for .com domain names). Bladel said GoDaddy’s experience as a retailer shows that small businesses would be hurt if wholesale price hikes were allowed. The .com TLD is the largest and most popular TLD in the world, with over 150 million domain names registered worldwide. Like all generic TLDs, .com is governed by a registry agreement with ICANN, and domain name registrations are sold only by retailers such as GoDaddy. Unlike other TLDs governed by ICANN, the .com TLD is also governed by a contract with the U.S. Department of Commerce. This agreement is the only oversight the US government has over the DNS. Since the 1990s, this oversight has been continually reduced in light of ICANN’s role as the central coordinator of the DNS. A key reason for continued oversight is the price regulation of .com domain names.
The Department of Commerce has permitted limited price increases from time to time, ranging from $6 for a .com domain name in the mid-2000s to about $10 today. While the initial access (or wholesale) price of .com domain names is regulated, other parts of the .com market, including the retail and secondary markets, are not. In some cases, retail price increases are unrelated to wholesale price increases.
For example, within months of Bredel’s 2018 testimony and his assertion that price increases would adversely affect small businesses, GoDaddy increased renewal prices for .com domain names by 20%, without a corresponding increase in wholesale prices. Large and extreme price increases in the secondary market have been ignored by industry commentators. A concern from a consumer protection and policy perspective is that while the initial purchase of .com domain names is governed by open access, a large and growing secondary market remains unregulated and could be exploited by registrars. This is an issue that may be considered by ICANN or other organizations.
According to Dr. William Lahr, an economist at the Massachusetts Institute of Technology and lead author of “The Changing Domain Name Market: Technological, Economic, and Policy Challenges,” the secondary market for .com domain names is estimated to generate $2.1 billion in revenue per year, nearly twice the size of the wholesale market. Without price controls at the wholesale level, the current secondary market likely would not exist. For example, domain name registrar TurnCommerce has amassed millions of .com domain names at wholesale prices while reselling them in its stores at prices well above standard retail prices. In addition to being one of the world’s leading retailers, GoDaddy is also a major player in the secondary market, with hundreds of thousands of .com domain names available for resale, typically at prices well above standard retail prices.
Lehr details significant pricing abuses in the secondary market, noting that the average price of a domain name on the secondary market is $1,660, compared to a retail price of about $10. While such transactions are in the minority, such high-profit reselling practices do not create legitimate economic value and undermine the consumer protections of wholesale price regulation. Secondary market players buy up large quantities of domain names, predicting which ones will be popular in the future, thereby limiting their availability to the public. For example, on the platform NameBright, “pricealert.com” is on sale for $620,095, and “mypayments.com” for $249,095.
Policy implications
Lehr notes that there have been repeated calls for ICANN to take a more active role in Internet governance and to study the economic and policy impacts of rules that allow domain name hoarding and secondary market price gouging. In the meantime, some policy issues have been resolved and new ones have emerged. For example, TLDs are no longer scarce and limited to just .com and .org. Meanwhile, wholesale price regulations aimed at providing consumers with the most popular domain names at low prices have been subverted by secondary market resellers who buy up domain names cheaply and resell them at much higher prices.
In addition to these pricing issues, there is also evidence that some secondary market actors pose security risks to the DNS. Security remains the biggest challenge for the DNS, as it is increasingly abused by sophisticated and dangerous cybercriminals. The European Commission’s detailed report on DNS misuse in 2022 noted that unregulated secondary market actors may intentionally facilitate domain name registrations for malicious purposes. Resellers profit from the DNS, but do not contribute to the costs of maintaining its security and infrastructure. Moreover, secondary market actors have historically used front organizations to influence policymakers to oppose limited and controlled price increases for .com domain names. It is questionable whether policymakers are fully aware of the financial interests behind these efforts and the distortions they create.
Conclusion
Today, every business, organization, and individual relies on DNS to ensure safety, security, and reliability. DNS has proven to be an extremely flexible and resilient Internet technology. Over 40 years, DNS has grown into a world-class, industrial-grade infrastructure with a special emphasis on limited government control. This trajectory has been affirmed by both political parties. ICANN has policy challenges, including those posed by secondary markets, but the vision articulated in the 1998 White Paper has been a bipartisan success.
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Articles represent the opinions of the authors and do not necessarily represent the views of the University of Chicago, the Booth School of Business, or its faculty.
