ICANN | Questions to and Answers from Applicant for .biz, .cool, .fam, and others

Questions to and Answers from Applicant for .biz, .cool, .fam, and others

ICANN Questions:

ICANN is in the process of reviewing Abacus America's TLD Application. As outlined in the October 23, 2000 TLD Application Review Update which appears at http://www.icann.org/tlds/tld-review-update-23oct00.htm, ICANN may "gather the additional information [it] require[s] by posing specific questions to applicants in e-mail and requesting a written response."

Keeping in mind the goal to evaluate applications to operate or sponsor new TLDs in as open and transparent a manner as possible, both the questions posed by ICANN and the Applicant's responses will be publicly disclosed on the ICANN website.

Accordingly, ICANN requests your reponses to the following questions:

1. Identify and summarize Applicant's assumptions with respect to the existence of other general purpose TLDs in determining the total number of registrations in your application.

2. State in detail your position as it relates to possible legal claims by certain applicants and/or non-applicant third parties based on alleged trademark, patent or other violations of purported rights in the TLDs identified in your application.

4. Hypothetically, if you receive .cool as a new TLD instead of .biz, describe in detail the effect, if any, on the pro forma financial statements submitted with your application.

5. Hypothetically, if you receive .fam as a new TLD instaed of .biz, describe in detail the effect, if any, on the pro forma financial statements submitted with your application.

6. Hypothetically, if you receive .inc as a new TLD instead of .biz, describe in detail the effect, if any, on the pro forma financial statements submitted with your application.

7. Hypothetically, if you receive .xxx as a new TLD instead of .biz, describe in detail the effect, if any, on the pro forma financial statements submitted with your application.

Abacus America Responses:

1. Dear ICANN,

We received your request for additional information and are pleased to have the opportunity to respond to your inquiry.

In your e-mail, you asked Abacus to identify and summarize our assumptions with respect to the existence of other general purpose TLDs in determining the total number of registrations in our application.

Initially, the estimate of the number of registrations to be handled by Abacus was made after thoughtful analysis and projections based on our own experience as both a Registrar and Internet Service Provider, as well as by analyzing reports prepared by market research firms such as Forrester Research, Jupiter Communications and International Data Corporation (IDC).

With regard to ICANN's specific question regarding the existence of other general purpose TLDs, Abacus believes that the issuance of other general purpose TLDs would have little impact on the estimates provided by Abacus in its application. The basis of this assumption is the belief that non-restricted TLDs with broad market segments are most needed at this time. The results from the MSNBC poll (discussed more fully below) have confirmed our theories in this area. Because generic TLDs like .web and .dot will not provide utility to the DNS and merely duplicate the existing functionality provided by .com, Abacus does not believe that other general purpose TLDs (if any others were issued) would have any significant effect on the estimates provided by Abacus.

The domains proposed by Abacus (.biz, .inc, .cool, .fam and .xxx) have been carefully selected, with the rationale for each set forth in detail in the TLD Policies section of our application. In part, we chose these TLDs because they provide for broad segmentation of the market. For example, if our proposal for .inc is accepted as a TLD for corporations to post corporate information (as opposed to product and sales information), the number of .inc registration will not be affected by the decision of whether or not to also adopt .kids, .air, .dir, .pro, .coop, etc. Similar examples may be provided for all five of the TLDs suggested by Abacus.

Abacus' estimates were therefore based on the assumption that only one TLD would be adopted in each of the market segments in which Abacus proposed a TLD. Thus, other TLDs adopted in other market segments would have little or no impact on Abacus' estimates, which were derived solely based on the demand Abacus anticipated within the market segment it was seeking to occupy. As set forth in more detail in Abacus' Registry Proposal, Abacus' estimates were also based on the fact that our proposal was made only after very extensive research which also included a poll of over 150,000 Internet users.

It should be noted that the research conducted by Abacus appears to have been borne out by recent research by independent sources. Chief among these examples is the recent poll conducted by MSNBC. Abacus' own assumptions appear to have been confirmed by the poll, in which four (4) out of five (5) of the new TLDs which Abacus proposed are listed among the Top 10 list of popular TLDs. (The results of the Top 10, which are recalculated daily, are available at http://www.msnbc.com/modules/surveys/ domainname.asp.) Abacus' ability to have accurately predicted the most commonly sought-after TLDs is unprecedented by any other applicant. (Thirteen other applicants have one or two names on the top 10 list, while 30 have none.) This type of independent confirmation of Abacus' market research and analysis gives us confidence in our ability to properly analyze and predict the trends in the DNS.

Above all, we believe that the projections contained within our application are the best estimates which any company can make prior to the proof of concept that will follow actual implementation of new TLDs. We are certainly looking forward to working with ICANN to establish solid and reliable Registry operations for the .biz, .inc, .fam, .cool and .xxx domains.

2. Initially, Abacus selected five TLDs which are generic words in the public domain: .biz, .inc, .xxx, .fam and .cool. Abacus strongly believes that these words could not be the subject of any claim to either copyright, trademark or patent because of their generic nature and their common usage. Even when these words are considered as TLDs, Abacus notes that these domains have been discussed in the public domain for over five years.

For example, with regard to claims by third parties, the words "inc" and "biz" are generic terms used by millions of businesses around the world every day. Likewise, in the adult entertainment industry, the "xxx" label has been utilized extensively, and no one party has ever laid any claim to this rating. The word "fam," a shortened version of "family," would similarly have no protection because "family" is a common word. Finally, the word "cool," which is likely the most utilized descriptive word in the language of the younger generation, could likely never be the subject to a claim for infringement.

Other applicants and non-applicants who may claim that it was their original idea to use each of these words as a TLD would have no legal basis on which to claim infringement. As noted above, thousands of TLDs have been discussed in the public domain over the last five years, and no one party can lay claim to TLDs such as those proposed by Abacus where they are (1) comprised of generic words and (2) discussed openly in the public domain as TLDs. To the best of Abacus' knowledge, no party has ever attempted to apply for a patent of a TLD containing any of the words incorporated in Abacus' proposed TLDs.

Notwithstanding the foregoing, Abacus is prepared to prosecute the appropriate actions and certainly to defend any action brought against it to establish its non-infringing use of these TLDs and the domain names associated with them if the right to register these TLDs is granted to Abacus by ICANN. Abacus has already received the advice of its counsel regarding the likely outcomes of such suits should they ever be brought and, as a result, Abacus feels very secure in the fact that not only are these proposed TLDs non-infringing of any other applicants' or non-applicants' rights, but that any action brought by such parties could be successfully defended.

Abacus is also prepared to defend any action, as well as prosecute actions which are for the mutual benefit of Abacus and ICANN, which seek to invalidate Abacus' rights to operate the Registry, or which in any way infringe on Abacus' rights as a Registry. Moreover, if a suit arises by any third party regarding a domain name that is claimed to infringe on that third party's intellectual property, Abacus is committed to the Uniform Dispute Resolution Policy (as discussed in detail in the Policies and Procedures section of its application). Keeping in mind that Abacus will only be operating the Registry, and will rely on several ICANN-approved registrars to actually register the domain names to end users, Abacus will expect the registrars to defend and indemnify both Abacus and ICANN in the Registry-Registrar Agreement in the event that such suits ever arise.

Finally, as discussed below in response to Question No. 2 relating to indemnity of ICANN, Abacus would indemnify ICANN in the event any such claims were made regardless of whether the registrar ultimately provided such defense or indemnity.

3. If you receive a new TLD, state whether you will indemnify ICANN for claims arising from legal challenges regarding your right to operate the new TLD. If you will indemnify ICANN, identify and describe in detail the resources you propose to utilize for the indemnification.

Abacus is prepared to indemnify ICANN for any claims which arise from legal challenges regarding Abacus' right to operate the new TLD. This would include claims for infringement of any intellectual property (as discussed above in response to Question No. 1), as well as any suits or claims which relate to Abacus right to operate the new TLD or ICANN's license of that right.

Abacus will obviously commit its own assets and resources for this indemnity, which are outlined in the Registry Proposal. Because of the importance that such a suit would have on the operation of the registry, Abacus is prepared to commit these funds to the defense of any such suit. Given the fact that it is a virtual certainty that both Abacus and ICANN would be named as co-defendants, the incremental cost of defending ICANN would not be significantly greater than the defense or indemnity of Abacus alone. Nonetheless, Abacus would provide this defense and indemnity even in cases where ICANN was required to retain separate counsel.

As a secondary resource to facilitate the indemnity to ICANN, Abacus has in place a full package of intellectual property insurance coverage which would protect Abacus from any suits relating to claims of infringement of intellectual property. This insurance is provided by Chubb Insurance, one of the highest rated companies in the United States. Abacus would name ICANN as an additional insured on these policies to ensure that additional resources were available for the defense and indemnity of any suit involving either Abacus, ICANN or both parties.

4. Hypothetically, if you receive .cool as a new TLD instead of .biz, describe in detail the effect, if any, on the pro forma financial statements submitted with your application.

5. Hypothetically, if you receive .fam as a new TLD instead of .biz, describe in detail the effect, if any, on the pro forma financial statements submitted with your application.

6. Hypothetically, if you receive .inc as a new TLD instead of .biz, describe in detail the effect, if any, on the pro forma financial statements submitted with your application.

7. Hypothetically, if you receive .xxx as a new TLD instead of .biz, describe in detail the effect, if any, on the pro forma financial statements submitted with your application.

We will respond to Questions Nos. 3 - 6 as a group.

Initially, our financial assumptions of course did take into account that Abacus would also operate the .biz TLD because we believe Abacus is best fit to operate this domain. After reviewing our competitor's applications, we came to the conclusion that none of the other applicants applying for .biz have the technology, the experience and the proper business model to operate the .biz Registry.

To answer the hypothetical questions you posed above, we provide below some general considerations along with specific numbers based on such considerations.

Total sales

This factor is in direct relation to the number and quality of the TLDs we are allowed to operate. The more TLDs we are allowed to operate, and the better quality of those TLDs, the greater the total sales will be. By "quality" we are referring to names with confirmed and existing demand in the marketplace. For example, both .biz and .fam are excellent domain names. However, based on our own poll of over 150,000 internet users (as well as MSNBC's recent poll), the demand is still greater for .biz than for .fam. Of course, the demand for a TLD may be increased through appropriate promotions and marketing efforts, although this will be a longer-term process.

"Total sales" a.k.a. "the top line" is the key to any registry's success. We hope ICANN will award to us all of the domains we are applying for so that we can build a strong business case and provide stable Registry operations at an affordable low price to our Registrars. Since ICANN was successful in creating a competitive environment among Registrars, we believe we can operate the Registry in a manner that translates to lower and affordable prices to the public.
To come up with specific answers to your specific Questions 3 through 6, we are applying the above mentioned theory to the poll results published by MSNBC, located at http://www.msnbc.com/modules/surveys/ domainname.asp For each of the figures in the pro forma income statements, the following probability adjustments would apply:

3. .biz ~> .cool multiply by 0.25
4. .biz ~> .fam multiply by 0.53
5. .biz ~> .inc multiply by 0.89
6. .biz ~> .xxx multiply by 1.59

Cost of goods sold.

This item includes the expenses incurred for software, equipment, bandwidth, maintenance and leasing space in at least four first class hosting facilities. The number of TLDs we are managing will not affect this expense in any significant manner. The reason is that with the same facilities, software and equipment we could manage one as well as five TLDs. However, this same reason makes it much more attractive for Abacus to receive all five TLDs we are applying for. Such economies of scale will allow us to build a strong and financially sound Registry operation. Furthermore it will allow us to reduce the price since there will be less cost involved. This will be good for our Registrars and ultimately for the consumers.

To come up with specific answers to your specific Questions 3 through 6, we use the same numbering as in your original questions

Operating expenses.

We see here linear relationship between the number of TLDs we operate and the operating expenses. The more TLDs we are serving, the more operating expenses we will incur. There is no economy of scale here and the relationship is linear.

To come up with specific answers to your specific Questions 3 through 6, we are applying the above mentioned theory to the poll results published by MSNBC:

For each of the figures in the pro forma income statements, the same probability adjustments would apply: 3. .biz ~> .cool multiply by 0.25 4. .biz ~> .fam multiply by 0.53 5. .biz ~> .inc multiply by 0.89 6. .biz ~> .xxx multiply by 1.59

Income Statement

The above items are line items in the income statement. When we applied the worst case scenario to the Income Statement we confirmed that our operations will still be profitable even in the worst case scenario. Our available capital will also meet the demand in this worst case scenario as well. Because the number of possible outcomes are too numerous to calculate without specific information from ICANN as to which proposed TLDs would ultimately be granted to Abacus, we would be pleased to submit revised pro forma financial statements based on a limited set of hypothetical results using the probabilities identified above.

Special consideration for .xxx

.xxx is a great tool for segregating and subsequently filtering the adult content on the Internet. At the same time this effort may require legislation intervention, a factor which is obviously beyond Abacus' control. In our projections, we assume that such legislation will be passed to compel (or at least provide very strong incentive for) adult sites to move into the new domain. Without such legislation, our projections may need to be modified, although we still anticipate a strong demand from the fastest-growing industry on the Internet. For this reason, we recommend that ICANN award the .xxx TLD in conjunction with another proposed TLD (whether such TLDs go to Abacus or any other applicant) because the uncertainty mentioned here would best be served by the "cushion" of another TLD Registry operation until all of the issues around .xxx are resolved.

Conclusion.

With the increase of each additional TLD assigned to Abacus, the sales and the operating expenses will grow in an almost linear manner. The cost of good sold, however, will remain unaffected, which creates a very good economies-of-scale opportunity for Abacus and its Registry operations. This will allow Abacus to build strong operations and offer quality service at a lower price. Ultimately the consumers will be the beneficiaries of both the service and these prices.

We are certainly looking forward to working with ICANN to establish solid and reliable Registry operations for the .biz, .inc, .fam, .cool and .xxx domains.

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