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Report on TLD Applications: Application of the August 15 Criteria to Each Category or Group
(9 November 2000)


B. APPLICATION OF THE AUGUST 15 CRITERIA TO EACH CATEGORY OR GROUP

The evaluation team applied the August 15 Criteria to all of the applications on a group-by-group basis. The evaluation of each individual application is contained in Appendix B.

1. General-Purpose TLDs

a. General Group

The fourteen applications that could best be described as "general" are set forth in the following table:

Applicant

Strings Requested
Abacus America, Inc. .biz, .cool, .fam, .inc, .xxx
Affinity Internet, Inc. .biz, .ebiz, .firm, .inc
Afilias, LLC .info, .site, .web
Commercial Connect, LLC .mall, .shop, .svc
Diebold Incorporated .cash, .global, .secure
Dubai Technology, Electronic Commerce and Media Free Zone Authority .dubai, .go
Eastern Communications Company Limited .firm, .game, .inc, .info, .ltd, .news, .shop, .store, .tour
iDomains, Inc. .biz, .ebiz, .ecom
Image Online Design, Inc. (dba Web Registry) .web
JVTeam, LLC .biz
KDD Internet Solutions Co., Ltd. .biz, .home
Name.Space .ads, .agency, .aids, .air, .antiques, .art, .artists, .auction, .audio, .bbs, .books, .café, .cam, .card, .cars, .center, .city, .channel, .church, .club, .commerce, .computers, .consulting, .design, .digital, .direct, .dtv, .dvd, .factory, .fashion, .festival, .fiction, .film, .films, .foundation, .free, .fun, .fund, .funds, .gallery, .games, .gay, .graphics, .group, .guide, .hotel, .help, .history, .index, .insurance, .jazz, .jobs, .lab, .mad, .mag, .magic, .mail, .market, .media, .men, .monitor, .movie, .music, .news, .now, .nyc, .one, .online, .opera, .page, .partners, .people, .planet, .politics, .power, .productions, .projects, .properties, .radio, .records, .school, .service, .sex, .shoes, .shop, .show, .security, .society, .sound, .shareware, .site, .software, .solutions, .soup, .space, .sports, .star, .studios, .sucks, .systems, .tech, .temple, .theatre, .time, .times, .toys, .trade, .travel, .voice, .war, .watch, .weather, .women, .world, .writer, .zine, .zone
NeuStar, Inc. .dot, .info, .site, .spot, .surf, .web
Rathbawn Computers Limited .africa, .llc, .sansansan.sex, .three33, .wap, .xxx

Threshold Review

As a threshold matter, the evaluation team applied the first and the last of the August 15 Criteria to these applications. Early consideration of these criteria was thought necessary to promote efficient review and evaluation of the application pool, to understand the fundamentals of the applications, and to ascertain what additional steps were appropriate for further review. The first criteria, maintaining the Internet's stability, generally requires applications to "demonstrate specific and well-thought-out plans, backed by ample, firmly committed resources, to operate in a manner that preserves the Internet's continuing stability." The last criteria places significant emphasis on the completeness of the applications and the extent to which the applications demonstrate that the applicant has a thorough understanding of, and has carefully thought through, all relevant issues, has realistically assessed the business, financial, technical, operations, and marketing requirements for implementing the application, has procured firm commitments for all necessary resources, and has formulated sound business and technical plans for executing the application. Especially for applications seeking this type of string where a poorly managed or failed registry could have significant commercial or other consequences, the potential effects on stability and the demonstration of the resources necessary to manage a large global unrestricted registry seem critical preconditions to the grant of an application, especially in this "proof of concept" stage.

The applications were reviewed for completeness and demonstrated soundness and feasibility from technical and business-process perspectives, as required by the first and last criteria. The business/financial team and the technical team identified those applications that in their judgment did not demonstrate2 realistic business, financial, technical, and operational plans or sufficient resources based on the factors described in Part II.B.2. or from a technical or business-process perspective did not, in the judgment of the evaluation team, demonstrate these factors as persuasively as other proposals for the same or similar TLD string.

As a result of this review, the evaluation team concluded that the following applications merited further review:

Applicant

Strings Requested

Preferred String
Afilias, LLC .info, .site, .web .web
Diebold Incorporated .cash, .global, .secure [not apparent from application]
iDomains, Inc. .biz, .ebiz, .ecom .biz
Image Online Design, Inc. .web .web
JVTeam, LLC .biz .biz
KDD Internet Solutions Co., Ltd. .biz, .home .biz
NeuStar, Inc. .dot, .info, .site, .spot, .surf, .web .web

The technical team concluded that some of the applications assigned to this group did not merit further review because they did not demonstrate realistic technical and operational plans on various grounds. Some of the applications did not demonstrate relevant technical expertise. Some applications did not demonstrate the technical ability to operate a TLD targeting a large group of potential registrants and end users with high reliability. In others, the proposed technical plan did not support the proposed business plan in one or more areas, including under-specification of total capacity, projected growth rate, startup period, fault tolerance, or security. A summary of the conclusions of the technical team with respect to each of these applications is set forth in Appendix B.

The business/financial team concluded that some of the other applications assigned to the general group did not merit further review because they did not demonstrate realistic business or financial plans on various grounds. Several of the applicants submitted an incomplete or weak business plan. Some of the applicants had little or no relevant business or registry/database/Internet experience. Many of these applications did not demonstrate that the operator had sufficient capital and resources, or would commit sufficient capital or resources, to meet the forecasted requirements. In others, the marketing plan and promotion strategy did not appear reasonable and well thought out for the TLD(s) requested and lacked detail. A summary of the conclusions of the business/financial team with respect to each of these applications is set forth in Appendix B.

Again, we emphasize here that these judgments were comparative. A decision not to proceed past the initial threshold examination of any particular application was not necessarily a judgment that either the applicant or its proposal had no merit, or could never qualify under other circumstances. At this "proof of concept" stage, the evaluation process was focused on identifying a finite, relatively small number of strong applications that could serve the purpose of this effort -- to authorize the inclusion in the root server system of a relatively small number of diverse TLD strings in a way that allowed the Internet community to evaluate the effects (if any) on the DNS of additional TLDs and that would minimize to the extent possible any possible disruption of or instability in the DNS as a result of the addition of multiple new TLDs.

Note about Image Online Design

Both the business/financial team and the technical team each independently concluded after the threshold review that the application from Image Online Design, Inc. did not justify further evaluation. However, because of the large number of favorable comments in the ICANN Public Comment Forum, the ICANN staff requested that the evaluation team examine Image Online Design's application more closely in the evaluation process.

Operation of a large registry will require substantial technical and managerial resources. A failure of a new TLD to service the global community of registrars and registrants could fatally damage its reputation and the likelihood of its successful adoption by the public, and therefore its ability to be a vigorous competitor with .com. It could also seriously damage public confidence in new TLDs that could be introduced in the future.

Image Online Design proposes to operate a very large registry that will compete directly with .com. Currently, Image Online Design's registry operation is very modest (20,000 names) and, not being part of the DNS root, experiences little traffic.

In its application, Image Online Design identified the need for a staff of approximately 70 during its first year of operation. (Although this staff size is larger than other large domain applicants proposed, this appears to be because Image Online Design will act as both registry and registrar initially.) Image Online Design identified only three employees who would form the core competency team of the expanded company. Only one of the "core" employees has technical experience. The principal experience of the other two, the CEO and the COO, is in the operation of auto dealerships; their experience in technical management and operations comes from their experience at Image Online Design's currently modest registry operation. Image Online Design's proposal describes a hiring plan to fill other executive positions. Its proposed staffing plan for other personnel is premised on recruiting from colleges located in the vicinity of San Luis Obispo, California. In contrast, other applicants explicitly identified mature, capable teams and large pools of managerial and technical talent to draw upon. Image Online Design proposes to support both registry and registrar functions during the first year,3 including during the start-up period. It has proposed no demand throttling mechanism to control initial load from the expected "land rush" during this period.

In the judgment of the technical team, the small pool of talent available to Image Online Design is a very serious deficiency in Image Online Design's proposal. Given the lack of identified technical and management resources, the technical evaluation team concluded that there is a very significant risk that Image Online Design will not be able to react quickly to unpredictable surges in demand, especially during the critical startup period. A failure to service a global customer base on a 24x7 basis, particularly during the initial startup period, could fatally damage the reputation of the new TLD.

The business/financial team concluded that there were significant deficiencies in the business plan submitted by Image Online Design, particularly compared to other applications in this group. First, Image Online Design expects to obtain a 15 to 23 percent market share of all new registrations in the very first quarter of operation, even with additional competition from other new top-level domains. It assumes one third of these applications will be for prepaid registrations of five to ten year increments at a combined registry/registrar price of $35 per name per year. This combination creates a very large influx of money to finance operations, with Image Online Design's cash balance increasing from $450,000 to $37.4 million in three months at the 50 percent confidence level, which is 83 times larger. The need for this influx presumably is the motivation for Image Online Design's insistence on being the sole registrar during startup. Nonetheless, the business/technical team does not believe these projections are realistic. Second, according to the pro-forma financial statements, Image Online Design will act as the registry and the sole registrar for the entire first year. Even by the end of the fourth year, after other registrants have been permitted to compete for three years, Image Online Design estimates that it will still obtain a 30 percent registrar market share within the TLD, and that it will do so with a $20.00 registrar markup. This is inconsistent with experience in .com, .net and .org.

Despite this new competition, moreover, Image Online Design anticipates maintaining its $15 registry price throughout the forecast period. This is at least two and a half times the registry prices anticipated by others in this category. This higher price is likely to deter registrars and potential registrants. In addition, with any new venture there are always many unknown factors that will occur. For this category, becoming a viable competitor within the existing structure is key. Holding only $450,000 is a significantly weaker capital position than the capital positions of the other applicants. Finally, based upon its historical experience, Image Online Design has not demonstrated the ability to grow, even when performing other services such as web hosting and design. Overall, the other applications in this group are significantly more realistic and would result in much more viable competition for the .com registry.

Note about Diebold

Because Diebold Corporation's request for confidential treatment of large portions of its application was not resolved until after the end of the threshold review, its application also proceeded to the second review. When Diebold and the ICANN staff were unable to reach agreement on its request for confidential treatment, Diebold elected to withdraw significant portions of its application, including its pro forma financial statements.

Viewed in the light of this withdrawal, there were many serious issues identified in Diebold's application. In the judgment of the technical team, the Diebold proposal, when compared with the other proposals in this group, provided virtually no information about the organization that would actually operate the registry. Specifically, the proposal lacked information on how the Diebold technical team would be staffed, resumes of the principal managers, where registry operation would fit in the Diebold organization, and how additional software would be provided. This lack of information made it difficult for the technical team to assess how the registry operator would deal with surprises not anticipated in Diebold's business plan.

The business/financial team concluded that Diebold's application did not include a thorough analysis of the target market or a detailed marketing plan. The application did not provide a sufficient rationale for the estimated demand or the resources to meet that demand. Without such details, Diebold's application was not complete enough to demonstrate an understanding of what is involved in operating a registry business. The business/financial team concluded that Diebold's application was not as strong as the other applications that merited further review.

Note about NeuStar

NeuStar, Inc. and Melbourne IT are associated with a number of applications for new TLDs as members of JVTeam. JVTeam submitted proposals for the .biz TLD, as well as the .per TLD. In addition, NeuStar submitted a separate application for the .web TLD. After receipt of NeuStar's application, ICANN asked NeuStar to identify the proposed registry operator and, if not NeuStar, to provide the information about the proposed registry operator required in the Registry Operator's Proposal. In answer to the question, NeuStar stated that it is "fully capable and unconstrained from operating the registry and in delivering all that is included in the .web proposal." In its answer, NeuStar also indicated its preference, if awarded .web, to implement and operate the TLD with full support from JVTeam, which it suggested would be accomplished by the assignment of the registry operator's agreement to JVTeam after the award. The evaluation team evaluated NeuStar's application with the understanding that JVTeam would, on some basis, be involved in the operation of the registry, as indicated throughout NeuStar's application.

Subsequently, on November 8, 2000, NeuStar sent a letter to ICANN informing ICANN that NeuStar would not assign or subcontract the operations of the registry to JVTeam. During the short period of time between ICANN's receipt of NeuStar's letter and the posting of this report, the evaluation team has attempted, to the extent possible, to re-evaluate the application with NeuStar as the registry operator without any participation by JVTeam or Melbourne IT.

The evaluation team concluded that lack of participation by Melbourne IT may negatively affect NeuStar's application. Some specific concerns identified by the team are included in the summary of NeuStar's application found in Appendix B. However, given the short period of time since the receipt of NeuStar's letter and given the difficulty of extracting Melbourne IT's participation and contribution from NeuStar's application, the evaluation team is, at this juncture, unable to completely assess that impact. Work on this analysis is continuing.

Comparison

Having applied the first and last of the August 15 Criteria to these applications as a threshold matter, the evaluation team evaluated how each of the August 15 Criteria should be applied to proposals for these TLDs in light of the diversity in purpose and targeted markets reflected in the categorization. The evaluation team concluded that the August 15 Criteria apply as follows:

August 15 Criteria

Application to General Group
The need to maintain the Internet's stability Generally applies
The extent to which selection of the proposal would lead to an effective "proof of concept" concerning the introduction of top-level domains in the future Applies primarily with respect to the process of introducing a large top-level domain and to the issue of the effectiveness of inter-TLD competition for general-purpose TLDs
The enhancement of competition for registration services Generally applies
The enhancement of the utility of the DNS Applies primarily with respect to appropriateness of the TLD label, avoidance of confusion of TLDs, and the extent to which the TLD will aid users
The extent to which the proposal would meet previously unmet types of needs Generally does not apply to the introduction of a large top-level domain
The extent to which the proposal would enhance the diversity of the DNS and of registration services generally Generally applies
The evaluation of delegation of policy-formulation functions for special-purpose TLDs to appropriate organizations Generally does not apply
Appropriate protections of rights of others in connection with the operation of the TLD Generally applies
The completeness of the proposals submitted and the extent to which they demonstrate realistic business, financial, technical, and operational plans and sound analysis of market needs Generally applies

Stability, enhancement of competition, proof of concept and enhancement of diversity seem particularly relevant to analysis of these TLDs.

Stability

The threshold review concluded that all of the applicants, except Image Online Design and Diebold, presented proposals that appear to provide for stable operation of the proposed TLD. For the reasons summarized above, the proposals presented by Image Online Design and Diebold do not address significant stability concerns, potentially leading to early registry disruption or failure. These events in a large TLD, if they transpired, would significantly impair DNS stability.

Enhancement of Competition and Proof of Concept

The market will be the ultimate arbiter of the competitive merit of any new TLD. The evaluation of whether proposals for a new TLD will enhance competition for registration services, therefore, should focus on the realistic prospects of the proposed TLD and registry for effectively competing with other TLDs and registries and should include such factors as the adequacy of marketing and promotion plans, the competitiveness of the proposed services, pricing and service levels with other TLDs and operators having significant market share, and restrictions on accredited registrars.

Introduction of a new general purpose TLD is a concept to be tested, as is the effectiveness and character of inter-TLD competition between .com and newly introduced TLDs. In general, market mechanisms that support competition and consumer choice should, where possible, drive the management of the DNS. See United States Department of Commerce White Paper, at <http://www.icann.org/general/white-paper-05jun98.htm/Principle2>. One of ICANN's core principles is the encouragement of competition at both the registry and the registrar level. Because of the limited number of new TLDs to be introduced at this time, it is appropriate to make a preliminary evaluation of competitive "proof of concept."

In order to have a realistic prospect of effectively competing with .com (which as of September, 2000 contains approximately 20 million domain names and appears to continue to grow at an exponential rate) and to provide an effective proof of concept, a general purpose TLD applicant must realistically assess the business, financial, technical, operational, and marketing requirements for implementing the proposal and procure firm commitments for necessary resources. Some of the significant factors in evaluating whether these TLDs have a realistic prospect of competing with other TLDs and registries having significant market share are summarized in the following table:

Applicant

Expected Cumulative Number of Registrations (Year 4)

Capital Investment

Registry Operator's Marketing Budget(Year 1 - 4)

Number of Registry Operator Employees(Year 4)
iDomains, Inc. (.biz)

12.0M

$1.0M

$29.2M

35
JVTeam, LLC (.biz)

3.85M

$72.5M

$28.0M

68
KDD Internet Solutions Co., Ltd. (.biz)

21.1M

$8.4M

Not apparent from application

43
         
Diebold Incorporated (.cash, etc.)

No response4

No response

No response

No response
         
Afilias, LLC (.web)

16.2M

$4.8M

$76.7M

69
Image Online Design, Inc. (.web)

3.8M

$450K

$103.1M

184
NeuStar, Inc. (.web)

11.1M

$46.3M

$35.4M

122

As the table indicates, wide variations exist among these applicants, including among those seeking the same TLD (.biz or .web). Expected demand5 in year 4 for a .biz TLD ranges from 3.85 million to 21.1 million registrants and for a .web TLD from 3.8 million to 16.2 million. In comparison, at the end of September, 2000, .com had approximately 20 million registrations. If those applicants forecasting a smaller demand for a general purpose TLD like .biz or .web are correct, these general TLDs may provide less effective competition to .com than would a general TLD with a larger market demand.

Among those applicants forecasting a larger demand, the initial equity investment also varies widely. Some of the variations may be explained in part because some applicants propose leveraging existing infrastructure, including outsource partners, while others must build the infrastructure.

Even accounting for the stated reasons for the variations in investment levels, the table indicates that applicants like JVTeam, Afilias and NeuStar appear willing to devote significant resources to operate a large TLD to effectively compete with .com.

Due to the widely varying number of registrations and capital investment, the potential rate of return also varies widely. The rate of return can generally be determined by comparing the initial capital investment with the estimated future cash flow. In this situation, the applicants were not asked to provide a lengthy cash flow projection. Consequently, a representative comparison cannot be reasonably made. This is especially true because many of the applicants anticipate several years of investment prior to becoming profitable. Nevertheless, the data provided in the application does provide some indication about the potential return. The table below outlines (i) the cumulative net income for the years one through four, (ii) the capital investment and (iii) the ratio of cumulative net income to capital investment of each of the applicants (except Diebold, which withdrew its pro forma financial statements).

Applicant

Cumulative Net Income (Years 1-4)

Capital Investment

Cumulative Net Income/Capital Investment
iDomains, Inc. (.biz)

38.50M6

1.0M

3,850%
JVTeam, LLC (.biz)

-88.97M7

72.5M

-123%
KDD Internet Solutions Co., Ltd. (.biz)

22.80M

8.4M

271%
       
Afilias, LLC (.web)

-12.80M

4.8M

-267%
Image Online Design, Inc. (.web)

53.30M

0.45M

11,844%
NeuStar, Inc. (.web)

-58.00M8

46.3M

-125%

Generally, the lower the capital investment, the greater the potential return and vice versa. Two applicants, iDomains and Image Online Design, are not planning on investing significant capital into the new venture. Consequently, the ratio of cumulative net income to capital investment is extremely high. Alternatively, the JVTeam and NeuStar applications are anticipating investing significant sums, thereby requiring a greater number of periods to recoup their investment.

Another factor promoting effective competition with .com is enhanced service content, particularly with respect to the registry interface protocol. Many applicants proposed changes to the current registry/registrar protocol (RRP) developed by Verisign. Generally, the primary changes suggested by the applicants relate to model and content. The current RRP might be referred to as a "thin" protocol in which the registry is provided with the bare minimum of information required to perform its function and the registrars retain full information on registrants. In particular, the Whois service is provided by the registrars. Many applicants proposed various "thick" registry protocols where the registry would be the repository for most or all of the registrant data. There are several potential advantages to this approach: the Whois function is centralized and can be better managed, the stored data takes advantage of the registry's more robust storage structure, and registrar facilities are simplified, enabling broader registrar-level competition.

The second type of change raised by applicants suggesting changes to the current RRP relates to the type of information that might be stored. Many applicants propose that the registry interface protocol be extended to include additional information beyond the bare minimum required to support registration. Such information might include directory information, business category, keywords and so forth. Many applicants in fact proposed to develop an extensible protocol (sometimes based on extensible markup language or XML) to support essentially unlimited extension to the content definition.

The following table summarizes the service offerings of the applicants with respect to the registry interface protocol:

Applicant

Registry Interface Protocol
Afilias, LLC "Thick", extensible registry protocol with augmented information storage
Diebold Incorporated Not applicable (combined registrar/registry)
iDomains, Inc. "Thick" registry protocol
Image Online Design, Inc. "Thin" proprietary protocol migrating to current RRP
JVTeam, LLC "Thick", extensible protocol with augmented information storage
KDD Internet Solutions Co., Ltd. "Thin" protocol using current RRP
NeuStar, Inc. "Thick", extensible protocol with augmented information storage

In order for any new TLD to be attractive to consumers as an alternative to .com, to provide effective proof of concept, and to provide a realistic prospect of meeting unmet needs, proposed pricing and service levels must be competitive with other TLDs and operators having significant market share. The following table summarizes the applicants' proposed pricing and service levels:

Applicant

Price

SRS Availability

Time to Confirm

Time to Reliance

Capacity
Afilias, LLC

$5.75 per year(2 year commitment)(less volume rebates)

99.90%

400 msec

5 minutes

230 tps
Diebold Incorporated

$10.00 per year

99.863%

4 seconds

6 hours

133 tps
iDomains, Inc.

$5.45 per year

99.00%

1 second

6 hours

Unspecified
Image Online Design, Inc.

$35 ($20 to Registrar + $15 to Registry)

99.99%

Unspecified

5 minutes

28.6 tps
JVTeam, LLC

$3.75 - $5.30 per year (volume discounts)

99.95%

500 msec

5 minutes

350 tps
KDD Internet Solutions Co., Ltd.

$9.00 in 1st quarter; $8.00 in 2nd quarter; $7.00 in 3rd quarter; $6.00 thereafter

99.40%

5 seconds

12-24 hours

2000 tps
NeuStar, Inc.

$3.75 - $5.30 per year (volume discounts)

99.95%

500 msec

5 minutes

350 tps

All of the applicants, except Image Online Design, propose a price of $10.00 per year or less (some significantly less) for registrations. The current price of Verisign Global Registry, the registry operator of .com, is $6.00 per year. The proposed pricing by Afilias, iDomains, JVTeam and NeuStar is under $6.00 per year (and can go down to $3.75) and the proposed pricing by KDD (by the end of the first year) matches the current Verisign price. Image Online Design's long-term price on the registry level is more than 2.5 times the initial pricing proposed by most of the applicants in this group.

The table above summarizes four measures of service provided by the registry, although other measures can be evaluated. Availability applies to the shared registry service (SRS). All applicants recognized that DNS service must be provided by a constellation of servers. "Time to Confirm" is the time required from posting for the registry to confirm that the name has been registered. "Time to Reliance" refers to the time required for the mapping to be updated in the zone files of the DNS. Many applicants consider that near-instant update is an important function, and the technical team concurs. Capacity is in terms of SRS transactions per second. All applicants listed in the table predict a high level of SRS availability, though the proposals submitted do not permit a reliable assessment of what levels of availability are actually achievable. With the exception of iDomains, all proposals project an acceptable level of availability.

A related issue for evaluation of a large, general TLD (which goes not only to effective competition with .com but also goes to an effective proof of concept) is the manner is which the applicants propose to handle the probable initial surge of registrants, especially with the potential for pre-registration. Intertwined with any initial surge is the issue of fairness to registrants and registrars. While this is not strictly a technical question, the solution may incorporate a technical approach because the initial surge may overwhelm one or more registry systems (SRS, Whois, Billing and Collection). The table below summarizes the approaches offered:

Applicant

Surge

Fairness
Afilias, LLC Batch Processing Random Selection
Diebold Incorporated Declining Price First Come First Served
iDomains, Inc. Batch Processing Random Selection
Image Online Design, Inc. Direct Processing First Come First Served
JVTeam, LLC Batch Processing Random Selection
KDD Internet Solutions Co., Ltd. Direct Processing First Come First Served
NeuStar, Inc. Batch Processing Random Selection

Direct processing is an approach whereby the registry provides sufficient capacity to capably process the maximum surge. Applicants that used this approach also processed the requests on a "first come, first served" basis. In contrast, the batch approach requires the registrars to provide requests periodically (for example, once per day) as a batch transfer. Requests are then processed as a batch using a random selection approach. The Diebold declining price approach establishes a higher initial price for names as a means of dampening demand.

Another competitive issue considered in evaluating the proposals is whether the proposals restrict the ability of accredited registrars to offer registration services within the TLD. The following table summarizes restrictions contained in these applications:

Applicant

Restrictions on Accredited Registrars
Afilias, LLC No restrictions
Diebold Incorporated Diebold will operate as sole registrar
iDomains, Inc. No restrictions
Image Online Design, Inc. Image Online Design will be the only registrar for the first year. In its pro forma financial statements, Image Online Design assumes that it will process 100% of all registrations in the first year; 80% for the next 6 months; 70% for the next 6 months; 60% for the next 6 months; 50% for the next 6 months; 40% for the next 9 months; and 30% thereafter.9
JVTeam, LLC No restrictions
KDD Internet Solutions Co., Ltd. No restrictions
NeuStar, Inc. No restrictions

Both Diebold and, during its initial year, Image Online Design do not allow other registrars to process applications for the TLD. During the period of restriction, neither applicant provides other, effective mechanisms for providing competitive choices to domain-name holders seeking to register within the TLD. In addition, failure to use other accredited registrars may adversely impact effective marketing of the TLD to the public by eliminating marketing efforts by other accredited registrars and reduce the ability of the new TLD to provide an effective competitive alternative to .com.

Enhancement of Diversity

Enhancement of diversity is the other of the August 15 Criteria that seems particularly relevant to analysis of these proposals. Evaluation of whether these proposed TLDs enhance diversity encompasses several inquiries, including diversity in business models and of geographic locations. In addition, some of the factors identified in the August 15 Criteria in connection with effective proof of concept largely overlap the diversity evaluation. Some of the significant factors in evaluating whether the proposed TLDs enhances diversity are summarized in the following table:

Applicant

Location

Ownership

Outsource Partner

Revenue Model
Afilias, LLC New York, NY The 19 members of Afilias are existing registrars, based in 8 countries Tucows, Inc.(Canada) Subscription- based revenue model with a rebate based on volume
Diebold Incorporated Canton, OH Publicly held US corporation None Subscription- based revenue model
iDomains, Inc. Bethlehem, PA Privately-held US corporation CORE (back-end subcontractor)(international consortium)  Subscription- based revenue model
Image Online Design, Inc. San Luis Obispo, CA Privately-held US corporation GST Telecom (subcontractor of physical facilities for registry data center) (US) & UltraDNS (subcontactor for DNS Zone propagation) (US) Subscription- based revenue model
JVTeam, LLC Washington, D.C. NeuStar, Inc. (US) & Melbourne IT (Australia) None Subscription- based revenue model with volume discounts
KDD Internet Solutions Co., Ltd. Tokyo, Japan Publicly held Japanese corporation Verisign (primary in Phase 1 and secondary in Phase 2) Subscription- based revenue model
NeuStar, Inc. Washington, D.C. Privately-held US corporation None Subscription- based revenue model with volume discounts

All of the applicants in this group, except KDD Internet Solutions, are based in the United States. KDD Internet Solutions is based in Tokyo, which would enhance diversity of geographic location of operators of large TLDs. However, KDD's choice of Verisign as its outsource partner somewhat counterbalances this diversity because of the current delegation of the .com registry to Verisign. KDD's application describes Verisign's role as "primary" in Phase 1 and "secondary" in Phase 2, but KDD's pro forma financial statements at the 50% confidence level show the revenue to Verisign increasing from ¥152 million in year 1 to ¥14.1 billion in year 6. The ¥14.1 billion in year 6 represents 89% of KDD's total costs. This suggests that, rather than becoming secondary, Verisign's role will remain significant.

Diversity of geography in ownership is also a relevant inquiry. Afilias' members are headquartered in Canada, Germany, India, Japan, Sweden, Switzerland, the United Kingdom and the United States. Sixty-five percent of Afilias' members have offices in North America, 53% in Europe, 26% in Asia and the Pacific Rim, 5% in Australia and 5% in the Middle East. One of two members in JVTeam is Melbourne IT, an Australian company.

Diversity of geography is also present in some of the outsource partners: Afilias' outsource partner is Tucows, a Canadian company, and iDomains' outsource partner is CORE, an international consortium based in Geneva, Switzerland of 72 member registrars in 20 countries and four continents.

All of the applicants have a subscription-based revenue model, although both JVTeam and NeuStar offer volume discounts that could bring their price down to $3.75. Afilias anticipates offering a rebate to its registrars based on volume in year 3, which if included in Afilias' price would bring the price somewhat below $5.00 per year by year five.

There is also a variety of organizational models among the applicants with various applicants being privately-held companies, publicly-held companies, and joint ventures. One unusual model is Afilias. Afilias currently consists of 19 ICANN accredited registrars committed to forming a large, open and diverse organization with no single company having a controlling interest. Afilias' responses to questions state that the original membership criteria for joining the consortium were minimal, that all accredited registrars were offered the opportunity to join, and that as many as nine other ICANN accredited registrars expressed differing levels of interest in joining. Afilias further states that one of its founding premises is to ensure to the fullest possible extent that a new general TLD not be owned, controlled by or benefit only a few large businesses, but instead be controlled by a geographically diverse group of ICANN accredited registrars. The structure of the operating documents tend to support Afilias' claim of openness and diversity.

Pursuant to the Afilias Operating Agreement, the original 19 members of Afilias are and will remain the only Class A Unit members of the limited liability company. The Operating Agreement, however, allows qualified registrars to participate in an annual subscription program under which they are afforded the opportunity to purchase Class B Units of Afilias. The criteria for qualified registrars, the number of units for each annual program and other mechanisms for the subscription program are determined by the Class A Unit members. The Operating Agreement envisions, over time, that the Class B Unit members will control a maximum of 60% of Afilias and the Class A Unit members will control a minimum of 40% of Afilias. This potential ownership arrangement also provides the basis for allocation of net income and loss: a maximum 60% allocation will go to Class B Unit members and a minimum of 40% will go to Class A Unit members. Afilias defends this permanent allocation by pointing out that it will voluntarily give up majority control and allow non-founding members to reap the majority of the potential rewards, while guaranteeing the founding members' return based on their risk of investment.

Another interesting provision of the Operating Agreement provides that no member can own more than 11% of Afilias. This limitation of ownership appears to promote a diverse membership base, while recognizing the potential for consolidation in the industry at the registrar level. Another feature of the Afilias structure is the annual rebate program whereby 25% of the company's profits are distributed to all registrars registering the new TLD domain names. The rebate program is claimed to be a way for non-member registrars (as well as member registrars) to share in the economic profits of the company. The non-member registrars do not share the risk of any potential loss.

Although one of the members of Afilias is Verisign, which on its face does not appear to enhance diversity or competition, depending upon how the operating agreement is implemented in practice, Afilias' subscription program could offer an opportunity for many other applicants to participate at the ownership level in a TLD awarded to Afilias. Limitations on ownership and potential control allocation to non-founding members tend to offset the negative effect Verisign's involvement may have on diversity or competition level analysis.

Enhancement of Utility of the DNS

Enhancement of the utility of the DNS is another of the August 15 Criteria relevant to these applications. These applications for general, open TLDs appear to sensibly add to existing DNS hierarchy, do not appear to create or add confusion to the existing DNS hierarchy, and are semantically far enough from existing TLDs to avoid confusion.

Protection of Rights of Others

Protection of the rights of others is another of the August 15 Criteria relevant to analysis of these proposals. In order to protect the rights of others, a general purpose TLD applicant should propose a well-thought-out plan for the allocation of domain names, especially during the initial rush for registrations, and provide adequate protections to stakeholders and third parties. Some of the significant factors of a well-thought-out plan include (1) whether the applicant provides for a "sunrise period"; (2) the adoption of dispute resolution procedures; (3) considerations for third party intellectual property protections; (4) Whois service mechanisms; and (5) policies to discourage abusive registration practices.

As mentioned in the June 13, 2000 report for the ICANN Yokohama Meeting Topic: Introduction of New Top Level Domains found at <http://icann.org/yokohama/new-tld-topic.htm> (the "June 13 Report"), a consensus exists that varying degrees of intellectual property protection is necessary during the start up phase of new TLDs. Furthermore, TLDs focusing primarily on commercial uses should afford greater protections than TLDs focusing on non-commercial uses. The general purpose category focuses on commercial use and presents the greatest risk of intellectual property violations. In general, these proposals provide basic methods for protecting and enforcing infringed rights (i.e. status quo) and offer limited extra protections. If one or more of the applicants in this group is accepted, the evaluation team recommends that further clarification and direction as to these protections be required.

The proposals in this group provide differing approaches for the protection of the rights of others, summarized as follows:

Sunrise Period

Affilias, iDomains and Diebold propose a sunrise period for registrations. The sunrise period programs for Afilias and iDomains are very similar and generally provide for a 90-day announcement period followed by a 30- to 60-day registration period, and concluding with a 30-day evaluation period. Sunrise registration will be available for trademark and service mark registrations which are effective and issued prior to October 2, 2000. Diebold, on the other hand, envisions a straight 90-day sunrise period during which trademark and service mark holders can register if they provide written documentation with proof of the holder's right covering the previous 12-month period.

For various reasons, the remaining applicants do not propose a sunrise period. JVTeam, KDD and Neustar, however, expressly state they will adopt a sunrise period if required by ICANN. Image Online Design proposes no sunrise period. Image Online Design and KDD will register domains on a strict first-come, first-served basis during the start-up phase.

Dispute Resolution Policy

All of the applicants propose to adopt the UDRP for dispute resolution. JVTeam and Neustar propose to modify the UDRP by allocating a daybreak implementation, which is not well defined in the application. (Afilias further intends to require binding, non-appealable arbitration for all disputes between it and its registrars.)

Third Party Intellectual Property Protections

None of the applicants propose extensive new protections. JVTeam and Neustar propose a fee-based intellectual property notification service: parties that register their marks with the registry will be notified if a registrant applies for the mark as a domain name. This is only a notification service, and neither JVTeam or Neustar will refuse the registration of the mark. iDomains will not pre-screen applicants but, during the sunrise period only, will require registrants to demonstrate ownership of a validly registered trademark.

Whois Services

JVTeam, Neustar and Diebold will make the Whois service publicly available and iDomains will provide and interactive web page and a port 43 Whois "fat" service allowing free public query-based access. Afilias will allow free public access to its registry level Whois database while KDD and Image Online intend to maintain the current level of Whois services.

Measures Against Abusive Registrations

Diebold commits to suspending registrations based on false contact data, but does not provide for third party challenge mechanisms. Image Online proposes a 14-day blackout period prior to entering the root to allow trademark holders to scan registered names and challenge registrations. The domain name would then be put on hold until resolution of the dispute. All of the applicants will rely on UDRP and additional mechanisms to police abusive registrations. In addition, iDomains' application states that it requires a two year pre-payment for registration to facilitate compliance with trademark and cybersquatting legislation. The JVTeam and Neustar proposals require only a self certification and forces the review burden on the registrars. JVTeam and iDomains provide limited registration restrictions requiring registrants for the .biz (or similar) TLDs to certify in one form or another that they are devoted to business/e-commerce activities.

Recommendations


In view of the submissions of multiple applications in this group that present strong proposals under the August 15 Criteria, the team believes that the Board could responsibly select a limited number of applications from this group. Selections should be made based on assessment of each proposal under a combination of the August 15 Criteria, as discussed above.

 


Footnotes:

2. We emphasize again that the evaluation at this stage was based solely on the applications themselves, and the material and information contained therein. Thus, the use of the word "demonstrate," which is intended to reflect the fact that these judgments were made on the basis of the applications, and not on extra-application facts or information.

3. In answer to a question from ICANN after submission of Image Online Design's application, Image Online Design states that "the period when external registrars are unable to process .Web registrations be as short as possible" [sic]. It also states that it has accelerated development of its RRP implementation in order to shorten the period of time during which "external" registrars are unable to process registrations and expects to begin a test bed within 30 to 60 days after entry into the root server. However, none of these statements are consistent with its application, and no necessary adjustments to its application were submitted. Image Online Design did not identify a different time period than the first year during which it would be the only registrar. Moreover, an attempt to so significantly revise a registry so soon after launch would be a serious stability problem.

4. Since Diebold and the ICANN staff were unable to reach agreement on its request for confidential treatment, Diebold elected to withdraw significant portions of its application, including its pro forma financial statements.

5. The applicants in this group were asked about their assumptions on expected demand. Of those applicants requesting more than one string, iDomains' estimate is based on being granted .biz; KDD's estimate is based on receiving both .biz and .home; and Afilias' estimate is based on .web. In addition, the applicants were asked about their assumptions regarding other potential new TLDs. JVTeam responded that it assumed the introduction of additional general-purpose TLDs and multiple business TLDs over time. NeuStar responded that it assumed the introduction in subsequent rounds of other new open TLDs every 12 months after the introduction of .web.

6. Earnings before Interest and Taxes.

7. Earnings before Interest and Taxes.

8. Earnings before Interest and Taxes.

9. In answer to a question from ICANN after submission of Image Online Design's application, Image Online Design states that "the period when external registrars are unable to process .Web registrations be as short as possible" [sic]. It also states that it has accelerated development of its RRP implementation in order to shorten the period of time during which "external" registrars are unable to process registrations and expects to begin a test bed within 30 to 60 days after entry into the root server. However, none of these statements are consistent with its application, and no necessary adjustments to its application were submitted. Image Online Design did not identify a different time period than the first year during which it would be the only registrar. Moreover, an attempt to so significantly revise a registry so soon after launch would be a serious stability problem.


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