427_brand_registries_final

Perspectives Volume 3, Issue 4 Specialized TLDs

FairWinds Partners, LLC | Internet Strategy Consulting of 12

2122 P Street, NW | Suite 300 Washington, D.C. 20037

Copyright © 2008 - Duplication and Redistribution Prohibited.

Abstract:

Potentially biased marketing campaigns are implying the beginnings of a widespread

trend of brand owners lining up to register specialized extensions “DotBrands” and

contain the underlying threat of brands being left behind if they do not follow suit.

However, brand owners must avoid the potential pitfalls of rushing to respond to this

sales pitch, and step back to take a realistic look at the specialized TLD, what its registry

entails and the likelihood of its success. This paper offers the perspective from that step

back.





Should Brands Create and Manage .BRAND Registries?

A Closer Look at the Specialized TLD

Domain names are defined as alphanumeric strings separated by dots that

translate IP numbers into easier-to-remember labels. Domain names feature a hierarchy

of levels, separated by dots, where the root of the domain name is the portion of the name

that follows the “www.” and precedes the extension. For example, “google” is the root of

the domain name, www.google.com. The extension is the final portion of a domain name

beyond the root and sometimes following the right-most “.” (for instance, ".COM" or

".FR"). As ICANN prepares to open up the domain name space to an uncapped number

of new TLD applications, the so-called “specialized TLD” is attracting the most attention.

The specialized TLD is a dot-Brand, where a company can become the registry for an

extension that is composed of their brand name.

Recent direct outreach to brand owners by ICANN and providers of outsourced

registry services has implied that new TLDs can be deployed and user behavior easily

changed to adapt to a new Internet hierarchy where a dot-BRAND search would become

more common than a dot-COM search. This is concerning to FairWinds since it would

force the next generation of brand owners to fund the expansion of the domain

namespace through defensive investments. We compiled this paper to serve as a resource

for any company considering their own top-level domain.

In order to understand the potential impact of the specialized TLD, it is important

to consider the current Internet landscape. With much of today’s commerce being

conducted via the Internet, Web sites enable companies to deliver positive experiences to

customers searching for the brand online, draw in casual browsers and promote their

brand in a beneficial and memorable way. So, at their most basic level, domain names are





valuable because people frequently type them into browsers – this is especially true of

.COM and the more popular country code TLDs (ccTLDs).

Given the omnipresence of sites such as Google and Yahoo!, one might assume

that browsers primarily use search engines to reach their intended destinations online.

However, according to a recent Forrester report, search via direct navigation accounts for

38 percent of Web site traffic. WebSide Story’s StatMarket division estimates that more

than 67 percent of global Internet users arrive at Web sites by direct navigation. This type

of navigation, also known as type-in-traffic, is defined as traffic derived from a visitor

arriving at a Web site by keying a word or phrase into the browser address bar rather than

following a link, a bookmark, or a search engine’s results. Direct navigation users

typically type in keyword terms, brands plus keywords or generic category terms. The

use of “dot-COM” is so prevalent, consumer searches usually vary by what domain root

is entered into the browser rather than by what extension is used. For example, a direct

navigation user may type in realestate.com when looking for information on purchasing a

home or may type in remaxagent.com when looking for a RE/MAX real estate agent.

A large portion of direct navigation results in Web users finding the Web site or

content that they were interested in. For instance, a user who types hotmail.com directly

into the address bar will be brought to Microsoft’s www.hotmail.com Web site, where he

or she can manage an email account. In other cases, users that search with generic

keywords are directed to sites that have been strategically purchased by corporations. For

example, the domain salad.com leads to the Clorox Company’s Hidden Valley Ranch

salad dressing site.

The frequency with which a domain name is entered into the browser bar

demonstrates the value of that name. Direct navigation user behavior shows that .COM





domain names are the most valuable, followed by domain names paired with country

code extensions. Other gTLDs including .NET and .INFO have very low value because

users rarely enter them in their browser bars when practicing direct navigation. If the

climate of the direct navigation market continues along this path, only .COM and popular

ccTLDs domain names will continue to see a steady increase in value and provide

businesses with an effective way to reach their audiences and a generous return on

investment.

With millions of domain names occupying and continuously changing the

Internet, not only is there opportunity for brand owners to garner traffic, there is also

ample opportunity to lose it. There are times when direct navigation does not deliver the

expected content. For example, if a user makes a typographical error, such as appple.com

or wwwhotmail.com, the user is not delivered to the anticipated Web site. In the case of

“microsoftexcel.com” the domain name resolves to a pay-per-click site consisting

primarily of recycled paid search links to other Web sites. In cases such as these,

consumers have found themselves on cybersquatted sites, which are sites where a

company or individual has registered the domain in order to siphon traffic meant for

another destination. Cybersquatting is the “bad-faith and abusive registration of

distinctive marks as Internet domain names with the intent to profit from the goodwill

associated with such marks.”1

Navigating to a cybersquatted page often leaves users with a negative impression

and leads to an uncomfortable “hijacked” feeling because users are taken to unexpected

and sometimes inappropriate content. Because attracting Web traffic is vital to success in

1 Greenfield, Neal and Sarah Deutsch. “The U.S. Anticyberquatting Consumer Protection Act.” Trademark Law & The Internet: Issues, Case Law, and Practice Tips. 2nd ed. 2001: 247.





the online space, the loss of users due to negative impressions may bear significant

consequences for a company.

Cybersquatters have built a business around registering names that are

confusingly similar to brands in order to turn a profit. Cybersquatters utilize specific

methods and tools in order to more accurately determine the most profitable domain

name investments for their businesses. Domain names are a brand’s most important

gateway to consumers online, thus the most profitable domain names for brand owners

are also the most profitable domain names for cybersquatters. Due to current trends in

consumer behavior, those names are, more often than not, in the dot-COM TLD. Traffic

lost to cybersquatted Web pages has a profound impact on a brand’s immediate and long-

term business prospects.

Specialized TLDs - A New Business Opportunity

Unfortunately, much of the onus of recovering infringed names is placed on the

brand owners. They are tasked with doing all of the due diligence, financial and

otherwise, to recover names. As soon as they have successfully recovered one set of

names, another ten, hundred, or thousand infringing names are registered.

Left with such a desperate situation, some brands might be tempted by pitches

that advocate the creation of their own dot-BRAND TLD. ICANN and registrars are

heralding specialized TLDs as a solution to the problem of brand enforcement. Marketing

campaigns are hinting at the beginnings of a widespread trend towards heavy registration

of specialized extensions by brand owners. Unfortunately, the underlying threat is that

brand owners will be left behind if they do not follow suit. Brand owners must avoid the

potential pitfalls of rushing to respond to this sales pitch. The people pushing specialized





TLDs are the same people that have pushed all of the new TLDs that have been launched

over the past 8 years, none of which have been adopted by users. These new TLDs are

exponentially different than defensive domain name registrations. The formation of a

registry involves a great deal of time and resources and brand owners must consider the

real likelihood of success.

To recap, at their most basic level, domain names are valued based on the amount

of traffic and revenue they generate, and the amount of traffic and revenue they generate

are based on how likely it is that Internet users will visit that domain name. Currently, an

Internet user is much more likely to type in an intuitive domain root and the extension

“dot-COM.” What if instead of searching for intuitive domain roots ending in the “dot-

COM” extension however, consumers began searching for intuitive domain roots ending

in the extension of the brand that they are looking for?

The common pitch advocating specialized TLDs is that they can offer brands

unique control over their Internet footprint. Brand owners who register a specialized TLD

would have the ability to approve domain registrations made under that TLD, ensuring

that the brand will only be affiliated with the partners and individuals of their choosing.

This would allow for brand-specific targeting; it would not just be about communicating

one site, but also about creating a network around the brand and linking its products,

services and partnerships under the TLD.

The greatest attraction of the specialized TLD is the hope that specialized TLDs

will edge out dot-COMs as the more intuitive direct domain name navigation choice.

Having one extension to remember for a brand is easier than remembering several

domains for various products, and advocates of the specialized TLD argue that these

extensions will become the new way to do business on the Internet. Customers will be





guaranteed to find the authentic brand they are looking for if they use the appropriate

extension and will know that any other extension may carry counterfeit products or

provide other unwanted experiences. In this example, consumers would no longer be

duped into counterfeit purchases, and brands would no longer suffer losses resulting from

cyber crime.

However, the fact of the matter is that the development of a dot-BRAND will not

stop the creation of confusing content in the dot-COM environment, nor will it change

user behavior. While many brands would rather they didn’t, consumers tend to shop and

search by category and vertical. Some of this behavior is driven by brand loyalty, but it is

also due to the fact that the Internet provides easy, direct, and free flowing access to

information about many different types of products and services. Segmenting content by

brand would potentially detract from this. In addition, the idea that Internet users will no

longer look to dot-COMs for products if they know that they will be assured authenticity

and quality from specialized extensions is simply unrealistic. People will still seek the

non-corporate sites that promise better prices or third-party opinions about a brand. While

a dot-BRAND can provide some security, it will by no means eliminate the need for

carefully monitoring dot-COM and other TLDs, informed and targeted defensive

registrations, and enforcement.

Furthermore, getting consumers to intuitively search for a dot-BRAND would not

be the responsibility of one brand, but would instead require a collaborative effort on the

part of brand owners to change online consumer behavior. Even if a brand considered

itself up to the challenge of managing its own specialized extension, the company would

also have to have the same confidence in other brands so that consumers would adopt

new direct search behavior and resist gravitating towards dot-COM sites.





Advocates of the specialized TLD argue that specialized extensions not only

reduce the clear monetary harms caused to brand owners by cybersquatters, but also have

the ability to reduce the many intangible harms that lead to decreases in brand equity and

consumer loyalty. Within the specialized TLD, the brand’s customers would be assured a

safe environment in which to navigate, without fear of stumbling upon a cybersquatted

site that is unaffiliated with the brand that they are searching for. Customers who visit a

specialized TLD site would be assured a brand-approved experience and safe

transactions, where they need not fear that their personal information will be stolen by an

unknown party. Specialized TLDs would also enable brands to establish a wildcard, so

that despite URL-path errors before the domain name, typographical errors in the domain

name itself, or the typing of incorrect combinations of terms that form the domain name,

the domain will still resolve to official content. Consider, for example how this works

with any domain name ending with the TLD “dot-CM” being automatically routed to

another page. As the registry operator of a dot-BRAND, it seems that there would be no

need to imagine every possible domain that users could enter. Everything the consumer

can imagine or type in that ends in dot-BRAND would resolve to official content.

Currently, cybersquatters use phishing schemes to lead consumers to spoofed

company Web sites that request personal or financial information from the consumers.

Oftentimes consumers are prompted to visit these sites due to e-mails claiming that users’

accounts have been breached or will be closed. These e-mails are intended to create panic

so that consumers will readily provide their social security numbers, bank account

numbers, credit card numbers or other privileged information. Advocates of the

specialized TLD claim that with a specialized extension, brands will have control over

who registers under their dot-BRAND and this threat will be eliminated. The argument is

that brands will be able to easily maintain customer trust and loyalty. However, email

addresses are also easy to spoof, and cybersquatters would still be able to create email





addresses in any TLD that appear to be from a dot-BRAND domain name. Brand owners

will find that they have expended significant amounts of resources on a solution that is

remarkably easy to circumvent.

The Process

Undertaking the registration, development, implementation and maintenance of a

specialized TLD is no small task, and is one that will have a substantial price tag. While

not yet specified, ICANN insiders have stated that the non-refundable application to

ICANN alone will be substantially higher (possibly many times higher) than the $50,000

fee, which was charged during the last round of new gTLDs. The cost of developing the

proposal, building or outsourcing the infrastructure, as well as ongoing maintenance and

oversight is substantial as well. Experts, developers and advisors would need to be hired

and consulted to ensure that the TLD is a success and delivers on the agreed upon terms

with ICANN (which are typically non-negotiable).

Brands applying for specialized TLDs should be fully versed in all of the process

requirements, legal and regulatory agreements, opportunities and risks, as well as both

short and long term costs related to running a registry and investing in encouraging users

to adopt a new way of accessing content online.

While there is cost wrapped up in creating and developing a TLD, the bulk of the

price tag for this new domain strategy will be found in marketing the TLD to customers,

partners and general Internet users. As mentioned before, the real challenge will be to

promote the specialized TLD in a way that will change user behavior, and there is no

guarantee of success. It is possible that one brand owner can successfully market a

specialized TLD extension, but long-term and large-scale success of the endeavor will





rely heavily upon more brand owners following suit. Brand owners have to decide

whether they consider the possible success of a specialized TLD to be worth the cost. If

brands do go ahead with testing the hypothesis of running their own TLD registry, they

will have to consider how they will work on distributing that cost.

One option for those brand owners that may sell domains (example: a franchise

model hotel brand owner mandating franchisees to use a dot-HotelBrand TLD) is to

charge higher prices for partners that are getting guaranteed safe names within the

brand’s TLD. However, because these partnerships already require some sort of payment

under contract, some tweaking of the brand’s economic model would be necessary. In

that case, there are questions to be answered: do you build this specialized TLD into the

agreements, making the registration and its cost part and parcel with the other contract

obligations? Or do you take the cost upon yourself and hope to recoup the costs?

The point of a “dot-BRAND” is to mitigate the threat of cybersquatting, financial

losses and damaged brand integrity that brand owners now face. According to an

independent report prepared by MarkMonitor, cybersquatting increased by 248% from

2006 to 2007, and according to the International AntiCounterfeiting Coalition (IACC),

$600 billion was spent online for counterfeits in 2006. There is a clear need to protect

consumers and brand owners and to stem the tide of Web sites run by cyber criminals.

The ability of a dot-BRAND to provide this sort of protection is dubious at best.

Unfortunately, ICANN has not been discouraged in their push for new TLDs even though

they are largely unwanted by businesses and the user community. It should also be noted

that economic modeling on the need for or value of these Internet addresses has not been

made available by ICANN staff.





Conclusion

With more people than ever typing domain names directly into browser address

bars and often guessing logical but non-communicated domain names, today’s Internet

presents vast opportunities and significant obstacles. The necessary costs for trademark

owners to protect their brands and consumers have grown substantially due to the volume

of domain names that are added on a daily basis. This new TLD will be marketed to

brand affiliates as an enforcement tool, but many companies will be understandably

hesitant to take on a risky endeavor to curb infringement.

The purpose of a trademark is to protect the consumer. When trademarks are

abused by cybersquatting, the resulting dilution hampers the ability of the trademark to

do its job. It is therefore important for brand owners to discuss all opportunities that are

presented to understand their risks and rewards. The dot-BRAND TLD may seem like a

simple and beneficial solution, but it may require a substantial commitment of resources

and the pay-off could be surprisingly low. This is an evolving and fast moving issue and

we invite all brand owners, both those who have been approached about the possibility of

a specialized TLD extension and those who would like to learn more about it, to feel free

to contact us with comments or concerns.

Contact Information:

Yvette Wojciechowski, Media Relations Manager

FairWinds Partners, LLC

2122 P Street, NW

Suite 300

Washington, D.C. 20037

Office: +1 202 223 9252





Fax: +1 202 223 9256

[email protected]

http://www.fairwindspartners.com

427_brand_registries_final

Documents

specialized tld domain

brand registries

socalled specialized

generation of brand

dotbrand search

domain namespace

toplevel domain

new tlds