VeriSign Domain Price Increase Criticized

The Internet is about to get more expensive, without justification some believe. VeriSign, the company that manages both .com and .net domain name registration, said Thursday that the registry fees for domain names will increase starting Oct. 15.

The registry fee for domain names -- effectively the wholesale price -- will rise from $6 to $6.42 for .com names and from $3.50 to $3.85 for .net names. This represents the first registry fee increase since the Internet Corporation for Assigned Names and Numbers (ICANN) established the fee structure in 1999.

Elsewhere, domain prices are going down. Last month, the government-backed China Internet Network Information Center said it would reduce domain name fees for English-language .cn names to 13 cents.

According to Shanghai Daily, the purpose of the promotional price drop is to increase use of the .cn domain and to enhance national information security, a reference presumably to the risk of dependence on overseas domain name servers.

VeriSign said the cost increase is necessary to pay for the increased volume of domain name system queries it handles -- up from 1 billion queries a day in 2000 to 30 billion queries in 2007 -- and to fortify the Internet's infrastructure against cyberattacks.

Not everyone buys that explanation, however. "If you look at what Web hosting went for in 2000, compared to what it costs today, the amount of space and transfer limits for a typical account have grown far higher than thirty-fold, and at the same time prices have gone down," said George Kirikos, president of Canadian financial software company Leap of Faith Financial Services, in a post on CircleID.com, an Internet policy discussion site.

In an e-mail, Karl Auerbach, former member of the board of directors of ICANN, former Cisco researcher, founder of an unnamed software startup, and an attorney, said, "The actual cost to VeriSign of providing the service of registering a domain name and publishing it via VeriSign's DNS servers is probably on the order of $0.03 per year per name, or less."

According to Auerbach, the registry prices were established by fiat by ICANN without any review or audit of the actual costs. "If we look at the difference between cost ($0.03) and the registry price ($6.42), we see that ICANN has gifted VeriSign with a built-in profit margin of about 21,400% of price over cost," Auerbach said. "This cumulates over the 60,000,000 names (in .com) to a gift of about $383,400,000 per year granted by ICANN to VeriSign."

Auerbach contends VeriSign's costs have risen because of domain name speculators, or "tasters." The traffic generated by tasters, he said, has forced VeriSign to upgrade its registration systems. These tasters, he said, "get to play in this system at a massive discount that is unavailable to the domain name buying public."

Domain tasting takes advantage of the five-day grace period during which domain registrations are refundable. Tasters use automated methods to register massive numbers of domain names, test them for profit potential in conjunction with online ads, then seek refunds on all but the few that bring in enough traffic to generate a profit.

Auerbach puts the ratio of domain tasting registrations to regular paid registrations at about 200-to-1. In effect, the general domain name customers end up paying for the infrastructure to support the speculators. And come October, they'll be paying more.

Editor's note: On April 13, at the request of Karl Auerbach, we changed his quote to reflect that he was talking about the actual costs to VeriSign of registering a domain name and not costs in general.