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More Than Half of New Commercial TLDs Will Fail Within the First Four Years

June 11, 2012

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Depending on where you go for statistics, you’ll find that more than half of all new startups fail within the first four years of business

Some put that rate inside of 3 years.  Others give a slightly higher or lower percentage of businesses that fail.  The conventional wisdom I’ve seen quoted and passed around by other business owners is something as high as 85% failing within the first 5 years.

Regardless of what the exact number may be, the fact is that over the long run, the majority of new businesses fail.

I predict that at a minimum, the success rate for new commercial TLDs will be no different than that of businesses in any other industry.

This post actually began as a comment to the recent Domain Name Wire post titled How big is the new TLD opportunity? TLDH valued at $60 million, until my comment began to grow so long that I felt it warranted its own discussion, which follows.

Specifically, my thoughts were spurred on by a comment left there by Anthony Van Couvering, CEO of Top Level Domain Holdings (TLDH, the subject of the article).  Here is a quick review of what Mr. Van Couvering had said:

New Zealand’s ccTLD, .co.nz, has 400,000 registrants in a population of 4 million. That’s 10%. Great Britain (.uk) has 10 million names in country of 60 million – 15%. Germany, .de, has 15 million names for a population of 90 million – 18%. You will find that throughout the developed world, ccTLDs have registration that correspond to between 10 – 20% of their populations. These sales have occurred over many years, but the bulk of them have occurred recently.

Now consider some of the new gTLDs in the developed world where governments have given TLDH their stamp of authority. Bavaria – .BAYERN – has a population of about 12.5M. North Rhein Westphalia – .NRW – about 18M. Greater London Area – 14M. Greater Miami – 5.5M. Greater Budapest, about 2M. Total more than 40M people.

We think city and regional TLDs, with government approval, are highly analogous to ccTLDs. With proper execution, a company with a geo-TLD market ought to be able to approach the 10% penetration achieved by ccTLDs within a few years (remember, current ccTLDs have done essentially zero marketing). You do the math.

It’s our view that our current share price and market valuation is more than supported solely by the developed-world geographical gTLDs whose governments have chosen to work with us. In addition, geographical gTLDs are not the only new gTLDs we’re applying for.

It isn’t my intent to debate the share price of TLDH, nor to imply that I believe they are likely to fail.  I do wish their venture the best of luck, but the one question I would pose in response is, how big of an overlap is there going to be within these market penetrations?

If we take the city of London as an example, in short:

  • How many Londoner’s who already own .co.uk will also want/need to own .london?
  • How many of those who don’t yet own .co.uk (or .com) will opt for a .london instead of a .co.uk for their new website?
  • How many will opt for .london either instead of or in addition to the TLD for their business vertical such as .bank, .car, .hotel, .music, or an infinite number of other possibilities?

Given the potentially limitless amount of consumer choices that are soon going to be on the table when it comes to registering a new domain, are we really going to see a 10% – 20% uptake on .London, or any other nTLD for that matter, that has been typical of so many ccTLDs to date, with no marketing as Van Couvering suggests?  (“remember, current ccTLDs have done essentially zero marketing”)

To date, current ccTLDs have really not had to compete, except against gTLDs, to which they were by default the only regional alternative.

Let’s look at a concrete example.  I live in Austin, Texas.  Let’s say that I decide to open a new local financial planning consultancy that focuses on green and socially responsible investing, and that we plan to service all of Austin and the surrounding Travis County area.

Now let us say that tomorrow the following new TLDs were all proposed, applied for and accepted:  .Austin, .TX, .TravisCo, .ATX (Austin’s colloquial abbreviation), .Money, .Finance, .Local, .Eco, .Green, .Invest, and .Consulting.  Assuming I can’t get the .com (which is supposedly the whole point behind new TLDs), which one of these new TLDs am I going to acquire for my business domain? Am I going to acquire all of them?

Which brings me to the crux of this post: Just like in other areas of business, new TLD operators are going to have to compete with each other for a finite amount of customers and a finite amount of dollars.

New TLDs are changing the supply side, not the demand side.

I’ll leave you with one final analogy, but I think it’s a good one:  Commercial fishing.

Let’s say there was some sort of public ordinance that limited the amount of commercial fleets that could fish the ocean.  With competition artificially low, any commercial fishery, if not doing quite well, is at least sure to be profitable.   With the ordinance lifted, suddenly anyone with the means can now start themselves as a commercial fisher.  But this does not change the size of the ocean or the number of fish in it.

Yes, the ocean may be quite large, and there may be much opportunity, but just like in other industries where businesses must compete, not all who try will be successful and many boats will return to port with empty nets.

The flip side to that coin of course is that some will be successful.  Perhaps those companies applying for dozens or hundreds of new TLDs are just playing the numbers.  Only time will tell who the winners and who the losers will be.

Meanwhile, how will this affect internet users and businesses conducting commerce on the web?  That is another story.

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