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OFF TO SEE THE WIZARD:
WILL WLS DEMOLISH DOMAIN DROP CATCHERS?

By Ron Jackson
Editor/Publisher

A storm is bearing down on the domain industry. No one is quite sure what will still be standing when it passes through, but it definitely won’t look like Kansas anymore. The landscape we are all familiar with will be changed for good if ICANN approves Verisign’s controversial Wait List Service (WLS). Some people in the business see that as a good thing, others see it as a death sentence.    

Archived 10-24-03




Verisign currently collects $6 on every .com and .net domain name registration. If WLS goes through their share will quadruple to $24 on all expiring domains that attract a WLS buyer. Since Verisign will be granted monopoly control over those domains, WLS subscription holders are guaranteed to get the name if it drops. Drop catching services and other potential buyers are guaranteed to get nothing.         

Though WLS would be a virtual yellow brick road to riches for Verisign, it could bankrupt the bevy of businesses that have sprung up in recent years to compete in the expanding market for expiring domain names. Some of those in the line of fire, including industry heavyweights like Dotster, Enom and GoDaddy, have banded together to form the Domain Justice Coalition (DJC) in an effort to derail WLS. Lawsuits have been filed and at least two U.S. Congressmen have enlisted in the anti-WLS battle.

None of that has stopped Verisign from announcing that WLS will roll out on October 27, but in a recent letter to Verisign, ICANN said that several details still have to be worked out before Verisign will be given a green light to go.

Multi-million dollar corporations are the most visible combatants in this battle for the pot of gold at the end of the domain rainbow, but real people are being affected as well. Small businessmen like Gordon Martin have to fend for themselves. The 51-year-old Canadian runs an independent drop catching service at DropWizard.com

To Martin the issue is a simple one. “As an entrepreneur I am highly offended by a quasi regulatory organization (ICANN) sponsoring, aiding and abetting two private companies to confiscate an industry and our business assets,” Martin said. (In addition to Verisign, the second company Martin refers to is SnapNames.com who will provide the technical system for WLS).

Martin’s situation would be similar to a gun shop owner having the authorities arrive one day with an announcement that Wal-Mart had decided they wanted ALL of the firearm sales in town. Or to be more precise, they want the rifle and pistol business (WLS will affect only .com and .net). The drop catchers could still try to survive on .org and new extensions like .info, .biz and .us. but from an economic standpoint that is like being told “you can keep your gun shop open, but you can only sell slingshots and peashooters.”

Martin says people like him won’t be the only ones to suffer from a new Verisign monopoly. He sees trouble for the entire industry if WLS rolls out. “I presume the domain reservations will be in the usual form of a land rush over a day or two or maybe even a week. But then what?  364 days of tough sledding?" Martin asks “who is going to add new product, devise new ideas or start up business in the 364-day-a year wasteland that will be created (once all of the slots on good domains falling for the year ahead have been claimed)? And where will the customers be for those 364 days…one day of huge interest and then what? Watch for a massive outflux of clients that will never be back.”

Martin also feels ICANN will lose all credibility if it rubberstamps the WLS proposal. “What company will risk its capital and ideas in an area that ICANN has allowed to be co-opted and confiscated by it’s own board members for personal/corporate profit?” he asks.

To appreciate the depth of Martin’s feelings about the WLS threat you have to understand what it took for him to get where he is today. DropWizard is the culmination of 30 years of hard work and investment aimed at finally allowing Martin to do something he really loves.

Martin was born in the small Vancouver Island town of Duncan in 1952. His parents, Joan and Russ Martin, were both schoolteachers. While he was still a child they moved to Surrey, a busy British Columbia town of 367,000. Martin has been in the area ever since, though  a few years ago he returned to his small town roots by moving his own family a little further  east to Langley,  a picturesque community of 24,000 people in the famous horse country 27 miles southeast of Vancouver. His wife Lita and 13-year-old daughter Cassandra are there too but three other children have already grown up and gone out on their own.

Martin graduated from high school in Surrey then enrolled at nearby Douglas College. He took on several part-time jobs and planned to work his way through school but admitted spending too much time on Partying 101. He soon found himself on the street looking for a full time job. Fortunately the Bank of Montreal liked Martin enough to overlook his transcript and give him a shot in their management training program.

Martin paid careful attention to business and four years later he decided he was ready to go out on his own. He knew there would always be a demand for janitorial services so he started up one of his own. It may not be the world’s most glamorous business but it is one that rewards hard work with very respectable dollars. Martin was able to build his  billings to nearly a million dollars a year and employ more than 20 workers.  Ten years after he started he sold the business and used his entrepreneurial experience to move on to the financial services industry.  

In 1998, Martin and two partners purchased a mutual fund dealership to launch a major new initiative. 3 years later they took over Canada’s largest credit counseling company and merged it into their operation, boosting billings to 10 million dollars a year. Martin also spent a lot of time advising start-ups on raising capital, writing securities documentation and obtaining venture capital. As his company grew and the usual “corporate culture” took root, Martin found the new environment and his “Attila the Hun” management practices were not a good mix.

He also wanted more personal time and soon fell prey to a fatal attraction that has claimed many in the domain business – computers and the Internet. “I told my wife back in 1998 when I bought my first computer that someday I would make my living off the net”, Martin recalls. “I still putter in the financial business but must admit the net has now become my first love!”

Domain pioneer Rick Schwarz invited Martin to join his private chat board where Martin learned the ropes from some of the most successful people in the business. “I’ve literally had a million dollar net education given to me free,” Martin said.  “I can’t thank Rick enough for including me on his board as I was a complete neophyte in net terms.”

Martin spent over a year pursuing expiring names for himself then decided last year that there was room in the market for a new commercial drop catching service. He formalized what he had already been doing on his own and Drop Wizard was born. Nothing in Martin’s background suggests the kind of technical computer skills one would need for such an operation. Martin explains, “I have moderate skills in html but no coding experience.  However, I have a technical guy that I used for our financial business and he has done all the coding work in return for a small percentage of the company.”

Of course there were other obstacles that had to be overcome. “The biggest problem was finding registry support for a startup.  I was lucky that AW Registry listened and even though they weren’t accepting new customers at the time, they made room for me”, Martin said. The hot new Australian registrar Fabulous.com is also a partner now. 

Even though the company is well established today, there are still daily challenges to face. “From a monetary point of view the biggest risk is in the daily credit.  On average it can range anywhere from $10,000-$50,000 a day (owed to the registrars). There is the risk of not being paid after purchasing domains on behalf of clients”, Martin said. 

Another problem is having to regularly reinvent the operation to keep moving forward in the fiercely competitive drop catching game. Martin said “there has been a constant need to re-code the site to handle the enormous growth we’ve gone through.  It has literally required a “new site” almost every 6 weeks since we started.”

Martin also has to deal with rapid fire changes in the industry at large. Drop Wizard originally charged a flat fee for successfully catching domains, but this summer’s successful debut of Pool.com’s new auction model (offering a set opening price that is usually followed by an auction among those who seek the same domain) forced existing drop catching services to scramble to keep up. Martin says “I don’t like the Pool business model. However they brought it forward, the public accepted it and they’ve become dominant in the existing market, pushing aside other successful companies.”

To meet the challenge Drop Wizard had to abandon the set price format and start auctioning domains as well. It was the only way to keep registrar partners who otherwise might have been attracted by the higher payouts Pool can afford with the funds they receive from high auction bids. Martin said “We resisted changing to an auction system months beyond when I should have acted and it has cost us dearly in market position.”

Now nearly all of the drop catching services (with the notable exceptions of SnapNames and GoDaddy) use auctions as well. The trend has not been popular with domain resellers and has in fact prompted many of them to switch from the anti-WLS camp to the pro-WLS side. However, Martin believes those people will be very disappointed if they think they will acquire good names at low prices in a WLS world.

“They’re dreaming," he said.  “They seem to think that the small buyer will win out but we’ve already been approached by large buyers who are prepared to buy up our ENTIRE capacity (for WLS land rush subscriptions) and at a premium price that is higher than what we would otherwise be charging. And I know these kinds of offers have been made to every company.”

Martin also does not buy the common complaint that the current system has made all good domains unaffordable to the average person. “I see bargains go every day through our system because the bidders aren’t always up on all the domains dropping.  A little extra effort would pay large dividends,” Martin said. 

“It seems to me the most vocal critics of the existing system are those who spend the most time in the chat rooms complaining.  I don’t know how they find the time. I do know I seldom see them reserving names!  The reality is they just want it handed to them and they seem to think the WLS will do that." he added.

Still many people have resigned themselves to the idea that low cost high quality catches have become a rarity and are in danger of extinction. Martin sees that as evidence that domains have simply caught up with other forms of valuable property. “I see a beachfront home and I would love to own it, but the price is astronomical and well beyond my means. Nothing guarantees us a priority in life unless we earn it. The current domain market reflects the value of the underlying asset. Those who can afford to participate do and those that don’t have the financial means need to improve their efforts,” he said.

Martin is certain that today’s well-financed winners will be the same players who will win under WLS. The only difference he sees is a new can of worms being introduced by the WLS system. “With the lack of ongoing daily interest, clients drying up, the lack of improvisation and new products, I believe this will negatively affect the reseller market.

"Is there another Pool out there? Is there another way of doing this business? Monopolize the market and we’ll NEVER find out.” Martin adds, “I ask someone to show me an example of a monopolized market that enjoys innovation and progress. I’ve never seen it.”

Martin also has an answer for those who think today’s labyrinthine system is just too confusing for the general public to understand. “I have not seen an industry where outsiders really understand the process.  I don’t fully understand what a realtor or a lawyer or a painter has to do to succeed in their respective industry.  I don’t know how to operate heavy equipment and I’ve never discovered just how much a dealer actually pays for a car.  If I want to participate in their industry I must learn the ropes and if they wish to participate in domains they must learn ours,” Martin said.

While the specter of WLS persists, Martin advises people to be wary of the WLS “pre-registrations” being offered by Verisign, with others likely to follow. “In the worst case scenario you could see every registrar that takes reservations requiring payment up front.  Imagine paying $60 or so for a reservation for a single domain at 160 different places….and you can bet most registrars will not want to give you a refund for an unsuccessful effort.”

Martin predicts “they will offer alternative services or a transfer to a different reservation instead of a cash refund. It reminds me very much of the beginnings of our .ca drop service. I found myself laying out $150US for every $60 domain we caught. The administrative requirements shortly became a nightmare with tracking refunds etc. We had to drop several Canadian registrars who wouldn’t provide alternate arrangements.”

Of course all of this becomes moot if one of the current lawsuits results in a restraining order against WLS. Martin says “I can’t comment a lot here as we may be launching legal action ourselves.  I will say that the lawyers I have consulted with are favorable to our chances of legal success.  This does represent a confiscation of our business.”

Though Martin is adamantly opposed to WLS he is not foolish enough to be caught unprepared if the new service survives its run through the legal gauntlet. Drop Wizard will try to keep the doors open. “Yes we will continue with the .org and other extensions”, he says. “As far as I know Drop Wizard was the first service to offer the regional extensions when we implemented the .ca (Canada) last year.  We are about to go live with the .co.uk this week.  And I will be implementing the rest shortly.”

Martin also hints at an interesting new service. “I looked at WLS a year ago when it was announced and quietly built an alternative.  We’ve run it in beta for the last year (undetected so far).  It will fracture the WLS system and quite frankly hand ICANN some issues it REALLY isn’t going to like. Still I’m torn because I’ve reached the stage in life where I just want to work, do a good job and make money.  I don’t need this grief but I see little alternative when confiscation of my business is on the horizon.”

Given everything that has happened in the two years he has been in the business, one has to wonder if Martin has any regrets. “Yes and no”, he said. “It has been a very exciting time. I’ve never been in a business where I have to re-invent myself every 72 hours or so.  Some stability would be nice but there’ll be plenty of time for that when my kids finally throw me in a nursing home as they regularly threaten to do!” 



If you would like to comment on Ron Jackson’s article, write editor@dnjournal.com.
 

For a different perspective on WLS, see Howard Hoffman's Guest Column.



All other previous cover stories are available in our Archive

 

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