Go Daddy Founder & Executive Chairman Bob Parsons' Personal Blog
Friday, April 21, 2006
The add/drop scheme. How millions of .COM names are used but never paid for.
"Add/drop" abuse is everybody's problem.
We Americans have a big problem - actually it's everybody's problem -- and it has something in common with the .EU Landrush abuse I just finished writing about - no one wants to talk about it. The problem I'm talking about is abuse of the ADD Grace Period (AGP) by a number of key registrars right here in the good ole U.S.A.

The AGP is a five day window during which a newly registered domain name can be deleted or dropped and the registration fee is then refunded by the Registry. The original intent of the AGP was to provide a mechanism for Registrars and registrants to correct mistakes, reverse fraudulent registrations, etc. That original intent has gone astray - because today the AGP is being misused in a large way. I call it the add/drop scheme.

The add/drop scheme hurts all Internet users.
Millions of good .COM domain names - on any given day over 3.5 million and climbing -- are unfairly made unavailable to small businesses and others who would actually register and use them in ways for which the names were intended. Many times businesses accidentally let their domain names expire. When they go to renew them, they find they have been snapped up - and taken away with a huge expensive hassle to follow - by an add/drop registrar.

It's important to first understand the awesome size of the problem.
On the 31st day of March 2006, approximately 764,672 .COM names were registered. Of these names, after the five day AGP period expired, only 61,169 .COM names were actually retained.

So, of the 764,672 names registered on March 31st, 703,503 -- or 92% -- were dropped just before the grace period expired. The lion's share - perhaps 99% -- were dropped by registrars participating in the add/drop scheme.

During the week of March 27 -- April 2, 2006, 5,822,881 .COM names were registered. Of those names, only 455,918 .COM names were actually retained after the grace period expired.

Of the .COM names registered during the above week 5,366,963 - or 92.1% -- were dropped during the grace period. Once again, at least 99% of these were dropped by registrars participating in the add/drop scheme.

The scheme is skyrocketing in scope.
Right now, I estimate there are more than 3,500,000 .COM names tied up in the add/drop scheme on any one day. To put this in perspective, consider that on April 2, there were a total of 48,868,756 .COM names registered worldwide.

From March 2005 to March 2006 the scheme increased FIFTEEN FOLD!
During the month of March 2005 a total of 3,243,967 .COM names were registered. Of these, 1,851,778 were dropped during the grace period - most were part of the add/drop scheme.

The scheme exploded in just a single year.
Things changed drastically in just one year. During March 2006, a whopping 29,894,290 .COM names were registered. Of these, 92.5% or 27,660,668 were dropped just a moment before the grace period expired - again more than 99% were part of the add/drop scheme.

So in one year the scheme increased fifteen fold! In fact, it is so lucrative that more companies are joining the scheme each and every day! And we are also now seeing this activity with .NET and .ORG as well.

Unless the add/drop scheme is checked the problem will assume gigantic proportions.
By now, I hope I have your attention that this indeed is a significant problem -- and that the scope is starting to assume gigantic proportions. First, it's important to understand why the add/drop scheme even exists.

It started when the search engines arrived.
When search engines arrived on the Internet, Registrars and other enterprising individuals learned that it was possible to place search engine links on website pages. When Internet users landed on those pages and clicked on those links, there was money to be made. This was the genesis of a whole new Internet industry, which for lack of a better name, I'll call traffic monetization.

Traffic monetization is a legitimate business.
Before moving further, I'll point out that there's nothing wrong with being in the traffic monetization industry. Go Daddy and its affiliates participate in this on our parked pages. We put links on the pages associated with the domain names our customers park with us and we use those funds to keep our rates low and our services high.

There are many legitimate traffic monetizers.
There are also companies who own domain names and put up websites for the sole purpose of monetizing traffic. Some of these companies are customers of Go Daddy, many are not. I also see nothing wrong with monetizing traffic in this respect as these companies actually step up and purchase the domain names.

How the add/drop scheme works - first they make a large cash deposit.
The registrars who participate in the add/drop scheme first make a large cash deposit with the VeriSign registry.

Then they register as many names as the deposit allows.
Next, they go out into the market and register as many names as their funds permit.

Then for each name purchased a web page with search engine links is created.
For every name they register, they have a system that puts up a smart web page with traffic links tailored to that web name - so that if an Internet user lands on the page, they might be likely to click on one of the associated links. For example, let's say they purchase a name called BaltimoreDocters.com (sic) they might list a number of associated search engine links for medical specialties in that city.

When a user lands on one of those pages and clicks on a search link money is made!
If an Internet user somehow lands on that page and clicks on one of the links, then money has been made! If the Registrar would go ahead and pay for the name, there wouldn't be a problem.

But these add drop registrars never pay for their names!
Now let's say that the 5 day grace period is ready to expire - what now? The add/drop registrar (or their client) simply drops the name. And then after dropping it - the registrar's money on deposit at the Registry is instantly refunded. So, the name was used by the add/drop registrar - and some money may even have been made - without actually purchasing the domain name. The returned funds can then be used to register more names.

It doesn't take much for a name to stay in an add/droppers portfolio.
How does the add/dropper decide which names to keep? As long as it throws off more revenue than the opportunity cost associated with the .COM one year registration deposit - this amount is very low and could be as little as 36 cents. For example, the deposit required to register a .COM name is $6.00. If a add/drop registrar has an annual interest cost of 6% the name only needs to earn them 36 cents for them to keep in their portfolio (36 cents = $6.00 x 6%).

We care about our customers.
So that's the add/drop scheme. Writing about it won't win me very many friends in the domain name industry - but then again I'm primarily concerned about my customers.

We are not in the add/drop business.
For the record, GoDaddy.com and its affiliates do not participate in the add/drop scheme.

I am calling upon the Registries and ICANN for their help in stopping it.
Personally, I think we need to collectively rise up and stop this abuse. We will need the help of the Registries and ICANN to stop it.

So far, the Registries' hands have been tied.
The Registries' position up to now, is that there is nothing illegal about the add/drop scheme so they really cannot stop it. As frequent visitors to this blog know, I am quick to criticize the Registries when I think it is warranted, but in this respect their point is well taken.

The add/drop scheme hurts the Registries also.
It's true that the Registries have the use of the funds that are on deposit to fund the scheme, but because those registrations are repeatedly cancelled they don't get to show it as income and the interest it makes isn't enough to pay for all the computer processing it has to provide to accommodate the increasing add/drop activity. So I believe the Registries would like to see the add/drop scheme brought to an end.

Stopping the add/drop scheme provides ICANN with a unique opportunity.
ICANN, on the other hand, only acts when it needs to act. Quite frankly, I think ICANN needs to find something positive to do - something that it can point to so it can say - "Look! We cleaned this up!" I think stepping up and bringing the add/drop scheme to a halt would do that.

There is a very simple solution.
When I wrote about the .EU Landrush abuse I not only exposed what was going on - I also provided what I thought was a workable solution. In this case, there is also a very simple solution that would clean this entire thing up quickly.

ICANN can fix the entire problem with its 25 cent fee.
Presently, ICANN gets a 25 cent fee on each and every .COM name (and others) kept past the grace period. The ICANN fee is tabulated by each registrar and paid quarterly. A small change here would fix this problem entirely.

Simply make the fee non-refundable.
I propose we make the ICANN fee non-refundable upon the registration of every domain name, and have it debited out of the funds on deposit at the Registry. The net effect of this would be every time a domain name is registered, the registrar would have to pay ICANN 25 cents. This would bring the add/drop scheme to a screeching halt.

Let's see how ICANN handles this opportunity.
There is a small problem with this approach: ICANN is a consensus-based organization and of course, many registrars are participating in the add/drop scheme. It will be interesting to see how ICANN steps up to handle this problem now that it is in the light.

How to express your feelings.
You can submit your comments to the ICANN Board of Directors at the following email address: comments@icann.org.

See a live TV interview with "yours truly."
As a complete aside, I was interviewed by Kent Dana of the CBS Phoenix affiliate (KPHO) earlier this month. The interview is on the light side, lasts 5 minutes and -- believe it or not -- when it was aired it received a "10" rating. Here it is, it might give you a smile: http://www.bobparsons.me/play.php?media_id=kpho&ci=21590