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Collusion in the Industry? [Guest Post]

Posted on 06 January 2014 by Andrei

One of the best-kept secrets in domaining is Go Daddy’s code promotion for $0.99 transfers. You save a ton, get an extra year added on your domain and GoDaddy then makes up the discount when you renew for future years.

But why don’t any other registrars have frequent codes to transfer domains to them for anywhere near that price? NameCheap has the lowest permanent transfer deal out there right now at $8.67 but that’s the same as GD renewals using a code. There are a few other companies that occasionally offer deals like the $0.99 GoDaddy transfers but nobody comes close to doing it as frequently.

No sense in ever transferring away from GD. Once you’re there they have you captive. There’s been plenty of time for them to see what’s going on and that Go Daddy is taking away lots of their business. If it works for GoDaddy why wouldn’t other registrars want to attract some new business and get them renewing future years with them?

In a free market there should be a level playing field. Other registrars should be competing to get my old employer’s customers just as passionately as GD is trying to get theirs. It’s the same way with advertising. Why is Go Daddy so much more aggressive with their TV advertising than the others?

The other registrars need to step up their game. They’re missing a huge opportunity to be more successful. If money is the problem then that’s where VC’s should be investing those funds that are burning a hole through their pockets.

Either the others are just foolish (I don’t think so), lazy or incompetent (all of them?) or I smell some collusion going on here in the industry. We want more competition and cheaper transfer deals from other registrars! It’s the American way.

Why is the domain market exempt? What do you think? Do you want more competition throughout the domain industry? How long will it take until GoDaddy finally has an equally aggressive competitor?

This post was written by domainer Matthew Crowder. His domains are listed over at BuyNamez.com.

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21 Comments For This Post

  1. Domenclature.com Says:

    Excellent piece!

    Andrei, I hope you’ll also present some answers, in your opinion, in the comment section.

    Thanks.

  2. Michael Says:

    If other registrars did it frequently, you could basically just keep transferring back and forth between GD and other places, and never pay full price. But I find it hard to believe that GD is paying other registrars not to offer these codes frequently (collusion).

    It’s more likely that they just can’t afford to do this regularly and lose $6+ per domain. Probably why you don’t see other registrars with Superbowl commercials as well. They probably realize that if they offer you this, next year you’ll just use a GD code and leave anyway.

  3. Andrei Says:

    @Domenclature.com: in my opinion, Matthew is right, GoDaddy is and has been considerably more aggressive than its competitors. From coupons such as the ones I share on DomainingTips on a weekly basis to Super Bowl ads, their dominance is impressive to say the least.

    When will a strong competitor emerge?

    It’s difficult to say because at this point, the barrier to entry is extremely high if you want to compete against GoDaddy. Let’s assume you launch a new registrar and start offering new regs or transfers at $0.99 each for a month.

    Verisign currently charges $7.85 for a domain so by offering registrations/transfers at $0.99 each, you’d be losing approximately 7 bucks each time someone takes advantage of your offer.

    Even if you only offer something like this for a month, it’s hard to believe you’ll be able to afford such a marketing campaign (because that’s what it ultimately is) without some serious funding.

    Therefore, I’d say the likelihood of something like this happening at this point is low. New registrars will appear from time to time but they will most likely brand themselves as niche domain registration companies because again, the barrier to entry is too high otherwise and without some serious funding, there’s no way you’d be able to compete against GoDaddy.

  4. Andrei Says:

    @Michael: I noticed your comment literally a few seconds after posting mine, seems we were on the same wavelength regarding the fact that registrars are basically losing money each time someone takes advantage of a promotional price and registers/transfers a domain at less than the wholesale cost the registration company has to pay.

    On the other hand though, it’s true that as Matthew pointed out, they do plan to ultimately make money via renewals but to make such a complex business model work, the registrar in question would need to be *very* well funded.

  5. Adam Says:

    Who is colluding with whom ? Godaddy has taken large risks and uses a lot of their .99 cent marketing as loss-leaders. It’d be a mistake for a few of the registrars to do this. Ones without an up-sell product, ones without a memorable brand, ones without a good amount of customer support to back up the efforts. etc etc. There is no collusion .

  6. Aaron Strong Says:

    I made the mistake of telling the GoDaddy customer service rep that I use the promo codes. From that moment on he treated me like a “New G” instead of a “Dot Com” while letting me know in a not so happy gesture, “You understand Godaddy loses money on those promo codes, Don’t you?”………Well I did not know that, but now I do!…….Godaddy may be digging themselves in a hole.

  7. Matthew Crowder Says:

    Adam, it may not technically be collusion (or there may be some behind the scenes, we have no way of knowing but I think it’s worth posing the question) but Go Daddy is SO much more aggressive with their offers to lure customers away from the other registrars and acquire new customers with their commercials, why is there such a huge difference between GD and everyone else? It’s like they all decided to give up trying to compete. Is it just laziness and incompetence? It’s not rocket science how to lure a lot of customers away from GD and kickstart their business. Offer cheap tranfer codes. Huge opportunity they’re squandering.

  8. Leonard Britt Says:

    Godaddy probably makes thin margins overall on domains but uses domains to sell other services or gain commissions via sales of Premium Listings and Godaddy Auctions.

  9. Konstantinos Zournas Says:

    Go daddy is losing money with these people using promo codes but makes it up with people paying $12,99 for domains. (or $14.79/yr if you buy 10 years!!!!) lol

    And then Go daddy really starts selling money making services:
    Privacy Protection $9,99 (it costs nothing to gd), email, Hosting etc.

    I don’t see collusion here. Go Daddy simply uses a different paying model. Transfer for free (1 year), pay a lot more for years…

  10. AbdulBasit Makrani Says:

    I think GoDaddy gives us $.99-$3 transfer coupons so once we are there and don’t renew our domain for any reason they simply go to auctions at TDNAM from which GoDaddy gain 100% and they make quite huge sum of money every month. Although there are many other services they to offer but this one is giving them the most $$$ with nothing to lose/pay share someone.

  11. Konstantinos Zournas Says:

    Go daddy is losing money with these people using promo codes but makes it up with people paying $12,99 for domains. (or $14.79/yr if you buy 10 years!!!!)

    lol

    And then Go daddy really starts selling money making services:
    Privacy Protection $9,99 (it costs nothing to gd), email, Hosting etc.

    I don’t see collusion here. Go Daddy simply uses a different paying model.

    Transfer for free (1 year), pay a lot more for years…

  12. Andy Says:

    It’s almost a silly question…Most Domainers understand marketing… GoDaddy is marketing, drawing the customer, they CAN AFFORD to do it, most others cant. They limit the amount of times one can use the .99 transfer, it’s all about awareness and marketing, period….

  13. Michael Goldfarb Says:

    I am with NameSilo. We are one of the fastest growing registrars in the world. Perhaps I can shed some light (at least from our perspective)….

    Godaddy’s transfer deals are loss leaders. They offer an array of other services that they can monetize that many other registrars do not. Also, their renewal prices are high allowing them to make a profit on just the first year of renewal (without any coupons). Also, they charge for things like WHOIS privacy allowing them to realize a profit on the domain in relatively short order even without a renewal. The math is likely very simple for them… they know their renewal rate as well as the rate at which customers sign up for other services. Losing $7-8 on a transfer upfront is likely wiped out within the first 1-2 years and then they realize profit thereafter. They also charge a lot for registrations compared to many companies (especially for people not aware of coupons), so if they attract a new customer losing a few dollars on their initial transfer, they can further realize profitability with that customer on just the first new registration from that customer.

    I can assure you there is no collusion I am aware of and we have been in the industry since 2009. Despite the fact we never offer $0.99 transfers, our pricing is clear, extremely low, and we never charge for add-ons. This has resulted in us growing at Godaddy’s expense by transferring over 25,000 domains from them, and only losing 2,800 the other way (http://www.namesilo.com/transfer_compare.php).

  14. Matthew Crowder Says:

    Aaron, LMFAO what a dope. I’m sure you’re really going to stop using the promo codes because a customer service rep said so. Idiot. Hopefully he was just joking around. Does he think having the savvy customers pay more is going to give him job security or something? Jeez. The ones that use their brains earn the right to save that money and probably help the company in other ways like talking them up to new customers.

    Cheap transfer codes to other registrars is all I want. Not hard to do and it’s a no brainer to build new registrar businesses and a free market in the domain business. Let’s get some new VC money in the industry.

  15. anon Says:

    @goldfarb it’s good to hear a “little guy” success story, but 25k domains isn’t going to impress anyone… That could easily represent 1 client for all anyone knows.

  16. Matthew Crowder Says:

    Michael, Thanks for the background and stats but that just proves my point. GD gets 3 times the number of transfers to them as the next biggest and 20+ times most of them. Are there any other transfer codes out there, say $5 or less? If so, please share them. If not, then that’s a big opportunity VC’s are ignoring.

  17. Michael Goldfarb Says:

    @anon it’s certainly not from one customer – we have had 4,752 customers transfer at least one domain from Godaddy. And while 25,000 domains isn’t a big dent in Godaddy’s total domain count, the ratio of gains versus losses shows that many people are not swayed by loss leader promotions and truly understand total cost of ownership. Yes, Godaddy transfers the most domains, but they also lose the most as well (http://www.registrarowl.com/GoDaddy).

    @Matthew We have tried offering severely discounted transfer coupons in the past and our statistics show overwhelmingly that they are utilized largely by people content with transferring domains annually with no intent of renewing. This is likely the answer to the original question of this post which is why more registrars don’t offer transfer coupons like Godaddy. Companies can only stay in business long-term if they make money. It is true it would take a company well-funded to offer similar transfer discounts. However, speaking on behalf of a well-funded company who has actually tried this very approach, and I can tell you it does not make sense. Sure, we could grow our domain count and increase revenue very quickly, but we are not willing to do so at the expense of profitability. I am sure this same conclusion is why other registrars do not “step up their game” and offer unsustainable transfer discounts. Our preference is steady and profitable growth which has allowed us to be among the top-10 fastest growing registrars by domain count each of the last 16 months (http://www.registrarowl.com/report_registrar_fastest_growing.php).It is our belief that domain count is only one measure of success. Much more important to us is the long-term stability of our company which can only occur with a solid base of profitable transactions – not ballooning revenue. VC’s understand this ratio better than anybody, and there is a reason none are rushing to pry away massive volumes of domains from Godaddy by burning money on unsustainable discounts and mass-media marketing just to get a bunch of domains. We spoke to just those people when we were forming our company. We would love to offer domainers, and everybody else for that matter, huge discounts to keep their costs down, it just simply can’t happen based upon our history of attempts. Our hope is that more and more people continue to understand total cost of ownership (http://www.registrarowl.com/report_registrar_price_comparison.php) and don’t waste their money on services that companies like Godaddy offer that they either don’t need or can get for free elsewhere. Information is power, and it is our belief that as time continues, so will people’s understanding of the domain industry. We believe companies that continue to take advantage of their customers’ lack of understanding of available options are in a race against time. Of course, only time will tell, but if companies like ours can continue to grow at the expense of the entrenched behemoths making their money off of services freely available elsewhere, then everybody will spend less on domains.

  18. anon Says:

    To be honest, I think we’re all missing the real truth here and that is that a domain registrar as your primary product is just not a very good business model…. It’s kind of like if you try to make your living off selling mailboxes instead of the whole house… So like you all say, what GD does is give you the mailbox for free and then sell you the house. Which, in the end, makes more sense from a customer stand point as well because really what good is your mailbox if you don’t have a house behind it

  19. Matthew Crowder Says:

    @Goldfarb so what you’re saying is Go Daddy has an unbeatable first-mover advantage. They became the 1,000-pound gorilla and now no one has any way to match them or lure their customers away offering an attractive offer and better services to go with it. What does that say about the free market system in America? Move fast and grow to be the biggest and then you got it made forever and no one (even those with a lot of VC funding) will ever challenge you? This is a sad state of affairs and I’m ashamed to be an American if that’s the case.

  20. Michael Goldfarb Says:

    @Matthew Definitely not. I wrote that it is our belief that the 1,00 pound gorilla is in a race against time to take advantage of the fact that most people today don’t realize they can get the same basic domain-related services cheaper elsewhere. We do not believe it is sustainable for Godaddy and other registrars to overcharge their customers and continue to get away with it indefinitely. Yes, they offer the “whole house” as @anon put it, but many people only need the mailbox and take care of the rest of the house themselves. Look at our company – we do not offer anything beyond domain-related services/management yet we are one of the fastest growing registrars in the world. It will take time to unseat the entrenched industry “leaders”, but it remains our belief that offering a better product with lower pricing and better customer service is still a recipe that works and will eventually win out.

  21. boombas Says:

    The prosperity of a business depends on the sense of ‘value satisfaction’ enjoyed by the customer

 
 
         
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