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Why GoDaddy Would Like to See New gTLDs.com Succeed

Posted on 04 December 2013 by Andrei

You probably noticed that GoDaddy is promoting new gTLDs pretty aggressively and you probably also noticed that in the past, they’ve shown somewhat of an affinity towards alternative TLDs.

A good example would be the two superbowl ads everyone saw not so long after dot co went live: one was the GoDaddy ad we were all used to and one was an ad that had pitching dot co as its main goal.

Which leads us to the question as well as to the obvious answer.

First, the question: why?

Now, the answer: profit margins.

As you can see, the problem isn’t all that complicated.

When selling a dot com, for the most part, their profit margins aren’t huge and they pay most of what they charge to Verisign (in fact, they often lose money on their initial sale and only start making money once you renew). Sure, they make up for it through volume but still, what business wouldn’t like bigger profit margins?

With new gTLDs, this changes.

Think about it.

As of a certain point, lots of new gTLDs will be competing against one another and it’s in their best interest to have as much visibility on GoDaddy as possible.

The result should be obvious: GoDaddy will be in a great position to negotiate deals which generate very high profit margins.

In other words, let’s assume person A buys a dot com and that person B buys a new gTLD. GoDaddy will probably make considerably more from person B’s purchase than from person A’s purchase because of the higher profit margins new gTLDs have on a per-domain basis.

So, will they focus on new gTLDs exclusively in the future?

It depends.

They know what they’re doing, they know how to split test, so it’s all a matter of crunching some numbers: if enough people buy new gTLDs to make giving them this extra exposure worthwhile, they’ll do it. If not, they’ll stop doing it (because if the conversion rates would be low, then even very high margins on a per-domain basis would not be enough to justify giving new gTLDs more exposure given the lack of volume as of a certain point).

Time will tell.

The message I’m trying to get across is simple: if you were wondering why GoDaddy is giving new gTLDs so much exposure, start by thinking about profit margins and you’ll understand why.

At the end of the day, it’s business 101.

Maybe it will be worth it for them, maybe not.

Again, time will tell.

I’m simply explaining that from a business perspective, at least testing an approach that results in higher profit margins makes perfect sense. That’s precisely what they’re doing and what they’ll be doing until they have enough information to figure out whether or not it’s worth it.

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2 Comments For This Post

  1. Honest Abe Says:

    Is a split test really necessary? I think that time will tell the following…

    Person A (who bought the .COM) will stay in business.

    Person B (the dumbass who bought a gtld) will be OUT of business.

  2. Andrei Says:

    @Honest Abe: strictly from a business perspective, I’d say that yes, a split test makes sense. Here’s why: GoDaddy will probably break even or lose money on the initial dot com registration and on renewals, they won’t make much. Let’s assume they make $1 per year per domain on renewals. In other words, assuming they’d break even on the dot com registration, they would make $5 after 5 years in this scenario.

    What if someone buys a gTLD domain instead at a price of $8 per year and the registry operator agrees to give GoDaddy $7 out of those $8?

    In that case, GoDaddy would make $7 right off the bat, in other words even if the new gTLD domain isn’t renewed, GoDaddy will make more from just that registration than from a 5-6 year ownership/renewal of the dot com.

    It’s a complicated situation for GoDaddy (high profit margin per domain vs. volume implications) and in my opinion, there will be plenty of split testing involved.

 
 
         
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