VeriSign could add well over a billion dollars to its top line over the next six years, under a new deal approved by the Internet Corp for Assigned Names and Numbers.
Some sectors of Internet Corp for Assigned Names and Numbers’ (ICANN) stakeholder community are livid, after the organization’s board of directors voted to renew VeriSign’s contract to run .com until 2012 and give it the option to raise prices by 7% in four out of six years.
But VeriSign investors will be smiling. An analyst at Credit Suisse said that price increases could equate to a net present value of $4 to $5 on VeriSign’s share price, which was trading around the $23 mark following the news.
And if the .com market continues to grow at the same rate as it did in 2005, which was over 30%, it would mean well over a billion extra dollars of revenue accumulating over the lifetime of the contract.
There are about 48 million .com domains under registration at the moment. At $6 a pop, that brings in about $288 million of high-margin revenue into VeriSign every year. If the registry grew at 30% a year to about 230 million domains, that would be worth roughly $1.3 billion to VeriSign in 2012 if current prices were frozen.
If prices go up to $7.86 by 2010 because VeriSign exercises its pricing options as quickly as possible, the registry would be worth over $1.8 billion a year by 2012, half a billion more. Accumulatively, it would mean an extra $1.3 billion into VeriSign’s top line.
If you do the same back-of-the-envelope math assuming a more conservative 10% annual growth rate to 85 million domains, VeriSign accumulates a more modest $600 million by the end of 2012.
VeriSign’s channel of domain name registrars, which will be obliged to pass these increases onto their customers or deal with lower margins, are unsurprisingly upset about the deal, which they say amounts to a giveaway.
ICANN is in favor of the deal because not only does it settle a two-year-old legal dispute with VeriSign, but it also sees VeriSign agreeing to a process whereby ICANN can vet new services before VeriSign goes live with them.
ICANN’s president and chief executive Paul Twomey said in a press conference that the deal was the probably the best deal that was possible, but acknowledged that not everybody would be happy with the result.
Mr Twomey compared VeriSign’s behavior over the last few years as similar to an incumbent telecommunications company in a recently liberalized market. They kick and scream, but eventually settle down and start accepting the new rules of the game.
VeriSign’s agreement to pass proposed services to ICANN for approval was an important part of the settlement for ICANN. The lawsuit kicked off in the first place after ICANN ordered VeriSign to shut down Site Finder, a service many believed to be harmful to the internet.
But not everybody thinks VeriSign is ready to play nicely.
While registrars are uniformly opposed to the deal, other domain name registries are behind it, mainly because they want to ask ICANN for the same terms and conditions when their own contracts come up for renewal.
Now that ICANN has okayed the deal, all that remains is for the US Department of Commerce to sign off on it. If precedent is any indicator, it will approve it without comment, but opponents of the deal are lobbying against it anyway.