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Slide 1: The Domain Name Industry Brief Volume 6 - Issue 1 - February 2009 The VeriSign Domain Report As the global registry operator for .com and .net, VeriSign reviews the state of the domain name industry through a variety of statistical and analytical research. As a leading provider of digital infrastructure for the Internet, VeriSign provides this briefing to highlight to industry analysts, media, and businesses important trends in domain name registration, including key performance indicators, and growth opportunities.
Slide 2: T H E D O M A I N N A M E I N D U S T RY B R I E F - F E B R UA RY 2 0 0 9 + Executive Summary The year 2008 ended with a total base of 177 million domain name registrations across all of the Top Level Domain Names (TLDs). This represents a 16 percent growth over the previous year and a two percent growth over the third quarter of 2008. The base of Country Code Top Level Domain Names (ccTLDs) totaled 71.1 million domain names, a 22 percent increase year over year and a three percent increase quarter over quarter. In terms of total registrations, .com has the highest base followed by .cn (China), .de (Germany) and .net.1 Total Domain Name Registrations Source: Zooknic, January 2009; VeriSign, January 2009 Total Domain Name Registrations 180,000,000 160,000,000 140,000,000 120,000,000 Info Name Other TLDs Biz Eu 100,000,000 80,000,000 60,000,000 Org Cn Uk Net 40,000,000 De 20,000,000 0 Q4 ‘07 Q1 ‘08 Q2 ‘08 Q3 ‘08 Q4 ‘08 Other ccTLDs Com + Industry Growth and Composition More than 10.1 million new domain names were registered across all of the TLDs in the last quarter of 2008. This reflects a slower growth in new registrations with a decline of 12 percent from the third quarter 2008 and 17 percent from the same quarter in the previous year. The decline was driven by slower growth in both gTLDs and ccTLDs. Over the entire year, there was an average of 11.9 million new domain names registered per quarter compared to an average of 12.2 million new domain names registered each quarter in 2007. New Registration Growth Source: Zooknic, January 2009; VeriSign, January 2009; ICANN Monthly Reports 16,000,000 14,000,000 12,000,000 10,000,000 8,000,000 6,000,000 ccTLDs 4,000,000 1 The gTLD and ccTLD data cited in this report are estimates as of the time of this report and subject to change as more complete data is received. New Registration Growth Org/Biz/ Info/Name Com/Net 2,000,000 0 Q1 '08 Q2 '08 Q3 '08 Q4 '08 2
Slide 3: T H E D O M A I N N A M E I N D U S T RY B R I E F - F E B R UA RY 2 0 0 9 TOP CCTLD REGISTRIES BY DOMAIN NAME BASE, FOURTH QUARTER 2008 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. .cn .de .uk .nl .eu .ar .it .br .us .au (China) (Germany) (United Kingdom) (Netherlands) (European Union) (Argentina) (Italy) (Brazil) (United States) (Australia) The composition of the domain name industry and rank order in terms of base size remained consistent in the fourth quarter. The largest TLDs in terms of base size were .com, .cn, .de, .net, .org, .uk, .info, .nl (The Netherlands), .eu (European Union), and .biz. ccTLD Breakdown Source: Zooknic, January 2009. 2008 ended with 71.1 million ccTLD registrations, a 22 percent increase over the end of 2007. Just over 2.2 million ccTLDs were added in the fourth quarter of 2008, representing a three percent growth over the third quarter. There are more than 240 ccTLD extensions globally, but the top 10 ccTLDs contribute 65 percent of the total number of registrations. Among the top 25 largest ccTLDs, .ru (Russian Federation) grew the fastest with 11 percent growth quarter over quarter and .cn was not far behind with 8 percent growth quarter over quarter.2 Overall only 36 percent of the top 25 largest ccTLDs experienced growth rates in the fourth quarter that were higher than the growth rates in the third quarter driven largely by the overall weakening in the global economy. In terms of the total base of domain name registrations, .cn, .de and .uk were the largest ccTLDs. Year over year, growth rates were 51 percent for .cn, seven percent for .de and 13 percent for .uk. Together, the bases of domain name registrations for these three ccTLDs represented 47 percent of all ccTLDs. ccTLD Breakdown Source: Source: Zooknic, January 2009 80,000,000 70,000,000 60,000,000 50,000,000 40,000,000 30,000,000 ccTLD Breakdown 2006 2007 2008 20,000,000 10,000,000 0 Top 10 Total ccTLD + .Com/.Net Dynamics 2 The .cn Registry (CNNIC) continued to offer an aggressive price promotion with a 1 RMB (US$0.13) fee for a one-year .cn domain name registration. 3 For .com and .net domain name registrations, VeriSign reports an adjusted base of active domain name registrations, which reflects deletions that occur within the five-day Add Grace Period beyond the quarter end. This figure may differ from other non-authoritative publicly available sources which do not adjust the base. VeriSign processed peak loads of nearly 50 billion Domain Name System (DNS) queries per day in the fourth quarter of 2008, resulting in hundreds of millions of Internet users accessing Web sites or sending email. The VeriSign DNS continued to maintain operational accuracy and stability for 100 percent of the time during the fourth quarter of 2008, as it has for the past 11 years. VeriSign’s unique capability to operate global networks of this nature at this scale and reliability remains unparalleled. The .Com and .Net Base and New Registrations The overall base of .com and .net domain names grew to 90.4 million domain names at the end of 2008. This represents a 12 percent increase over the previous year and a one percent increase over the third quarter of 2008.3 3
Slide 4: T H E D O M A I N N A M E I N D U S T RY B R I E F - F E B R UA RY 2 0 0 9 New .com and .net registrations were added at an average of 2.1 million per month in the fourth quarter of 2008 for a total of 6.3 million new registrations in the quarter. This is a 9 percent decline over the third quarter of 2008 and a 16 percent decline over the same quarter last year. New registrations averaged 7.2 million per quarter in 2007 and averaged 7.1 million per quarter in 2008. The number of new .com and .net domain names registered for the purpose of participating in online advertising networks declined in the fourth quarter as expected and reflects a weakening in the earnings per click (EPC) for some domain name holders. These online advertising names will increasingly become a smaller part of the .com and .net base. Renewals The renewal rate for .com and .net for third quarter rounded up to 72 percent.4 While the renewal rate decline is due to changes in the earnings per click (EPC) for names registered for the purpose of participating in online advertising networks, the renewal rate for traditional registrations declined slightly as well in the third quarter. Quarterly renewal rates may deviate a few percentage points in either direction each quarter based upon the composition of the expiring base and the contribution of specific registrars. .Com/.Net Registry Renewal Rates Source: VeriSign, November 2008 80% 60% .Com/.Net Registry Renewal Rates 74% 74% 76% 76% 77% 77% 76% 76% 74% 74% 74% 73% 72% 40% 20% 0% Q3 Q4 Q1 Q2 2005 Q3 Q4 2006 Q1 Q2 2007 Q3 Q4 Q1 Q2 Q3 2008 Whether a domain name resolves to a Web site is a key factor in the renewal rates since domain names that resolve to Web sites are more likely to be renewed. VeriSign estimates that 88 percent of .com and .net domain names resolve to a Web site, meaning that an end-user visiting that domain name would find a Web site. These Web sites can be further described as those having multiple pages or as one-page Web sites. One-page Web sites include under-construction, brochure-ware and parked pages in addition to online advertising revenue generating parked pages. .Com/.Net Web Sites Source: VeriSign, February 2009 One-page Web sites 24% 0 4 The registry renewal rate includes ASCII .com and .net domain names. The registry renewal rate for the fourth quarter of 2008 will be announced when VeriSign reports its earnings for the first quarter of 2009. .Com/.Net Web Sites Multiple Page Web sites 64% 20 30 40 50 60 70 80 90 No Web sites 12% 100 10 Total Domain Names Analyzed = 90 Million 4
Slide 5: T H E D O M A I N N A M E I N D U S T RY B R I E F - F E B R UA RY 2 0 0 9 + Internationalization of Top Level Domains As an increasing portion of the Internet users worldwide are speakers of languages that do not use the Latin alphabet, the introduction of Internationalized Domain Names (IDNs) has provided a way for these users to navigate the Internet in their own language since 2000. IDNs are domain names represented in local characters using scripts beyond ASCII characters.5 There are currently more than 47 domain name registry operators supporting IDNs. However, the current implementation of IDNs is limited to the second and lower level(s) (e.g., 한글.com), leaving the Top Level Domains (TLDs) still in ASCII. This has created a desire in the Internet community to extend the internationalization to the top level in order to provide a fully localized navigation experience. For purposes of this brief, such IDNs shall be referred to as “Internationalized TLDs”. A few examples of human factors that can be better served by internationalizing the TLDs (e.g., 例え.テスト) include ease of use in that users will no longer need to switch their input mode from the local script to the basic Latin characters (ASCII) in order to append the TLDs still in ASCII characters. In addition, users of bi-directional scripts writing from right-to-left will be able to enter Internationalized TLDs in one single direction from beginning to end. While the Internet community is working on Internationalized TLDs, the level of interest in Internationalized TLDs from the perspectives of registrants and end users is still unclear. While the Internet community has worked toward bringing Internationalized TLDs into the Domain Name System (DNS) for many years as a key next step from the current IDN implementation, there has been a proliferation of proprietary keyword services.6 These keyword services provide Internet users a localized navigation experience. This proliferation of private services exemplifies the anticipation for a localized navigation experience beyond the limitations of the current IDN implementation. However, unlike IDNs based on DNS, these proprietary services by nature have critical dependence on specific network environments and configurations making ubiquitous access to the services with uniform user experience impossible. These services also could create potentially significant user confusion as there could be multiple service providers mapping one seemingly identical keyword string to different identifiers in DNS – thus, lacking the mission critical characteristic of “uniqueness” in an identifier. The long-term reliability and stability of the proprietary services are also concerns among end users and businesses. According to recent qualitative research conducted with small and medium-sized businesses (SMB) in multiple locations across Asia and the Middle East, IDNs are still not seen by a majority of those surveyed as viable replacements for ASCII domain names for businesses.7 The respondents cited the need for proven popularity and usage, especially given the low adoption of IDN-aware browsers in some markets, particularly in Asia. However, the research also indicated that SMBs perceive that IDNs have clear advantages in targeting local markets and non-English speaking Internet users, as well as, for local promotions and advertisements. Respondents felt that IDNs are still a novelty and are able to attract consumer attention. The current IDN implementation with the top level in ASCII was raised as one of the major challenges because it is confusing to mix multiple scripts in a single domain name and, more importantly, more difficult to input than a URL that uses an Internationalized TLD. As a part of community efforts to internationalize the top level, the Internet community has been working on two parallel tracks: 1. IDN Fast-Track for Country Code Top Level Domains (ccTLDs).8 2. New Generic Top Level Domain (gTLD) Program.9 5 ASCII (American Standard Code for Information Interchange) characters include 0-9, A-Z and the hyphen. 6 For more information on the Internet community efforts for internationalization of TLDs, please refer to Internationalized Domain Names (http://www.icann.org/en/ topics/idn/) 7 “Internationalized Domain Name Study.” Windward Directives, December 2008. 8 Fast-track IDN ccTLD Activities (http://www. icann.org/en/topics/idn/fast-track/) 9 New gTLD Program (http://icann.org/en/ topics/new-gtld-program.htm) 5
Slide 6: T H E D O M A I N N A M E I N D U S T RY B R I E F - F E B R UA RY 2 0 0 9 LEARN MORE To subscribe or to access the archives for the Domain Name Industry Briefs, please go to www.verisign.com/ domainbrief. Email your comments or questions to domainbrief@verisign. com. The Fast-Track process focuses on meeting a near-term demand with the implementation of a limited number of non-Latin based IDN ccTLDs associated with the ISO 3166-1 two-letter codes while a full IDN ccTLD policy is developed.10 The New gTLD Program focuses on expanding gTLD choices, including IDNs at the top level, in order to meet growing diversity and encourage competition for more innovation, choice and change to the Internet’s addressing system. The Internet community continues to strive to make progress in both tracks and to address many complicated challenges such as resolving string contention, protecting rights, handling internationally recognized issues of morality and public order, and the geographical names process. It is anticipated that the application process in the New gTLD Program will commence sometime in late 2009. While the process and timing is under development, the Internet Corporation for Assigned Names and Numbers (ICANN) has been testing and evaluating internationalized strings of “example.test” in 11 scripts in the DNS root zone since August calling for public participation to ensure ongoing DNS stability and security.12 The potential for internationalized TLDs to truly internationalize the Internet is promising, but it must be done prudently or there is a high risk of failure over technical and business issues including the requirement for a safe, consistent and ubiquitous user experience as well as protection of trademarks and other intellectual property. The “example.test” Names in Internationalized Scripts Script Arabic Simplified Chinese Traditional Chinese Greek Devanagari Kanji, Hirigana, and Katakana Hangul ABOUT VERISIGN VeriSign, Inc. (NASDAQ: VRSN) is the trusted provider of Internet infrastructure services for the networked world. Billions of times each day, VeriSign helps companies and consumers all over the world engage in communications and commerce with confidence. Additional news and information about the company is available at www.verisign.com. The “example.test” Names in Internationalized Scripts Source: ICANN Language Arabic Chinese Chinese Greek Hindi Japanese Korean Persian Russian Tamil Yiddish Internationalized TLD Examples 11 Zooknic Methodology For gTLD data cited with Zooknic as a source, the analysis uses a comparison of domain name root zone file changes supplemented with WHOIS data on a statistical sample of domain names which lists the registrar responsible for a particular domain name and the location of the registrant. The data has a margin of error based on the sample size and market size. The ccTLD data is based on analysis of root zone files. For more information, see www.zooknic.com. 10 International Standard Organization (ISO) 3166-1 (http://www.iso.org/iso/english_ country_names_and_code_elements) 11 IDN .test Root-Zone Evaluation (http:// www.icann.org/en/announcements/ announcement-2-19jun07.htm). Arabic, Persian, Chinese (simplified and traditional), Russian, Hindi, Greek, Korean, Yiddish, Japanese and Tamil. Example strings for testing at IDNwiki (http://idn.icann.org/). Note that the names in Arabic and Hebrew script read fully from right to left. Perso-Arabic Cyrillic Tamil Hebrew ©2009 VeriSign, Inc. All rights reserved. VeriSign, the VeriSign logo, and other trademarks, service marks, and designs are registered or unregistered trademarks of VeriSign and its subsidiaries in the United States and in foreign countries. 02/09. Statements in this announcement other than historical data and information constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These statements involve risks and uncertainties that could cause VeriSign’s actual results to differ materially from those stated or implied by such forward-looking statements. The potential risks and uncertainties include, among others, the uncertainty of future revenue and profitability and potential fluctuations in quarterly operating results due to such factors as increasing competition and pricing pressure from competing services offered at prices below our prices and market acceptance of our existing services, the inability of VeriSign to successfully develop and market new services, and the uncertainty of whether new services as provided by VeriSign will achieve market acceptance or result in any revenues. More information about potential factors that could affect the company’s business and financial results is included in VeriSign’s filings with the Securities and Exchange Commission, including in the Company’s Annual Report on Form 10-K for the year ended December 31, 2007, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K. VeriSign undertakes no obligation to update any of the forward-looking statements after the date of this presentation. 6