MIT Researchers Estimate The Value Of Domain Name System (DNS) At $8 Billion
Since 1985, the Domain Name System (DNS) has played a critical but underappreciated role to map names to internet addresses. Domain names have important value as intellectual property and marketing assets in addition to their ability to “route the money of the Internet.” The market value of global DNS ecosystem is roughly $8 billion annually, with additional value for domain names. This finding comes from an important new paper Changing Markets for Domain Names: Technical, Economic, and Policy Challengespresented at the 48th Telecom Policy Research Conference (TPRC48) by William Lehr, David Clark and Steve Bauer. The paper represents another research milestone from MIT Computer Science & Artificial Intelligence Lab whose scholars explore fundamental scientific questions of the internet. Clark is one of the early internet pioneers who later served as its Chief Protocol Architect 1981-1989.
In the last 10 years, the number of generic Top Level Domains (TLDs) has expanded significantly from a handful of suffixes (.com for commercial, .org for organization, .edu for education, .gov for US government, and .mil for US military) to nearly 1200. Including country code TLDs (.EU etc), this makes about 1500 TLDs. This evolution has given firms more flexibility beyond .com to register their online business addresses and may even offer additional marketing value with suffixes like .baby, .cafe, and so on.
The DNS is managed under multi-stakeholder global internet governance coordinated by Internet Corporation for Assigned Names and Numbers (ICANN). It sets the rules for the generic TLD registries like Verisign (.com, .net) and the Public Interest Registry (.org) which supply wholesale second level domain names to registrars like GoDaddy and Alibaba which are then registered for a fee by registrants like Forbes (i.e., Forbes.com). The primary registration of domain names, 350 million and growing, drives roughly $8 billon in annual revenue. The secondary or resale market is $2 billion with the purchase and renewal of .com domain names. Calculating the market value of DNS is admittedly difficult because DNS activities are calculated within other business activities of major online firms, the decentralized ecosystem of the internet itself, and lack of transparency of domain actors in China and other countries.
The importance and relevance of DNS
The authors observe that the intellectual property associated with domain names and the value of DNS itself as embedded, reliable infrastructure. However, changing behavior is reducing the value and function of DNS by separating names from addresses. Search engines, content delivery networks, and digital object identifiers obviate the user’s need to access DNS. As users spend more time on mobile apps, the DNS might not be used at all.
Another issue is the protocol of encrypted DNS called DNS Over HTTPS or DOH which relocates that DNS resolution to a new part of the internet. This could bring undue navigational control to large entities like Google and Mozilla. Normally DNS is a separate service from the platform, but encrypted DNS demonstrates how platforms can exert control on points outside their network. This unintended consequence bedevils law enforcement which is unable to locate registrants when traffic is encrypted.
Policy questions in DNS governance
The paper explores complex questions of market power, governance, regulatory oversight, and ecosystem fragmentation. Few consumers realize it, but price controls have been in place to enable easy and low-cost switching from registry to another (from .com to .org for example), similar to number portability. However companies like GoDaddy and Network Solutions are not price regulated and can easily raise prices for domain names without losing customers. If a business must have a certain domain name, they will likely purchase it and/or renew it whether the price is $10 or $100.
There is a secondary market of existing domain names in which speculators or “domainers” who purchase desirable domain names with the hope of “flipping” them for a higher price. The paper cites a first-of-its kind study of the secondary market by the Boston Consulting Group (BCG) which estimates that 18% of .com domain names are currently registered exclusively for resale by domainers with the average price of $1660 in 2020. These domain names are withheld from availability to the general public prices and therefore from productive use. Moreover, domain name buyers in this market experience not just price shocks (BCG estimates that the prices are 150 to 200 times the customary registrar prices), but potential abuse of brand, copyright, trademark, and keywords.
The MIT authors suggest that this is not necessarily added value in the economy. The lack of transparency in the secondary market is additionally problematic in that governance actors can’t necessarily anticipate or monitor abuse.
Technically-informed policy and policy-informed technology
The paper is part of a larger $1 million Convergence Accelerator project by the National Science Foundation to improve internet security by studying its structural dependencies, ownership, and economic interrelationships. Funding for these vital multi-disciplinary research projects has all but dried up in the wake of Covid-19. Federal agencies and corporations have tightened research budgets. Funding is necessary to support quality academic research into the public domain and to raise the quality of policy debate. Understanding DNS and other internet phenomena has never been more important. People increasingly rely on the internet for to work, learn, shop, communicate, and get healthcare. An important interdisciplinary internet policy conference now in its 49th year, TPRC49, is one forum for this and related academic papers. Abstracts for papers, posters, and panels for the September conference are due March 31.
Originally published in Forbes.