The Impact of .nz and .uk Registrations at the Second Level

This interview was conducted with Tony Kirsch (Domain Name Association), Oliver Hope (Nominet) and David Morrison (NZRS). This interview was originally posted by the Domain Name Association

With the recent rollout of new TLDs, the opportunity to create new, meaningful domains has presented a range of opportunities for the global internet community.

Almost all new TLDs have provided opportunities for registrations of domains exclusively at the second-level (i.e. ‘anything.something’), as having domains at the third level (i.e. ‘anything.anything.something’) is seen as cumbersome and unnecessary in newly created TLDs.

However this is not the case globally, as many TLDs (predominantly ccTLDs, or “country code TLDs”) offer domain registration only at the third level.

Forward thinking ccTLDs such as the .uk (United Kingdom) and .nz (New Zealand) extensions have recently undertaken extensive reviews, which ultimately led to the decision to change policy framework and allow registrations at the second-level.
I recently sat down for a frank discussion on the merits of and experiences in introducing ccTLD registrations at the second-level with Oliver Hope, Director of Registry Services for Nominet and David Morrison, Chief Marketing Officer at NZRS (the .nz Registry) to understand the methods used to gain grass roots approval of the change, the impact the change has had today and what may be expected as we move into the future.

TONY KIRSCH: Let me start off with a slightly historical perspective. How did opening up at the second-level even come about? What were the drivers behind it? I think it’s important for people to understand the philosophy, because it’s a big shift and I’m sure that for many you’ve spoken to about this, it could at face value appear like a bit of a scam.

OLIVER HOPE: A big part for us was just that the internet and the industry are changing. More and more people and other domain alternatives are direct. For the UK, one of the biggest ccTLDs there is, everyone knows us as predominately .co.uk, and that’s great. But if you’re a business trying to attract a customer in France, New Zealand or Australia, it might not necessarily be their natural instinct to go to .co.uk. They’re used to .fr in France, or .de in Germany, you know the list is endless and weighted that way. We have to accept how the industry is changing and what people are getting used to. There are a few other things as well- it appeals to new groups and opens some space up, because we’re quite saturated with 10.5 million domains, even though in comparison to .com, this isn’t many.

TONY KIRSCH: What about in terms of meaningful domains?

OLIVER HOPE: In terms of meaningful domains, .uk is saturated. The change also responds a bit to the challenges of new gTLD introduction. You know everything out there only really has one dot and we had two which is a little bit of a blocker. Additionally, one of the key things is it’s shorter. Certainly Twitter has proved that in recent years, shorter and sharper equals better. If you say to people “Do you want me to make your email or your website shorter by three characters?”, someone who knows what they’re talking about is all for that.

DAVID MORRISON: On the New Zealand side, our reasons are very similar. The evolution of domain names particularly in the country code space has gone from a ‘something.something.something’ to a two-level structure ‘something.something’. So for us, it’s very much about keeping it fresh and relevant. The other point also is that within the .nz space we have 14 second levels such as .org.nz, .net.nz, .kiwi.nz and.geek.nz. So we had this categorisation in place, and if you wanted to get a domain name you had to decide which category you were in. “Am I a company, an organisation? Well, no not really, I’m a sports club. So I don’t really fit into an .org.nz or a .net.nz or a .co.nz”. So it’s about giving people true choice and not forcing them to categorise themselves in a way that wasn’t appropriate for their organisation.

TONY KIRSCH: So the categories became a limiting factor?

DAVID MORRISON: Correct, and less meaningful over time as the internet has evolved and become more relevant for more people.

TONY KIRSCH: That’s interesting. So let’s play the role of the current registrant for a moment. Is the introduction at the second-level a challenge for the current registrant? For example, if I’ve registered my .co.nz or my .co.uk, wouldn’t I think that you’ve introduced a competitor for me?

DAVID MORRISON: I think both .uk and .nz have tried to treat that in similar ways. For New Zealand, we allowed domains that were registered prior to a certain date to have priority on second-level registrations. So if you had a third-level domain name that was unique across the zone, prior to a particular date, you had the right to reserve the shorter name at no cost for two years. Then at the end of those two years, there’s an expectation that you would register it.

TONY KIRSCH: And if you haven’t, it would go back into the pool?

DAVID MORRISON: That’s still to be decided. There’s policy review occurring later this year. But in terms of initial introduction people had a choice to say “I do want to protect it, but I don’t want to have to outlay out the money for it”. We had about 20,000 domain names take up that option and that has resulted in about 18,000 reservations currently in place which are expected to fall due around the 30th September 2016, so we might see some activity around that. Additionally, where there were multiple domains which matched in differing second levels we had a different process to .uk where we had deemed those domains to be in conflict. In fact, many of those names are still in conflict. We have about 17,000 or 18,000 conflict sets or approximately 40,000 domain names. Most conflicts were people who conflicted with themselves where they had for example a matching .co.nz and a .org.nz registration. Those two policy decisions helped alleviate a lot of the negative outcomes. TONY KIRSCH: What happened with the conflicts? Were they unavailable?

DAVID MORRISON: The conflicts stay locked until the parties reach a resolution and no one’s been forced to come to a resolution.

TONY KIRSCH: That’s interesting. Did you facilitate those introductions between conflicting registrants?

DAVID MORRISON: The Domain Name Commission, the regulator for .nz, set up a website to facilitate people being able to lodge their preference and encourage the use of the WHOIS to look up who the other parties were and get in contact directly themselves.

OLIVER HOPE: We’re similar at .uk but probably not as complex because we don’t have as many second-level zones. The main ones that we have are .org.uk, .me.uk and .co.uk. There are some others but they’re a bit more specialised and very low volume. We have a five-year right of refusal which ends in 2019. The pricing is not free but rather the standard registration fee. In terms of conflict, originally we were going to give priority to the earliest-registered name across the main three levels, but after consultation we changed that to .co.uk having preference if it’s before certain dates. Our difficulty is we have approximately 2,700 members, a huge channel and you’re never going to please everyone so you put it to consultation. The danger is ending up with a horse designed by a committee – in other words, a camel. We ended up with this five year right of refusal, which, while far from perfect, was less problematic than many of the alternatives.

TONY KIRSCH: Policy changes are never perfect and wonderful for everyone. So what happened?

OLIVER HOPE: There are some people who absolutely love it and said we should just give everyone their .co.uk match for free. But then there’s other people who are more commercial who would absolutely hate that. Then there are people who think we should just open it up as a new launch and sell to anyone. Finally, then there are people who think you should only ever be able to buy if you have prior use, so you try to weave your way through a very complex minefield and it’s good to see both .uk and .nz end up in similar places. We’ve both done the same exercise with very similar products, and ended up in roughly the same place.

DAVID MORRISON: We’ve seen some really interesting current activity in the registry. Registration at the second-level accounts for just under 16 percent of active registrations. That’s in the space of less than 18 months. Nearly a third to a quarter of all creates are at the second-level. So, we are going to see some change in registrations at the third-level. TONY KIRSCH: Over what time period do you expect this to occur?

DAVID MORRISON: It’ll be a long time. Some of our second levels such as .org.nz and .net.nz are declining whilst direct registrations under .nz are growing.

TONY KIRSCH: Were they declining already?

DAVID MORRISON: They were flat and growth in .co.nz was also starting to flatten. We’ve got approximately 480,000 .co.nz domains and 104,000 .nz domains.

TONY KIRSCH: That’s really impressive!

DAVID MORRISON: If you were to compare us to a gTLD launch for example, at the same time we would have been about number 10 or 11 on the new gTLDs table. No one’s heard of us or the results, so we just go about our business and do our thing at the bottom of the world. But I think we’re going to see a transition to .nz over time. We did some deeper analysis and found that in the last year about 60,000 .co.nz domains that were newly registered did not register the .nz version. And 35,000 of the .nz registrants did not register the corresponding .co.nz. So the behaviour we are seeing from the registrants is that they’re not registering other alternatives, possibly because they aren’t aware or not seeing the need to register both. They’re either making a conscious decision to go for .co.nz and not care about the shorter .nz version or vice versa. Within the general public it’s about 37 percent that have awareness of the shorter version of the name. And within registrants, we directly surveyed some of our Registrars’ customers last year with their permission, and 77 percent of people had awareness of the second-level.

TONY KIRSCH: Oliver, is that symptomatic of what you were saying in regards to .uk?

OLIVER HOPE: We’re doing things slightly differently and engaging in a lot of promotions. We’ve actually just finished one where we gave away right of refusal domains. You go to a Registrar and if you had the right of refusal to your .uk, you could register it for free. We’re doing things like that where you buy one and get one free. We’re really trying to market and push .uk because that’s the new product that we want everyone to be aware of. However, with regards the future, we’re flexible and open. We’re not 100 percent sure what we will do in 2019. We might have 8 million rights holders still or we might have only half a million. We see about a third of all the new direct .uk domains are not pre-existing rights holders, they’re brand new domains.

DAVID MORRISON: Yes, there’s been a similar experience for us.

OLIVER HOPE: And obviously you can’t register if someone owns the .co.uk already or if they have rights, you cannot register the .uk. So that’s what’s really quite interesting – that it’s quite a high percentage of people, they’re new customers buying new domains that don’t currently exist.

TONY KIRSCH: And they’re not trying to steal other people’s brands or digital identities?

OLIVER HOPE: No.

DAVID MORRISON: No. We really haven’t seen a lot of behaviour of people trying to steal brands. They’re coming up with the name and then going on to register it; the support of registrars is really important with this. About 26 to 30 percent of .nz domains are creates, so I can look at the Registrars where the proportion is either the same or greater than this. If Registrars are at that or above then it indicates they’re doing a reasonable job of promotion and making people aware of the shorter version. Where Registrars are not, it’s an indicator that they may not have a great awareness of the New Zealand market, or that they’ve got deep resale channels, so they’ve enabled their systems to support .nz, but their resellers downstream have not turned on similar functionality. We’re seeing some registrars with 97 percent of creates still at .co.nz.

TONY KIRSCH: Which lets you go and engage them on that then?

DAVID MORRISON: That’s right, but we aren’t about pushing, at the end of the day we’re all about the registrant being able to make a choice so we’re not going to force someone to choose .co.nz or .nz. We’re a not-for-profit entity so we’re not doing this for profit-driven reasons. It’s about ensuring that the registrant has the option of choice, and that at point of sale those options are available to them.

TONY KIRSCH: That’s a really important point, because I think there is a public perception of opening at the second-level as a bit of a money grabbing exercise. In particular from the larger corporates who are contacted every day with offers to register their name under different TLDs. Not only are you a not-for-profit, it almost to me sounds like you have a philosophy that there is a need to change but with adequate protections. You can’t please everyone but it sounds to me like both of you have done the best that you can to protect the people that are your current customers, but at the same time position yourselves for the future.

OLIVER HOPE: Yes, you have to protect your business for your own good and the good of your members. Of course, some people aren’t going to like the way that is, that’s not ideal but we will always do what we think is the absolute best thing for that whole organisation and the UK internet.

DAVID MORRISON: InternetNZ does a wide range of things that we make quite transparent in terms where money is spent, so when people call this a money-grabbing exercise we can talk quite transparently about what we do as a group of organisations, why we made this decision and what would happen if we just sat back and didn’t evolve with the domain industry. Over time there’s a possibility that growth and revenues may stagnate, which means the society can do less.

TONY KIRSCH: I think Oliver had a good point of it being about consistency. The truth is that over the next three to five years, if not already today, there are a lot of people in a lot of countries that think of that second-level structure ‘something.something’.

DAVID MORRISON: Yeah, that is where it’s going.

OLIVER HOPE: It needs to join up.

TONY KIRSCH: Five years from now, how do you see it working? Do you see the things working in parallel where each zone has their niche, or does one start to take over from the other?

OLIVER HOPE: I don’t actually have a clear answer because it really depends on adoption, and part of that will take time because if you’re a local building firm and you’ve got your web address on your van, you’re not going to get your van resprayed because you want to take three characters off it. When you buy your next van, it’s probably more likely because it’s shorter. But, that’s that slow burn of growing adoption. It’s only 20-odd years really since the internet kicked off. Five years down the line in our industry it could be so wide, the sphere of what it could be is hard to predict.

DAVID MORRISON: Within the New Zealand space, .co.nz is so ingrained into the psyche, so when you mention a website, the default is .co.nz, so I think we’re talking generations here. Five years from now, I think .nz will have a greater share of the pie and it will grow from 16 percent to maybe 20, 30 or 40 percent, but .co.nz will still be a dominant player for a long time to come. There are a lot of established brands and a lot of small organisations with limited funds that aren’t going to rebrand because of a domain name change. They may not see the value of it. With new businesses coming on board, I think they will adopt it but it’s going to be a long, slow change. Then again if it doesn’t happen, it’s actually not the end of the world. Because we’re there to provide choice to our customers and if they choose .co.nz as their preferred place to play, while I don’t think that will be the case, that’s okay but the choice is there.

TONY KIRSCH: So the idea is not necessarily to pit them against each other?

DAVID MORRISON: No, not at all.

OLIVER HOPE: No.

TONY KIRSCH: It’s all about choice and ensuring consistency with global standards and mainstream behaviours then?

DAVID MORRISON: Yes very much so. We have our own ‘micro-brands’ or options within our own space, it lets us say “there’s a range of options here; each hold their own separate values and identities and you choose the one that is right for you.”

TONY KIRSCH: Thank you both so much for your time. Opening up at the second-level for ccTLDs like yours sounds remarkably similar to the principles of new TLDs. I think it’s great that we realise that the change is probably not for our own immediate benefit, but rather it’s for our kids so when they establish their startups or any other online activity requiring a domain name, they have real choice available to them.

When kids grow up and they go to a Registrar they won’t have this hang up of what we have. We think a direct registration at the second-level is innovative but they won’t even know any different, it will just feel like it’s been like this forever as we do with colour TV for example.

All the best with your future endeavours in this space – this is really great information for both the DNA members and the wider community. We really appreciate you sharing your time and insights with us on this important topic.