2014, "Year Zero" for nTLDs: Past performance and lessons learnt

February 2015

2014 was the year of the Big Bang for nTLDs: what are the results for such a vintage period?


2014 ended with 470 gTLDs (generic top-level domains) in the root, including 39 using non-Latin characters, and 290 ccTLDs (country code top-level domains) of which 41 used  non-Latin characters. In all, there were no less than 760 TLDs in the root as at December 31, 2014, or an increase of 89% compared with 2013, and of 147% compared with 2012, the increase mainly being due to the new TLDs.

These figures prove by themselves that the domain name system has radically changed in a few months, more than during the first twenty years of its existence. The number of files still being processed by ICANN suggests that the phenomenon will continue in 2015 and 2016 to reach around 1,350 TLDs by the end of 2016.


Evolution of the number of TLDs per category


For most of the TLDs in existence today, 2014 was the year of their launch and first confrontation with market realities.

Volumes below expectations

The first observation we can make is that worldwide demand in general has not been as high as the registries hoped. Even ICANN recently had to seriously revise downward its estimate of the installed base of domain names under the nTLDs for the 2015-2016 period.

The 3.7 million names announced by Ntldstats.com at the end of December 2014 camouflages the contrasting situations of the 327 nTLDs that had already completed their sunrise period by that date. If we base our analysis on ICANN reports, the latest of which extended up to the end of October 2014, 72% of the nTLDs launched by that date had less than 5,000 domain names and less than 1% had exceeded 100,000 domain names, often only as a result of highly aggressive pricing strategies.

The fee or free business model?

The nTLD leaders consisted of market players who had set up free purchasing policies enabling them to achieve very significant volumes. According to Ntldstats.com, by itself the .XYZ nTLD had 760,412 domain names at December 31, 2014, or 21% of all the new domain names registered by that date.

No doubt the logic on which these strategies is based is that the crucial issue for any new TLD is to achieve the critical mass that will allow it to become sufficiently well-known to establish its image among users and thus become a customary provider. The reasoning holds true but is still a gamble, since everything depends on the turnover rate at the end of the first year. It also relies on the fact that the success criterion of a TLD is volume, when there may be other metrics that should be taken into account.

Value creation as an alternative to the "low cost" approach

While some registries "give away" their domain names as if they were "worthless", at the risk of depreciating the users’ viewpoint of TLDs, others are willing to pay large sums to gain control of a TLD during private auctions or those organized by ICANN. In the case of ICANN auctions alone, for which the figures are publicly available, the 10 TLDs acquired by that means generated a total of no less than $ 35 million in sales, an average of $ 3.5 million per TLD plus the costs of ICANN files and the compensation of back-ends.

It is clear that the organizations that are prepared to invest $ 4 million in a TLD are convinced of its value and the return on investment they can expect to earn from it. But the abundance of new TLDs can also hinder their perceived value among users, who often need to be convinced of the benefits they will reap.

TLDs in search of meaning

Forcing their way through thanks to large volumes of sales is by far the strategy adopted by most nTLDs. The vast majority of them focus on specific segments in terms of activities, usage or user communities. This means that volume, although always impressive when it exists, cannot be considered an absolute "standard". The analysis must be completed by studying the utilization rate and whether or not the dynamic is sustained over time (as opposed to sudden surges generated by promotions). In 2015, the turnover rate will be the key test to know whether the TLDs launched in 2014 have managed to find their market, or if they are still struggling to reach beyond the small circles of rights holders seeking to protect their brands, and domain name speculators on the lookout for good opportunities.

2015 forecasts indicate a trend line of 8-10 million domain names under the nTLDs

If we extend the trend line observed in 2014 through to year-end 2015, we see that the goal at the end of that year is slightly over 8 million domain names, i.e. doubling in twelve months, all other things being equal.


 Evolution of the number of domain names registered with new TLDs


That trajectory is relatively credible, because the effect created by the constant emergence of new TLDs in 2015 and the flow of domain name creations under the existing ones will necessarily be offset by the first wave of deletes as renewal deadlines are reached.

The current market share of 1.3%, related to the 50% proportion that nTLDs represent of all the TLDs existing at year-end 2014, shows that they have a certain potential – provided, however, that they manage to beat their rivals already in place. Other studies previously published by the Afnic Industry Report on Domain Names showed that the .com gTLD is resisting fairly well and that even more than the ccTLDs, it is mainly the other "legacy TLDs" that are suffering from the competition created by the newcomers.

Due to the wealth of approaches, models, meaning, and markets targeted by nTLDs, they do not form a homogenous whole. The coming months will tell us which stakes have paid off the best, and which nTLDs have succeeded in creating a lasting presence.



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