Afnic : 77,8% Average Worldwide Renewal Rate for the Main TLDd in 2013

Afnic, the company behind .FR extension, released its monthly Instru Report on Domain Names. The report revealed and average worldwide renewal rate of 77,8% in 2013.

You can read the announcement after the jump :

“As we observed in the April issue of the Industry Report on Domain Names, renewal rates are going to become an increasingly important issue for most Top Level Domains, facing a market combining a slowdown in domain registrations, and the distribution of those domain names over a fast-growing number of TLDs due to the opening of the new TLDs. This factor is all the more important since the majority of existing TLDs, with the exception of those that have just been launched, generate most of their revenue from renewals.

A study conducted on nearly 40 TLDs, including the 17 gTLDs launched before 2014, showed that while remaining generally stable (only 1% was lost between 2008 and 2013), the renewal rate is following a downward trend.

It can also be observed that the rate directly correlates with the global financial climate: it dropped dramatically between 2008 and 2010, picked up in 2011 and declined again between 2012 and 2013.

The study of the distribution of renewal rates among the TLDs studied shows that 40% to 50% of TLDs renew 81% to 90% of their stock each year, and a similar proportion of TLDs renew less than 70% of it. Behind the average indicated above therefore there are marked contrasts related to the specific situations of the TLDs studied.

Factors common to all TLDs

As a result, it is useful for registries to identify the factors that determine the renewal rates of their TLDs, and to what degree those factors impact the changes in those rates.

 Factors common to all TLDs but with varying influence on renewal rates include:

The utilization rate: the more the names in a TLD are utilized, the more likely registrants are to keep them. Several case scenarios can be identified: names used as a reference address for communication purposes, names that redirect to the latter, or names that redirect to holding pages. Domain parking should also be taken into account, as “domainers” are always deciding between keeping their names or giving them up in order to focus their investments on other names that are considered to be more promising;

The “age pyramid” of the names registered in the TLD, since “volatility” decreases over time. Every TLD is subjected to two forces, namely its predisposition to generate new registrations, and its ability to retain the names that are already registered. The final changes in its stock are the result of those two factors. In this respect, the .xxx TLD is worth mentioning. When it launched, this TLD “fixed” for 10 years a significant number of names registered defensively, enabling it to achieve a renewal rate (or “maintenance” rate) of 97% in 2012; but this rate dropped to 69% in 2013, as “losses” were apparently very high on renewals of names registered after the opening;

The reputation: the better-known a TLD, the more it is considered to be a “key” TLD for communication or simply brand protection (the potential damage caused by cybersquatting increases with the reputation of the TLD). This probably explains why the .net TLD is able to maintain a renewal rate higher than 75%, despite its utilization rate being relatively low compared with other TLDs. On the other hand, a poorly-known TLD runs the risk of its stock becoming depleted in the case of disposals in conjunction with other TLDs;

The fee: the higher the cost of registering under a TLD, the greater the risk of disposal, as registrants are increasingly confronted with the issue of the return on investment via the renewal of their domain names.

 Other factors

In addition to these TLD-specific factors, more exogenous factors also emerge:

The global economic climate, which leads registrants (both corporate and individual) to be more cautious as regards their domain name budget, by realizing savings on the renewal of names deemed of little value;

The promotion (or lack of promotion) of the TLD by registrars, and promotional campaigns designed to persuade their customers to keep the names they registered under the TLD in question. In this respect, it is highly significant that promotional efforts so far have focused more on registration fees (the “aggressive” customer acquisition approach) than on renewal fees (a more “defensive” approach to protect the existing portfolio). This aspect will no doubt be explored in the future by certain stakeholders;

The number of available TLDs, which dilutes the individual importance of each, and affects the reasons why some registrants want to keep their domain names, for example to “block” a term or protect their brands. The more rights holders understand the uselessness of defensive strategies designed to eliminate risk, the more they will use their budgets for defensive registrations covering the most strategic TLDs for their businesses, or for registrations under other TLDs deemed more valuable from the marketing point of view. It is still difficult to measure the impact of this disposal behavior between existing and new TLDs, but it is quite clear that it will not be neutral.

In essence, this brief discussion on renewal rates only completes a more general analysis of the processes taking place on the domain name market:

The sharp increase in supply due to the new TLDs is going to inflate the customer acquisition costs of all market players (both for existing and new TLDs);

Similarly, customer retention costs are also going to increase, either via short-term approaches (promotional campaigns), or via efforts carried out as part of mid- to long-term value creation approaches (such as to boost the utilization rate);

At the same time, the growing competition is going to influence the profit margins of all the players, with the exception of those lucky enough to find “niches” allowing them to charge high fees (the .rich TLD is almost a caricature of this kind of strategy, although its performance has been fairly disappointing so far).

Whatever the case, the relative stability of renewal rates, which is baseline data for the business models of many TLDs, will be challenged in the future. It can also be noted that the renewal rate helps measure the vulnerability of a TLD to the competitive playing field. It is no doubt preferable to have a renewal rate of 75% like the .biz TLD, than to lose one in two domain names every year like the .info TLD. 

Having focused on domain creations until now, the strategies adopted by registries (and registrars) will thus be increasingly conditioned by the need to protect existing portfolios, unless they deliberately attempt to outrun the number of registrations in order to compensate for the losses in renewal rates, which are trending downwards.

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