Building a Business Case for a New gTLD Published in .nxt, May 17, 2011, by Architelos CEO Alexa Raad

The top priority for most prospective gTLD applicants is to ensure they submit an application that meet all the new ICANN criteria. But are they developing a solid business case before submitting that application? If they don’t, they may face problems down the road.

The ICANN application assumes you’ve selected your back-end provider (or else you have to describe how you plan to operate it yourself). But to negotiate a viable agreement with any outsource provider you need to know your technical requirements as well as your financial means. Otherwise, whatever you negotiate now may not be suitable when you actually delve deeper into your financial picture.

the TLD application has detailed evaluation criteria, which you could meet if you have a well-developed business caseIn addition, the TLD application has detailed evaluation criteria, which you could meet if you have a well-developed business case for your desired TLD. ICANN expanded the financial evaluation section of the application to require not only comprehensive corporate financial projections such as balance sheet and income statement, but also specific revenue and cost projections—and benchmarked comparisons with previous TLD launches. ICANN evaluators also want documentation on the underlying assumptions and how they impact the adoption of the TLD. In other words, they want a viable business case for your TLD.

Applying for a new TLD costs an estimated $500,000 including the various legal and professional services. To secure internal approval or attract outside investment, you’ll need to show the likelihood of achieving the expected ROI. You must understand the economics of a registry business, know when to time your marketing and PR investments, and even how to time your launch.
What makes a domain industry business case complex in comparison to other ventures, of course, is not the cash calculation, but rather accounting rules that call for recognizing revenue of any single registration over the life of the domain registration that can range from one to 10 years and any period in between. Investors will want to see the “waterfall method” or “deferred revenue” calculation financial projections on a both dual cash sales basis and accounting sales basis.

Other challenges:

What phases will you have for launch and how will those registrations be priced?
What is your channel strategy? If indirect, which of the more than 900 registrars will contribute to your projected volumes?
And what will it cost you in co-marketing and promotional pricing?
What do you expect your renewals to be, and are those expectations reasonable?
How many domains will renew only once versus twice, three times or more consecutively?
What are the Key Performance Indicators that would markedly change your projections and success if adjusted?

Architelos has developed the Business Case Builder (BCB), a secure web-based application, that can generate the reports needed to meet ICANN’s requirements. We’ll be describing the key elements of an effective TLD business plan and demonstrate the Business Case Builder in our next webinar scheduled for May 23 at noon EST. You can register here.

FYI: Architelos has no financial interest in any TLD, nor do we plan to apply for one. Furthermore, we do not offer a registry back-end solution, and we work agnostically with all.