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ICANN charges 18¢ per domain name registered regardless of its extension, but I pay $10 for a domain name per year with my registrar.

What do domain name registrars do for its customers to justify this extra $9.82?

Is there something that they do for our domain names other than registering it with ICANN?

I just read about the 7 people who hold the ICANN database key and got a little bit curious to know what the domain name servers do for us to justify this extra amount (12 times the actual fee)?

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Yes that's screwed up I can buy any .COM domain for 1 dollar and renew it for $5 for a whole extra year. you just need to do the right google searches before buying a domain!. –  SSpoke May 6 at 23:56
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@ColeJohnson You know why many cheap hosts charge less than $10? Because they will turn around & sell your user info for marketing nonsense or up-sell you on basic system functionality that $10+ registrars give you for free. You get what you pay for. –  JakeGould May 7 at 1:28
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The last time I bought a $2.50 domain, the renewal rate was at $38 per year after that. So, I rather pay my $10 a year and know that is the price which it is going to be for the life of the domain. –  Traven May 7 at 5:36
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@SSpoke The actual price is around $10 a year plus or minus a dollar. Some web hosting companies offer a discount on the domain (or even a free domain) if you host with them. The actual price is bundled with the hosting so you don't see it. –  Sameer Alibhai May 7 at 14:24
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@SameerAlibhai I can renew a domain for 5 dollars with the right coupon codes. –  SSpoke May 7 at 19:53

5 Answers 5

up vote 85 down vote accepted

ICANN lists a set of qualifications that registrars must be able to perform. Among these are:

  • Capabilities for registration and transfer of domains
  • Requirements for security and scalability
  • Backups
  • 5 employees
  • Carry insurance
  • Have cash in the bank

ICANN maintains a list of hundreds of accredited registars. All these registrars have to compete with each other on price, customer service, and brand recognition. Given the stiff competition, I would say that fees that registrars charge are determined by the market. If a registrar could meet ICANN's requirements and offer domain names for significantly less, then one would do so.

As Matt Nordhoff points out, the registry itself also gets a substantial share of the money you pay for a domain name. For example when you register a $10 .com domain, the fee is split:

  • ICANN: $0.18
  • Verisign -- the .com registry: $7.85
  • 3% credit card processing fee: $0.30
  • Your registrar: $1.67

High prices charged by registries are likely because of lack of competition. There have only been a handful of registries, and of those, the .com registry has been the most popular by far. In the last year ICANN has created many new top level domains run by different companies. The have done so partly in the hope that it will increase competition and drive down prices. It is unclear at this point whether that will work. The costs that new registries must pay to ICANN to apply are very steep. That may prevent any of them from being able to offer low prices on the domain names in their registry.

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Your registrar's payment processor -- what, $0.25 or $0.50? Your registrar itself is barely makin' a buck. –  Matt Nordhoff May 7 at 10:57
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why .xxx domain is so expensive everywhere? does it mean that all registrars agree to sell it at high price or ICANN sells them more expensive than regular ones? –  Templar May 7 at 19:19
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What exactly they do other than directing the users who type mywebsite.com to the webhost having specefic ip address? But this is done by ICANN. What is the .com registry doing here to have this major revenue share? –  Indrajith Indraprastham May 7 at 21:28
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@IndrajithIndraprastham No, the registry operates the .com (com.) nameservers. ICANN and friends operate the root (.) servers (which tell you "I dunno what mywebsite.com. is. Go ask the com. nameservers. Here's a list."). So they're both involved. As for why they get so much money, I don't know. Some combination of "it's expensive" and "their lobbyists are really awesome" I imagine. –  Matt Nordhoff May 7 at 22:30
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@Templar The ICANN fee for .xxx is $2. The registry fee is apparently $60, or at least was in 2011. Also, I think they charge(d) less for non-resolving defensive registrations, but don't quote me on it. –  Matt Nordhoff May 7 at 22:45

ICANN and your registrar are not the only parties involved. There is also the registry, the organization contracted by ICANN to operate the TLD in question. The bulk of the revenue is actually going to them. The .biz, .info and .org registries, for example, all charge over $8. Verisign, who operates several major TLDs, was famously forced to stop increasing .com prices in 2012, leaving them at $7.85. They're still allowed to raise prices of their other TLDs, though: .net was raised to $5.62 last year, and .name to $6.60.

On the other hand, I suspect the story is different for those crazy new $50-100 domains. The registries charge a lot of money, and the registrars probably mark them up, too. I bet they're both raking in the dough.

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That's a good, informative answer, but I guess that raises the further question ... what does the registry do that justifies its cut? –  jawns317 May 7 at 10:18
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@IndrajithIndraprastham - because they control who your computer looks to for resolving .com. Domain names are resolved top down. It starts at the root domain (.) which I can runs and then works backwards. So for example, to resolve www.google.com, "." which is run by ICANN is asked who "com" is. It says that "com" is Verisign, so then Verisign's "com" server is asked who is "google" and verisign says, "Google Inc" and then Google Inc's server is asked who is "www" and it responds by giving out an IP address for a server that Google's homepage is running on. –  AJ Henderson May 9 at 14:59
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You could subvert that entirely with if you controlled the root though. If "." suddenly started saying "com" belonged to Mr.Bad Attacker, then they could say that every domain points to whatever they want because they would effectively control what DNS servers are authoritative for everything. –  AJ Henderson May 9 at 15:00
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@ AJ Henderson: I got it now. But ICANN is a non profitable organization. But verisign (.com) registry is not? How can they become the monopoly over .com domains. Who gave them that right? One more thing, (.) root server is doing the same thing as .com registry and their cut is ($0.18) and the Verisign's is $7.5. Are these registries doing something other than that to justify this cut? –  Indrajith Indraprastham May 9 at 16:39
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@IndrajithIndraprastham Who gave them that right? The US government. ShitalShah's answer covers the history. –  Matt Nordhoff May 9 at 17:09

A other answers have said, large portion of your money goes to Verisign. Verisign is essentially government sponsored monopoly over .com and .net domains. You may ask how did that happened when US supposed to so despise monopolies?

Here's how:

Early on registries were free, funded by government and run by InterNIC. Then government decided to privatize it. The contract to manage .com registry was granted to a company called Network Solutions, Inc (NSI). At that time govt actually paid $5.9M to NSI to do administration but then NSI managed to convince that people should be charged to cover the cost. Eventually Verisign bought Network Solutions and become the entity who manages .com registry.

Everyone was starting to realize that NSI/Verisign was becoming monoloy for some very important function of modern economy. ICANN was formed in 1998 which was charted to introduce competition in this area. But instead they ended up doing almost exactly the opposite thing in next series of events.

Early in 2003 Verisign introduced a service called Site Finder which redirected users to search engine if domain didn't exist. ICANN said this was "overstepping the contract terms". Verisign shutdown the service but also sued ICANN for preventing it to bring any improvements. Eventually ICANN had to settle with Verisign and the prize of settlement was that Verisign would be awarded renewal of contract without any bidding plus right to raise prices without showing cost justifications. There were even terms that indicated Verisign can even continue its monopoly for longer term. If you ask me this is blunder and incompetence by ICANN at mega scale.

Industry was furious. Lot of people commented on ICANN's proposal of settlement by saying that .com registry is not the property that ICANN owns to leverage in settlements. Others said no other government agency knowingly consented to unchecked price increase without cost justification. But it all went to vein and ICANN directors voted 5-9 in favor of settlement. Due to industry outrage US Dept of Commerce had to intervene and eliminate the clause for Verisign's right to increase prices by 7%. You can say that Verisign showed benevolence for not increasing prices to what was already considered ridiculous.

In cases like this typically competitors brings in anti-trust suits. It did happened against Verisign in 2010 but they escaped without a bruise because the organization CFIT which had filed this case wasn't considered as competitor or the one who had financial injuries. It also surprises me that real competitors haven't come forward against Verisign to bring in large scale anti-trust suit.

So when you pay that $10, it's ICANN's massive blunders of last decade to allow Verisign continue absolute monopoly. Verisign has benefitted dearly with this. They have $2 billion in cash and $1 billion of yearly revenues from all the payments you hand out to them. Verisign's financial indicates that this is their highest margin business.

One light at the end of the tunnel is that US government has announced plan to relinquish the control of Internet which means ICANN might not have authority to hand out monopolies any longer. Their stock too big hit when US government announced this.

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When I registered my first domain in 1996 with Internic, it cost $35 per year. For which I had to physically mail in a check. –  Michael Hampton May 9 at 19:40
    
Are there any "rules" preventing private entities from starting their own namespace on a massively large, public scale? Essentially, a root grey market (RGM) which replaces all the root hints that point to ICANN. This is just a hypothetical question, not one of practicality that would have to consider grey market registrars, registries, scale, etc. –  generalnetworkerror May 10 at 20:13
    
When the public is abused enough from not allowing free market forces to run, that public could venture off and create a free underground domain name space. In fact, the two namespaces could be easily bridged by allowing the RGM -- see previous comment for context -- to divert DNS "questions" to the real roots for any TLDs not recognized in the RGM. The DNS protocol already allows for this double-root questioning to work since each question is for the FQDN. –  generalnetworkerror May 10 at 20:20
    
@ShitalShah, So basically you are saying that if NSI had accepted the 5.9 M, then right now domain names wouldn't cost more than a $1? –  Pacerier yesterday

ICANN doesn't register domain names

Your question assumes that the amount ICANN charges is a 'registration fee' and that you (or anyone else for that matter) can register "directly from ICANN" - which is simply not true.

Think of it as a small tax - for each TLD there is a registry that handles the actual registration, but to support the top-level infrastructure (that doesn't even keep a list of what not-top-level domain names exist, i.e., does not register the domains), each registry pays some amount to ICANN. To make it "fair", it's calculated in proportion to the domain names they have, and it seems that it comes out to $0.18 per domain.

That $0.18 doesn't in any way relate to the cost or price of registration - it's a small "infrastructure fee" for the "umbrella organization" that's included in the total cost.

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This question isn't specific to domain registrars, this is a business related question. If X costs Y why do I pay Z?

The answer is simple, registrars are generally multi-employee salary paying organisations. They must meet certain criteria and pay fees for ICANN accreditation. They must invest in infrastructure, websites, helplines, etc.

All of this costs money, and until you buy a domain that is money the registrar has invested at their own risk. Thus they must charge you more to offset the cost and profit enough so that the input has been worthwhile.

If you feel you have found a gap in the market and think you could offer the same services for less then you should research it, see what your outgoings will be and how many domains you would have to sell to make a profit. You might be surprised how competitively priced they really are, if you are not surprised then congratulations you have just found what is likely to be a profitable business.

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There is something called registry. Eg: .com registry. They are actually costing you this amount. Their cut is $7.86 for .com domain. Verisign is a private company which is now the .com registry. Domain name registrar's cut is only $1.87 . Read the above answers. –  Indrajith Indraprastham May 11 at 15:32
    
@IndrajithIndraprastham That doesn't change my answer whatsoever... the registrar is still factoring in profit and their costs, that falls under the etc in their costs. Don't get hung up on specific amounts. This is just the nature of any business. –  George Reith May 11 at 18:31

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