If ICANN only charges 18¢ per domain name, why am I paying $10?

Question

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)?

Answer 1

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, Inc. -- 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. They 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.

Answer 2

As 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 the government decided to privatize it. The contract to manage .com registry was granted to a company called Network Solutions, Inc (NSI). At that time the US Government actually paid $5.9M to NSI to do administration but then NSI managed to convince them that people should be charged to cover the cost instead. Eventually Verisign bought Network Solutions and become the entity which manages the .com registry.

Everyone was starting to realize that NSI/Verisign was becoming a monopoly for an important part of the modern economy. ICANN was formed in 1998 and chartered to introduce competition in this area. But instead they ended up doing almost exactly the opposite in the next series of events.

Early in 2003 Verisign introduced a service called Site Finder which redirected users to a search engine if the domain didn't exist. ICANN said this was "overstepping the contract terms". Verisign shutdown the service but also sued ICANN for not being allowed to bring any improvements. Eventually ICANN had to settle with Verisign and the prize of the settlement was that Verisign would be awarded contract renewal without any bidding plus the right to raise prices without showing cost justifications. There were even terms that indicated Verisign can continue its monopoly for the long 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 was all in vain and ICANN directors voted 9-5 in favor of settlement.

“We are bitterly disappointed, but we’re not giving up yet. It’s simply a bad deal for the industry and registrants everywhere,” - Bob Parsons, CEO and Founder of GoDaddy.com.

Due to industry outrage, the US Department 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 bring antitrust lawsuits. It happened against Verisign in 2010 but they escaped without a bruise because the organization CFIT which had filed this case wasn't considered a competitor or financially injured. It also surprises me that real competitors haven't come forward against Verisign to bring a large scale antitrust suit.

So when you pay that $10, it's ICANN's massive blunders of the last decade to allow Verisign to continue their 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 financials indicate 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 took big hit when US government announced this.

Answer 3

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 all those 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.

Edit, 2022: Verisign can and is raising .com prices again.

Answer 4

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.

Answer 5

Why do some top level domains cost considerably less than others?

Top level domains such as .com, .net and .biz have fixed wholesale prices negotiated between the registry and the non-profile Internet Corporation for Assigned Names and Numbers (ICANN), which is kinda like a domain regulator

The pricing of older generation TLD domains have a limit what they can be sold for and this limit is set by ICANN which is why some domains hardly ever move in price. However it should be noted that this cap does not include already purchased domains that you often see at auction for thousands of dollars.on.

Newer gTLD's domains such as .club, .sexy and .security have no ICANN limitations on how much a wholesaler can charge, this also applies to two letter country domains such as .us and .ca.

Whom are these Domain Wholesalers?

Wholesalers is just another term for domain registry, the registry is not to be confused with a registrar, for example Nominet is for registry for ccTLD domains in the UK. Nominet does not sell domains directly to customers, they are sold through registrars, it is Nominet who set the cost of the domain under the agreement with domain regulator.

VeriSign is the registry for .com and are limited by ICANN how much they can charge, but they have many other top level domains that may not have the same agreement.

Where does my money go?

1. Domain Registrar
2. Payment Fees (Debit, Credit, PayPal etc.)
3. Domain Registry / Wholesaler
4. Domain Regulator

What percentage goes to the regulator, registry and registrar?

The percentage of the sale of each domain varies because it has variables such as:

• ICANN fee agreement with the registry
• Registry fee agreement with the registrar.

It's impossible to know exactly how much the registrar makes because often this is inside only information, some registrars strike better deals than others depending on the volume of sales they expect to meet, but what can be said for certain is that the registry will receive the most money and net profit will only be made once the sales exceed the cost of their application and yearly regulator fees.

It's worth pointing out that gTLD domains generally cost more because the application for such domains run into the £250,000+ excluding the annually fees.

Answer 6

You have got a lot of useful replies but it seems no one addressed this line in your question:

I just read about the 7 people who hold the ICANN database key

This is completely not related to any fact.

First there is no "ICANN database". As explains in other replies, ICANN does not have an operational day to day role in domain name operations. When you buy a domain name, you exercise various services at registrars and registries, but ICANN does nothing there, it just have a "financial" role and as regulator, accredits companies, etc.

When speaking about keys, I think you are referencing articles such as https://www.theguardian.com/technology/2014/feb/28/seven-people-keys-worldwide-internet-security-web and many others. They are mostly very sensational, including in their title, for no reason except selling papers.

They are trying to explain complicated technical concepts (around DNSSEC, see below) but do so in so many gross over simplifications that the end result is completely meaningless.

Since it is not the core of your question, let us here just try to summarize the issue:

• to secure DNS resolution, a new protocol (an extension in fact) was invented, which is called DNSSEC
• DNSSEC uses cryptographic keys (the same kind of the ones used for certificates when you browse HTTPS websites, etc.) to authenticate DNS answers so that a resolver can detect if there is an attack on a domain name
• DNSSEC works with a chain of trust, exactly like in the HTTPS world with CAs; this means that each level of the DNS tree has a set of keys
• so that extends to the root (.) which is the mother or father of everything, starting with TLDs
• the root of the DNS tree has keys that needs to be changed twice per year; this is a policy issue, not a technical one; it is a compromise dictated by the wish to both change cryptographic materials to reduce the window of opportunities for attackers, and also to have "ceremonies" frequent enough so that people are well-trained for them, including if/when it will be needed to conduct them in an emergency
• the ceremony taking place twice per year to change these keys involves many people and many processes, with a lot of auditing
• to make it short, no the Internet is not at the mercy of 7 people that could do anything they want and disrupt things. Each one by themselves have basically no power at all. They just need to remember their passwords and be able to be at some specific location once or twice per year to participate in the ceremonies, with many other people attending it.

Also these people are not paid by ICANN, at most their travel costs are reimbursed.

If you want a non sensational description of things and a technically correct one, you can read this article: https://www.cloudflare.com/dns/dnssec/root-signing-ceremony/

As for the key holders specifically you will be able to read this:

There are only 14 available Crypto Officers in the world (7 are affiliated with each location), and at least three of them must attend the ceremony.

[..]

Each of these participants can only perform certain parts of the ceremony. Their roles are divided in a way that ensures less than a 1:1,000,000 chance that a group of conspirators could compromise the root-signing key, assuming a 5% dishonesty rate (yes, that’s formally in the specification) amongst these individuals.

[..]

The first four of these individuals are ICANN staff members, while the three crypto officers are trusted volunteers from the Internet community. Verisign also plays an important role, as they are the root zone maintainer responsible for generating the root zone-signing key that is signed during the ceremony. In addition, the entire procedure is audited by two Big Four auditing firms that are not associated with either Verisign or ICANN.

Answer 7

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.