What follows is a formalization of the problem, and a reasoning of why it
cannot work, based on traditional corporate strategy theory.
I have worked as a "Strategic Impact of Information Sciences" lecturer for
Boston University's MBA program for a couple of years, and I believe that
we now face a traditional strategy problem that I will try to explain in
the following paragraphs.
Background
There is a traditional model for Corporate Strategy that is widely
accepted, it was set by Michael Porter.
In short, it says that a company must compete with the other companies in
its industry segment, but the whole segment, united, must compete with:
- New possible entrants in the market
- Products that may substitutes their own
AND MUST ALSO PRESENT A UNITED FRONT IN ORDER NOT TO GIVE TOO MUCH POWER TO
ITS CUSTOMERS OR SUPPLIERS. In the specific case of suppliers, if they have
too much power, they can increase prices and give bad service, and the
customer cannot go away.
One of the forces that give suppliers power is the "Switching Cost" that a
company has when it tries to change to another supplier. If the cost of
switching to another supplier is higher than the cost of being "locked-in",
then the company will stay in the "locked" position, and pay whatever is
demanded by the supplier.
In the case of companies like Coca-cola, the switching cost is very low, I
can change to another drink whenever I want. In the case of companies that
have a sophisticated method of communication with the supplier (automated
orders, for example), the switching cost is very high, changing may force
the customer to hire new people in their purchasing department and may be
increase their stocks to assure production.
In the case of monopolies, the company does not have a chance, unless it
can change to a substitute product (for example radio vs. telephone)
Domains
In the case of gTLDs, we are talking about the WHOLE industry.
The switching cost from a domain name in use to a new one may be higher,
for some companies, than what the company can afford altogether. I was
talking two days ago to the CEO of a key US based Internet company and he
said that it would probably mean bankruptcy for them.
These might be extreme cases, but in general, companies who have developed
a high visibility in the Internet would be forced to pay ANYTHING they were
asked in order to keep their domains.
This means that we are in a very clear "lock-in" position if the company
that distributes TLDs can do it for-profit and set its own rules.
COMPETITION BETWEEN TLDS CANNOT EFFECTIVELY EXIST.
The solution
The solution must be one that gives no power to the supplier of TLDs over
its "customers" (all of us).
The CORE model has this effect. The registry runs in a non-profit
cost-recovery basis and registrars compete on the price of their
administrative work.
No "lock-in" exists, as the price of the domain (charged by CORE in a cost
recovery basis) is the basic minimum, and the administrative cost (charged
by the registrar) must stay competitive, or the customer will change to
another registrar.
By forcing for-profit registries, the US government would be placing all US
and foreign companies in a very weak "lock-in" position as regards their
domain-name supplier, which, I believe, is the opposite of what a
Department of Commerce should do. Its role is to help its industry, not to
place it in a weak position for the profit of a few.
Javier