Freemium versus premium
On the market for domain name extensions, there are two dominant strategies for making a success of a new service: the freemium strategy and the premium strategy.
Freemium TLDs offer domain names for free or at knock-down prices in a bid to get as many registrations as possible. The rationale is that a proportion of the websites involved are bound to be successful. They get your extension known, then after a while you can start charging realistic prices. One of the best-known TLDs to adopt the model is .xyz, and .tk used to operate in a similar way. With the freemium strategy, you often get spectacular growth in the early days. And some equally spectacular implosions if usage of the newly registered domain names doesn't pick up. So it's normal to see high peaks and deep troughs in freemium domain name registrations.
The premium strategy is geared more to the long term. Instead of pursuing volume, a premium TLD concentrates on targeted selling to a specific group. Strict registration requirements apply and the market positioning is very precise. Attractive though the model is, it has the drawback of offering little flexibility in terms of market position. If conditions change, the scope for adaptation is limited. Take .mobi, for example. Launched in 2008, .mobi was profiled as the TLD for mobile websites. However, it was barely up and running before a new generation of smartphones and tablets made it redundant.
Feeling the chill
One doesn't have to look for long to see that the current contraction in new gTLD registrations is mainly about freemium players feeling the chill. Since the launch of .xyz three years ago, domain names with the new extension have virtually been given away free with .com registrations. In recent times, however, .xyz has accounted for two thirds of the decline in new gTLD domain names, losing more than three million registrations in less than four months.
Are we surprised? Not very. Research we did at the start of the year showed that hardly any Dutch .xyz registrations were in active use. Fewer than 1 per cent of all .xyz domain names have their own website.
So far, contraction of the nTLDs has had very little impact on the size of the Dutch market. Asia and America have been hardest hit. In the Netherlands, by contrast, we've seen gradual growth. It's surely no coincidence that providers in this part of the world have opted mainly for the premium strategy – charging high fees and putting the emphasis on active use. A look at the league table shows the Dutch-based new TLDs .amsterdam, .shop and .frl all doing well, along with the premium domain .club. What these TLDs have in common is that their domain names aren't just registered; they are also used. Contrast that with .xyz – numerically the fourth largest TLD in the Netherlands – which barely shows up in the usage statistics.
What we are witnessing is further confirmation that the domain name market is not only about quantity, but also about quality. Any domain that doesn't create added value for its users will ultimately struggle to survive.