Focus on gTLD Niches, Not on the Number of
Registrations
Alex Tajirian
July 6, 2011
Applicants for the
recently approved launch of new generic top-level
domains (gTLDs)
should seriously take into account niche markets instead
of focusing on the number of registrations.
Drawing on failure and success drivers
when it comes to Internet start-ups, it becomes clear
that the failures of recently introduced generic
top-level domains (gTLDs)–such as .biz and .info–are due
to their focus on the number of registrations (i.e.,
scale) instead of focusing on niche markets. On the
other hand, start-up successes have been consequences of
prudent initial niche strategies.
I
first outline two examples of start-up failures that
focused on scale rather than niche markets. I then
outline successes of two niche market strategies. The
essay does not address gTLDs of brands, such as .canon.
One example of scale
failures is FreeMarkets Inc., founded in 1995, which
offered to save companies on their purchases through
online auctions. It offered its clients a broader range
of suppliers and provided information on the latest
price reductions. The success of FreeMarkets led to a
December 1999 initial public offering (IPO) leading to a
market valuation of $8 billion at end of first day of
trading.
Such a phenomenal
success did not go unnoticed by FreeMarket’s major
clients. General Motors, which accounted for about 17%
of FreeMarket’s revenue, announced the formation of a
consortium with rivals Ford and Daimler-Chrysler merely
months after the IPO. The new entity, Covisint, would go
beyond publishing price information and more into
information-sharing among its members and suppliers.
However, the cost of harmonizing the interfaces among
all the manufacturers and hundreds of suppliers
outweighed any benefits of economies of scale.
FreeMarkets later acquired Covisint in 2003 and
FreeMarket was sold in 2004 to Ariba Inc. for a fraction
of its IPO price.
A second example of
failure due to a scale strategy is Value America Inc.,
which tried to sell anything and everything online. It
was founded in 1996 and funded by heavyweights such as
FedEx founder Fred Smith and Microsoft cofounder Paul
Allen. Its market value at the end of its first trading
day was $2.4 billion. It filed for bankruptcy after only
16 months.
You might say that
Amazon is an example of the success of a scale strategy.
However, looking at Amazon now, their strategy was still
that of a niche market as a “pure play” online
bookstore. The company expanded through investments in
strategic competencies and into adjacent markets.
Nevertheless, brick-and-mortar bookstores that expanded
into the online space have not fared well.
Zappos
is another example of the success of a niche strategy.
Founded in 1999, Zappos focused on shoes with an
emphasis on attracting and retaining loyal customers. It
was sold to Amazon in 2009 for $1.2 billion despite
Amazon having its online shoe business. Zappos still
dominates the online shoe market, which is estimated at
a worth of over $4 billion.
In the domain name space, existing
domain names such as .biz and .info have an unfocused
message and are scale-based, because any business can
use them without providing a clear message. Their
strategy has been, “If we build them, they will come.”
Nevertheless, you can
compete with .com
with a product differentiation strategy and a unique
marketing strategy.
Niche strategies include focusing on location (such as .nyc
for New York), community (such as .arab), niche
industries (such as .cars). Product differentiation does
not imply a niche strategy, but a viable niche gTLD
message involves product differentiation. Applicants
within a “similar” niche should compete on customer
service,
marketing,
restricting openness,
and bundled TLD services. Keep in mind that price
competition can easily lead to destructive wars
resulting in losses for all parties.
Although incumbent registries may have a
competitive advantage in managing operating costs and in
offering a wider scope of TLDs, they may not have
marketing competencies for new niche markets. So, don’t
let incumbents sway you away from new niche gTLDs when
you have superior competencies.
Thus, applicants for the recently
approved launch of new gTLDs should take niche markets
very seriously. Niches include location, community, and
industry signaling.