leasing

This page looks at domain name 'leasing'.

It covers -

• introduction
• issues
• practice

     introduction

As noted in discussion of the domain name system, registrants have a licence to use a domain name rather than outright ownership of that name. The licence is for a finite period (typically two to three years) and subject to conditions. (Those conditions vary from TLD to TLD.) Some registrants have sought to generate revenue by 'leasing' the name to another entity. A domain may be temporarily leased while the registrant prepares to launch a site; some are instead used only for leasing.

What does leasing involve? Leasing is a form of domain monetisation, reflecting the naive search strategies of some web users.

Those users intuit that a particular name will be associated with a site that contains information of interest to them (eg because the name matches a brand, product, person or other subject). Typing that name - or a mispelt version - in the web browser directs them to the registrant's site or resolves from the corresponding domain name to another site. The site viewed by the user features advertising. That advertising may consist of a message. More typically it features multiple links to other sites, which the user is invited to click for further information.

That process is one of traffic aggregation, with advertisers paying for exposure to an audience and/or for the audience's expression of interest in the form of clicking the link.

Some registrants transfer rights over their domain names to a leasing specialist for a fixed period (in effect sublicencing the domain). That 'lease' gives the lessee the ability to -

• create and host a webpage that is uniquely identified by the particular domain name
• resolve traffic intended for that domain name to another address

In return the lessor retains 'ownership' of the domain (and can, for example, 'sell' it) and receives some revenue from the lessee.

     issues

DomainMart thus commented

A domain-name lease is more complex than a lease on a car or an apartment.  Any lease payment is determined primarily by the price of the asset being leased and, to a lesser extent, by any incentives from the manufacturer/dealer. The major difficulty with a domain name is finding “similar” leases to ascribe a fair price. This limitation for domain names is the result of several variables:

1 Markets for such leases are not very active. Only limited data can be obtained from the major leasing marketplace. For a car, on the other hand, the basic benchmark price is the manufacturer’s suggested retail price, commonly known as the sticker price and widely available.

2 A considerable portion of the high-value domain leases are arranged through private placement, further limiting public information.

3 “Similar” domain names are not easy to define. In the case of a car, there are well-defined characteristics that determine its price, such as class (sub-compact, compact, luxury, etc.), type (coupe, 4-door, SUV, etc.), and so forth. However, the characteristics of domain names are not so obvious, except for their extensions (.com, net, etc.). Even the importance of the number of characters is questionable. Thus, the only way to identify similar domain names is by using statistical models similar to those used to price domain names.

A more reliable approach to determining lease payment is a two-step process:

1 Determine the value of the domain name.
2 Calculate the lease payment (LP).

The standard pricing approach is to use Discounted Cash Flow models. However, to simplify this explanation, I will use the assumption of a lease with a perpetuity payment. In this case, the pricing model is reduced to

Price = LP/k,
p LP = Price x k

where k is the appropriate discount rate, which can be calculated based on the Capital Asset Pricing Model plus an additional risk premium.

To incorporate any provisions in the pricing model, one can, in principal, use option-pricing theory to value real options. However, for more practical considerations, scenario analysis can be easily incorporated into the lease-payment calculation.

     practice

Is there a meaningful leasing market within Australia and overseas?

In practice most leasing appears to involve transactions by large portfolio owners (leasing thousands of names at a time) and a few 'high profile' names. The typical registrant with one or two names is unlikely to be approached by a potential lessee.

Enthusiasm for the lease analogy is not matched by the market. One reason is that few registrants conceptualise their domain names as leasable. Another reason is transaction costs: the effort required to negotiate an arrangement with a lessor is rarely justified, with large-scale lessees instead turning to portfolio owners or registering names in bulk themselves without relying on a large number of individual registrants.










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