Paul Sakuma/AP Photo
You have probably never heard of the most profitable company in America, and possibly the world. It’s a government-granted monopoly that feasts on high margins for a low-dollar administrative product. Today, three advocacy groups pressured the Biden administration to take down the rules in place that enable this gravy train.
The company is called VeriSign, and it has exclusive control of the registration system for the .com domain name. Every year, hundreds of millions of website owners pay VeriSign a small annual fee to keep their .com in working order. Every year, the cost of managing the database to make sure that .com websites work either stays flat or goes down, while the fee for registering a .com website goes up.
As a result, VeriSign’s operating income before taxes in 2023, as a percentage of the nearly $1.5 billion in revenue, was an incredible 65.4 percent, according to its financial disclosures. That’s up from a still-astronomical 58.9 percent in 2021. Revenue in the first quarter of 2024 went up to $254 million, from $233.8 million a year earlier. The stock analysis website GuruFocus puts VeriSign’s current operating margin at 67.3 percent.
The American Economic Liberties Project, Demand Progress Education Fund, and the Revolving Door Project have just asked the governmental agencies in a position to stop this opportunistic profit-taking to step in and prevent it. “VeriSign is a prime example of an economic termite, and has used its government-approved monopoly over domains to hike prices with no justification for far too long,” said Laurel Kilgour, research manager with the American Economic Liberties Project, in a statement.
For decades, the Internet Corporation for Assigned Names and Numbers (ICANN), a nongovernmental organization that oversees various internet operations, has given VeriSign a monopoly over managing .com. The government regulates this arrangement as a public utility, and has in the past capped the price. But in 2018, the National Telecommunications and Information Administration (NTIA), a division of the Commerce Department, signed a six-year deal allowing VeriSign to raise its prices by 7 percent a year in four out of those six years. VeriSign promptly did so, and the cost of registering a website will rise to $10.26 a year on September 1. That’s up from $6 a year in the early 2000s.
The cost to website owners, in other words, has risen 70 percent, while the cost to VeriSign to maintain the database has actually fallen. In the past, competitor domain name companies have said publicly that they could run .com and charge as little as $1 a year.
Because it’s just ten bucks a year, no individual is going to raise much of a stink about being ripped off. But VeriSign’s own statistics show that there were 172.7 million websites with .com and .net (which the company also manages) as of the last quarter of 2023. Rip off 172 million people and pretty soon you’re talking about real money.
The cost to website owners has risen 70 percent, while the cost to VeriSign to maintain the database has actually fallen.
Under the terms set by the Trump administration in 2018, as long as VeriSign meets certain performance metrics, its contract with NTIA automatically renews every six years, unless the agency informs VeriSign of a nonrenewal, which would trigger a competitive bidding process. The deadline for that announcement is August 2. The advocacy groups see this as a moment to rethink the deal.
In a letter to NTIA, they argue that ICANN and VeriSign “function as a de facto cartel and the NTIA should stop sanctioning the ‘incestuous legal triangle’ that serves as a shield to deflect overdue antitrust scrutiny into their otherwise likely illegal collusive relationship.”
The collusive relationship comes into play this way: Though VeriSign has the freedom from NTIA to raise prices under the six-year contract, it still must get permission from ICANN to do so. In 2020, VeriSign and ICANN reached an agreement allowing the company to raise prices by the maximum amount allowed in the NTIA contract, in exchange for a $20 million payment to ICANN over a five-year period. In other words, VeriSign gave ICANN a cut of the profits in exchange for raising prices on customers. ICANN also takes 25 cents each quarter for every .com registration.
VeriSign was prohibited from raising prices under the 2012 contract during the Obama administration. Trump’s NTIA allowed them to make that price boost, and VeriSign’s stock rose 17 percent the same day. From a price of $49.51 a share ten years ago, VeriSign stock closed yesterday at $179.10, and has only fallen this year because of the uncertainty of the renewal process.
Biden’s NTIA is run by Alan Davidson, who has the distinction of being Google’s first lobbyist in Washington. The NTIA has not yet returned a request from the Prospect for comment.
The advocates’ letter notes that VeriSign spends little on research and development—only around 6 percent on average for the past few years—and approved a billion-dollar stock buyback plan last year. In other words, VeriSign has sat on the market, collecting its tolls without upgrading service. The .com domain remains the choice of around half of all websites.
The last time there was any chance of competition in this market was 2016, when ICANN put the .web domain name up for sale. An unknown purchaser named Nu Dot Co paid $135 million in a public auction to get it, only to reveal three days later that VeriSign provided all the funding for the bid, essentially putting one of the most promising rivals to .com in VeriSign’s hands. The Justice Department investigated the .web sale but closed that investigation in 2018. In part due to continuing controversy about the sale, to this day there are no sites using .web, which probably suits VeriSign just fine.
When it’s not tainted by a straw purchaser, competitive bidding for domains has worked pretty well. When .net was put out for bid in 2011, VeriSign won but had to reduce the annual price from $6 to $3.50. A bidding process for .com, combined with a cap on prices, could yield similar benefits for website owners and lower monopoly rents.
“VeriSign has continued to raise the price for customers, reaping excessive profits without providing a better product or service. NTIA must send a notice of non-renewal to stop this cycle of exploitation,” the letter concludes.
In a second letter, the advocacy groups asked the Justice Department to withdraw a letter it sent to NTIA in 2018 blessing the no-bid, automatically renewing contract, and to investigate VeriSign for antitrust violations. The 2018 DOJ letter, which has not been made public, appeared to reassure NTIA that it could allow VeriSign to remove price caps and raise prices during the contract. Previously, in 2008, the Justice Department explicitly stated that VeriSign “possesses significant market power.”
The advocates cited the Biden administration’s executive order on promoting competition, which pledged a whole-of-government effort to prevent market concentration. That could begin with the areas in which the government literally creates the monopoly. VeriSign, the advocates say, is a great place to start.
