Why are domain names so expensive? | Hacker News Reader

Why are domain names so expensive?

smartynames.com

This article correctly analyzes the game theory and incentives behind domain """investors""", but I would give it a different conclusion.

Domain investors are speculators -- producing nothing, merely throwing up a gate in front of something that already exists (the domain namespace) and charging others for access. This is about as close to the platonic ideal of a rentier as you can possibly get.

- They produce absolutely nothing, neither good nor service

- They reduce the available supply of an existing good

- They increase its price

The fact that they're incurring a risk for themselves does not absolve them of this fact.

The root cause of this speculative incentive is that the holding fee for domain names is too low. If it was higher (and even better, was made to be somewhat relative to the demand for the domain) we would see MUCH more efficient allocation of domain names, and lower prices across the board.

When something is necessary for production but very cheap to hold, it will be in short supply and expensive to buy.

When something is necessary for production but incurs a reasonable cost to hold, only those who actually plan on doing something productive with it will choose to hold it, increasing the available supply and making it much cheaper to buy.

Intriguingly, Vitalik Buterin wrote an essay about redesigning the economics of domain name allocation in this sort of manner (and note: does not require any blockchain/crypto tech to pull off) https://progressandpoverty.substack.com/p/should-there-be-de...

Thanks, you are right, domain investors mostly take risks in arbitraging something they are able to acquire faster than others and don't exactly produce value in the same way that you would, while say creating a game. Of course, don't mention that to the domain investors, as it would not go well.

I would say many of them think of themselves as real estate investors, where they buy up cheap pastures today, in hopes of building the next Manhattan on it tomorrow.

Indeed, domain utilization would be a lot better if they were a lot more expensive. That's partially why some new TLDs sell you a domain for 99 cents the first year, and then raise prices to $50 for the next. Assuming you took a year and built something valuable, the price to keep it goes up.

That said, even those TLDs have tens of thousands of domains (more on that later), which are registered and unused. Investors are willing to take their bets, even if it costs a lot more to maintain the bag.

I am a familiar with a few theories on raising the prices and introducing "taxes," for holding domains, and a friend and I have had numerous discussions on the subject, but so far, in my opinion, those are theories that have too many unrealistic expectations of the real world. There's a solution somewhere out there, but we are not there yet.

It's interesting that you mention Real Estate, because Vitalik's solution is inspired by the "Land Value Tax" idea in Real Estate, which is a policy widely supported by economists as the "least bad tax" and which directly attacks rentierism and land speculation, which are the direct cause of inflated land prices and a significant contributor to the ongoing housing crisis (as well as inflation overall, as rent inflation is a major contributor).

Fun fact: the problem with domain names has happened over and over again in a related field -- online games. In fact, wherever you see a "land like asset" arise (defined as an asset that is scarce in supply, necessary for production, and which obtains value from its location), you will see something analogous to land speculation. Digital "land value taxes" have been attempted before, and the best evidence available suggests that they are very effective:

https://progressandpoverty.substack.com/p/land-value-tax-in-...

Right now in domains some services have a very, very crude approximation of a "land value tax" where they charge a fixed higher fee for "premium" domains (common words). This has a slight effect on dampening speculation, but the root problem is that the fee is not directly proportional to the desirability of the domain (ie, the location). The solution is not a blanket high fee across everything -- it's perfectly fine for the holding cost fopr things that aren't currently in high demand to be eeffectively zero -- it's to have a holding fee that rises and falls in proportion to demand for the non-produced, necessary asset.

yup. precisely the topic of an hour long discussion I had with a friend yesterday.

here are top 2 problems I see with this tax in domaining:

1- All of the TLDs are owned by a handful of companies, and it's not in their interest to create a more competitive model. They don't really care who owns a domain, as long as someone's paying for it. In fact, they like squatters and encourage it. You should see how many domains are auto-registered by bots. I'll write about that more in the future, but for every TLD that claims "millions" of registered domains, a large portion of those are just unused junk. The registrar though is getting paid.

2- Land tax is not in the business interest of a business. As a domain becomes one of the key pillars of a business, I wouldn't want anyone to have the ability to take it from me, which is how it works (from my understanding) under the value tax. However expensive, it is cheaper to pay large sum up-front, and know you have the domain forever.

Land tax is one of those things that are good in theory, but in practice will be very hard to implement.

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