Name Nightmare: New Vanity Domains Could Cost Retailers Millions, NRF Says

Ready to pour $185,000 into nailing down your E-Commerce site's domain name all over again? Starting in January 2012, retailers will be able to apply for new top-level domains (TLDs) that will give them Internet addresses that end with their brand—.macys instead of, for example. But on October 21, the National Retail Federation (NRF) sent a letter to the U.S. Commerce Department asking that the department delay implementation of the new TLD land grab until lots of questions about the process are cleared up.

That could take a while. No one—including ICANN, the body that handles new TLD names—knows how many retailers, manufacturers, cities, organizations or other entities will apply for their own TLDs, or how long the approval process will take (estimates range from seven months to years), or whether there will ever be another chance to buy up vanity domains. What is clear is that it's going to be expensive—even for retailers who decide not to pop for the chance to slice .com off the end of their E-Commerce site's address. For those who do, the $185,000 application fee is just the down payment. There's another $25,000 per year to keep the name. (That's not including legal fees and consultants, which NRF figures will jack the price up to $250,000 per TLD, plus another $50,000 to $100,000 a year afterwards. Protecting a brand against challenges and cybersquatters could cost millions.)

And you can't just park the vanity TLD for future use—you're required to actually be operating the domain on the Internet within a year if you successfully apply for it, which you'll have to do without knowing if any of your competitors are applying (or if any domain squatters are going after your brand), because the applications will be kept secret until after the window for applying closes in April 2012.

NRF's letter to the Commerce Department's National Telecommunications and Information Administration laid out some of the uncertainties and costs for retailers and asked that the department block implementation of the new TLD-approval process "until such time that the business community can be adequately informed of, and digest, its as yet inadequately explained parameters"—in other words, indefinitely. (Commerce got the letter because, officially, the non-profit ICANN is acting on behalf of the U.S. government.)

But even more signs of trouble for retailers are in the applicant guidebook that ICANN issued in September, a 350-page extravaganza of minutiae that explains the process for applying for the new TLDs. Those guidelines outline a bureaucratic maze that might take as little as seven months to navigate. But if a proposed name is challenged by a government or too similar to another proposed name—or even if there are just thousands instead of hundreds of applicants—the process is expected to drag on for years before the domains can be used.

And that's just for those who apply.That's just for those who apply. But even those who don't apply will have to track the process closely, so they can object if a proposed vanity TLD copies a trademark. ICANN says it plans to designate an outside organization to resolve trademark issues, but not until after the registration process has already begun.

And despite ICANN's assurances, those cases are likely to end up in court if a retailer's brand is grabbed by someone else. Retailer branding is already a mess—remember, today there are two grocery chains named Albertsons in the U.S. using exactly the same logo. Which one gets the vanity TLD? Would either one want it?

That's the larger problem for retailers: It's not clear that any retailers want these new domain names. But ICANN's secret application process could force them into applying, even if there's no benefit, just to protect their brands.

Because the applications will be kept secret until April 12, 2012, when the window for applying has closed, there's no way to know whether it's worth anteing up just for brand protection. In fact, ICANN says it expects multiple applicants for some new TLDs—they'll just have to fight it out through the multiple challenge and resolution procedures that ICANN plans to set up.

ICANN won't say if there will be another opportunity for getting vanity TLDs, soon or ever. The organization does say that if more than 500 applications are received, they'll have to be handled in batches—but there's no way of knowing whether a retailer's application will be delayed or on what basis.

And although there's plenty of potential downside if a retailer's brand is hijacked, it's not clear that there's much advantage to retailers in a vanity TLD. Not surprisingly, advertising and marketing agencies think vanity TLDs are a great branding opportunity. For example, one marketing consultant has suggested the new TLDs could make possible whole collections of E-Commerce sites such as BackToSchool.Target, BackToSchool.Gap and BackToSchool.JCP.

But retailers could easily make all those domain names work right now if they want to by adding a .com on the end—and without the extra expense of buying a six-figure TLD and operating their own registry to manage it. (Maybe it's not such a great idea to get Internet branding advice from people who aren't clear on how the Internet works.)

Whether there's a benefit to retailers or not, someone is guaranteed to make lots of money from vanity TLDs if they go through. It just won't be anyone in retail.