Analysis: New Internet Rules Will Spawn Battle For Dots

When it comes to branding on the Internet, 2012 may be the dawn of a chaotic new era with companies and other groups expected to battle over suffixes like .cancer, .chocolate and just about .anything.

The decision on Monday by the body that governs Internet domain names to stop restricting them to suffixes like .com and .gov will change the way companies interact with consumers and how much they'll be paying to do so.

"It's going to make the Wild West look positively civilized," said James Gregory, chief executive of CoreBrand, a corporate brand consultancy.

Currently, there are 22 "generic top-level domains," such as .info and .org, plus about 250 country-level domains such as .uk, .de or .ca. That framework has already created an environment in which companies own thousands of possible domain names, even if they don't use them, just to prevent bad faith "cybersquatting."

New names -- which could end in anything from .pepsi to .food to .healthy -- are expected to start getting approved by the end of 2012. That means hundreds more top level domains are expected to come into existence, creating the possibility for a complex network of possible URLs such as coke.zero or italian.food.

Companies already spend hundreds of thousands, or even millions, of dollars a year to maintain registries for domain names not in use, partly to prevent others from snapping them up for ill intentions such as domain name trafficking, financial fraud or selling counterfeit goods.

Now that the number of possible domains is growing exponentially, so too might the number of registrations in companies' portfolios, according to industry experts.

The Internet Corporation for Assigned Names and Numbers (ICANN) will start accepting applications for domain names in January. Aside from a fee of $185,000, applicants must prove claims to the domain names they wish to buy. ICANN will outsource the job of adjudicating claims to hundreds of consultants.

Those hurdles may deter bad-faith registrations, said Josh Bourne, managing partner of FairWinds Partners LLC, which advises companies on domain name purchases. But they will not prevent battles between companies that both have legitimate claims.

"If you're talking about Unilever and Mars -- who's going to jump on .dove first?" he said. Unilever Group makes Dove skin cleansers and Mars Inc makes Dove chocolates.

CAN'T AFFORD NOT TO BUY

The application period is limited and closed, Bourne said, meaning that companies are likely to be secretive about their plans so as not to tip off the competition. In addition, since the next application period may not be for several years, he said risk-averse brands cannot afford not to participate.

"The only safe bet is to be an early adopter, even if you don't plan to use it," Bourne said. He noted that getting in early is more important for some brands than others, since there is a provision that prevents names that are too similar.

For example, if delivery company United Parcel Services Inc applied for .ups in round one, and then five years from now, financial services company UBS AG, which had not initially applied for .ubs, decided to apply because all of its rivals have, "the answer is 'sorry, because there's a .ups and that's too close,' " Bourne said.

Many large companies contacted by Reuters, including Nestle Ltd, Kraft Foods Inc, Procter & Gamble Co, Kimberly-Clark Corp and Pfizer Inc, said they were following the developments but declined to discuss specific plans.

Aside from the application fee, Bourne said owners have to pay about $25,000 a year to maintain each registry and $50,000 to $75,000 a year for technical functions often outsourced to a registry operator. Over the course of a 10-year period, he said that could amount to as much as $2 million per domain name.

For the largest consumer products companies, which have dozens of brands, that could run to many millions of dollars.

"But the next question is, what do they actually do with it?" Bourne said. "What can you do with .coke that you can't do with coke.com?"

COMMUNITY OF LOVERS

Jeff Ernst, principal analyst at Forrester Research, said new domain names pave the way for new opportunities for marketers, who always want to control as much of the Internet as they can.

"For brand presence, why be subservient to dotcom?" Ernst said. "Starbucks (Corp) might want to create a community of coffee lovers at .coffee," Ernst said. "It's going to enable a lot more customer intimacy for companies."

Another idea is to use new domains to reward customer loyalty, Bourne said, such as by letting a brand's most loyal customers have the chance to have their own email addresses or websites under the brand's umbrella.

At present, there are about 100 million .com names registered, accounting for about half of the world's registry, according to Ben Crawford, chief executive of Internet registry service provider CentralNic. But the fact that the new rules allow for domain names in other alphabets, such as Chinese characters or Cyrillic, has huge implications, he said.

"The next billion new adopters of the Internet are probably people who don't use our alphabet," Crawford said. "The Internet is getting more global."

IMPACT ON SEARCH

Even though there are a lot of marketing opportunities, companies are unlikely to transfer their current Web content to new sites, Bourne said, because that would mean losing their page ranking in Internet searches through engines like Google Inc.

"You're moving from something that has tons of equity in Google's eyes to something that has zero equity, never been heard of before," Bourne said. He said they're also unlikely to change all employees' email addresses to reflect the new domain names.

Forrester's Ernst said he thinks search engines are going to have to adjust their algorithms to give a .brand a high ranking for a search on a particular brand.

"The search engines make their money on advertising. They get eyeballs to the most relevant search results," he said.

(Additional reporting by Jennifer Saba and Ransdell Pierson in New York and Jessica Wohl in Chicago, editing by Gerald E. McCormick)