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NSI may still dominate domains

Network Solutions has little to fear from rivals even as competition in domain name registry promises to bring better service and more innovative offerings, analysts say.

Network Solutions, which has enjoyed a virtual monopoly in the domain name registration market, has little to fear from rivals even as competition promises to bring better service and more innovative offerings, analysts say.

"The story is competition, but competition ain't here today," said James Pettit, an analyst at Hambrecht & Quist. Even with a concerted assault from rivals, Network Solutions has the marketing muscle, infrastructure, and know-how in place to survive and thrive in the new environment, he added.

"Network Solutions See Don Telage Newsmaker has been doing this for seven years...and has a tremendous, powerful network of partners to bring in names and more names," added Pettit, noting that Yahoo and Netscape's Netcenter are NSI's marketing partners.

America Online was among five companies that yesterday were named as "testbed" competitors to Network Solutions in the lucrative business of registering ".com," ".net," and ".org" domain names. The other four companies selected by the Internet Corporation for Assigned Names and Numbers (ICANN) are CORE (Internet Council of Registrars), France Telecom/Oleane, Melbourne IT, and Register.com.

Although the first phase of the test program is to begin Monday, AOL admitted that it was caught off guard, having not completed its plans.

"I wouldn't expect to see any changes in our services on Monday, as we are still finalizing our business plan," said Andrew Weinstein, an AOL spokesman. He declined comment on when users can expect AOL to launch registration services for the test period, which ends in June.

Register.com, by most accounts, is the only viable competitor with a strategy in place, analysts agreed.

The company provides Web-based email services under a custom domain name and serves as a portal to clients who register there. NSI also offers those services, however.

"We have been under the radar screen but still have managed to establish a very good brand name for ourselves on the Internet," said Sascha Mornell, Register.com's director of marketing and online services. "Network Solutions, though, will always be pushing the pack and pushing the lead in terms of what they will offer, and they will get more aggressive because they have to.

"I like to think that we will be there with them," Mornell added.

He is not alone in that assessment. "Register.com has demonstrated some good flow," said Pettit, though he added that the company's business model is still unclear. "I think the market can support more than a few competitors, and Register.com will have a voice, but they have a lot to do."

The cost of competition
Analysts noted that, while selling domain names is a commodity business, the costs can be quite high to seriously compete in the space. Registrars will need a robust billing infrastructure, a growing cadre of customer support representatives, and lawyers to deal with trademark and other legal issues.

NSI plans to expand its services and support staff to handle the exploding number of people signing on domain names. "It is safe to assume that our market will explode and we will need to augment our staff," an NSI spokesman said.

In a research note, J.P. Morgan analyst Raimundo Archibold wrote, "Network Solutions will maintain its dominant position in the domain name registration market for the foreseeable future on the strength of its established distribution channels. We expect new entrants to capture a portion of the registrar market through various [business models], but [they] will have difficulty in attracting significant scale due to channel and branding strategy difficulties."

After the test period, the Shared Registry System for domains will be opened up to 29 other competitors, including AT&T.

As the company opens up to competition, NSI reported yesterday that it registered a record 922,000 domain names in the first quarter. The number represents a 171 percent jump from the year-ago quarter of 340,000 names and a 49 percent rise from the 1998 fourth-quarter figure of 621,000.

The company also reported financial results that beat Wall Street expectations for the first quarter, earning $4.8 million, or 14 cents per diluted share, on $38.1 million revenue. That compares with net income of $2 million, or 6 cents per diluted share, on revenue of $16.5 million for the year-ago quarter.

A consensus of analysts polled by First Call expected NSI to pull in 12 cents per share.