[CPWG] A white knight on the horizon for .ORG?

Sat Jan 11 16:48:48 UTC 2020

Roberto,

"I believe that our two assessment by and large coincide"

Agreed!

On Sat, Jan 11, 2020 at 11:27 AM Roberto Gaetano <
mail.roberto.gaetano at gmail.com> wrote:

> David,
> Just a point of clarification.
> When I was talking about valuation, I was not talking about the sale price
> but about an assessment of the PIR assets according to financial standards.
> Although I am not an expert, and therefore I might be wrong, I do believe
> that the sale price was higher than the objective valuation of the company,
> considering the assets including reserve funds, that have been drastically
> reduced in the last couple of years.
> The reason why Ethos is ready to pay more than the valuation is that it
> has a strategy that could extract more value from PIR than ISOC was able
> to, and this is, IMHO, a key element in the understanding of the importance
> of the operation. My personal opinion is that Ethos wants to change the
> business model of PIR - the question is how, and my answer is that this
> will be realised through vertical integration with Donuts. This might well
> be done via a sale to a different entity that ensures this vertical
> integration - in this case I believe that our two assessment by and large
> coincide.
> Of course, this is just a personal opinion, and I do not have any
> information for drawing this conclusion other than what is currently public.
> Cheers,
> Roberto
>
>
> On 09.01.2020, at 01:19, David Mackey <mackey361 at gmail.com> wrote:
>
> Roberto,
>
> I am not an expert of finances either. However, from a broad historical
> perspective, I can see the following...
>
> .ORG established in 1985. Estimated Value = $0.
> .ORG transferred from Verisign to PIR in 2003. Estimated Value = $0 plus
> right for Verisign to maintain .COM contract
> PIR sold from iSOC to Ethos in 2019. Value = $1.135 billion (yet to be
> closed)
>
> I don't have any reason to doubt the valuation of the proposed
> transaction. I trust Ethos has done their financial homework properly. I
> also have no reason to doubt that iSOC has not done their homework too.
> Ethos and iSOC seem to believe they have found fair market value.
>
> I think it's irrelevant to worry about the valuation of the transaction in
> 2019, as agreed to between Ethos and PIR. It's up to the buyer and the
> seller to establish a fair market price. I also think it's a red herring
> to worry about any potential .ORG domain price increases. That ship has
> sailed.
>
> I do think end users have an interest in whether PIR is sold as an asset
> from iSOC (non-profit) to Ethos (for-profit). The mission of those two
> organizations are very different. It is well accepted that for-profit
> companies only have one mandate to their shareholders and that is to make
> money. It's simple and should not be controversial in, and of, itself. They
> may want to protect the value of their asset, PIR, but their overriding
> mission serves the interests of their shareholders.
>
> I think many people are missing the nature of Ethos's investment. Although
> ICANN may add guard rails to protect against pure-profit behaviour, I
> suspect the investment payoff to Ethos is when they sell their asset in the
> future. A metaphor that can be used is when a company purchases a building.
> They maintain it and collect rent for a number of years, but the big payoff
> is when they sell it for capital gains in the future. Capital gains is the
> profit motive, not the rent/revenue that's earned each year while managing
> the asset. Hence, it is highly likely that Ethos is making a $1.135 billion
> bet that it can maintain and grow the value of PIR, so that it will make
> more than $1.135 billion in the future. This is what private equity
> companies do. If Ethos is successful, PIR will be worth more than $1.135
> billion in the future. Still the current and future valuation of PIR is not
> relevant to end users. End users are often well served by properly
> functioning capital markets in the right context.
>
> However, in this case, it's the switching of the organizational mission
> from a non-profit, iSOC, to a for-profit, Ethos, which causes problems and
> risks for many Internet stakeholders and end users. Current .ORG
> registrants are switching from assumed stakeholders to Ethos/PIR customers.
> The nature of the relationship is changed during the transaction.
>
> Regardless on how this is done, I believe Katherine Maher, CEO and
> Executive Director of the Wikimedia Foundation, makes a valid point in
> wanting to preserve "a longterm commitment to the open and noncommercial
> internet". Hence, I believe At-Large End Users interests do not align with
> iSOC organizational interests for purposes of this transaction.
>
> Cheers,
> David
>
> On Wed, Jan 8, 2020 at 4:06 PM Roberto Gaetano <
> mail.roberto.gaetano at gmail.com> wrote:
>
>> Hi David.
>> One sentence in your email prompts another element that we want to
>> consider if we want to build a complete picture.
>>
>> > On 08.01.2020, at 20:51, David Mackey <mackey361 at gmail.com> wrote:
>> >
>> > < ….. >
>> >
>> > I guess it's not totally surprising as we've seen the Internet expand
>> over decades across the globe to the point where organizations like PIR are
>> valued in the billions of dollars.
>> >
>> > < ….. >
>> >
>>
>> I am not an expert of finances, but I believe that the sale price of PIR
>> is appropriate for granting ISOC a steady income - once invested - that is
>> at least what PIR was providing.
>>
>> OTOH, I am not convinced that the current value of PIR is above a billion
>> - but I may be proven wrong. Whatever the case, we should wonder why Ethos
>> believes to be able to extract from PIR a higher revenue than what PIR
>> produces today.
>> IMHO, the ability to raise price is not the good answer. This ability is
>> provided by the contract with ICANN, and predates the sale - so it is
>> something that ISOC has without doubt factored in the sale price.
>> The best chance to increase the profitability comes from a different
>> business model or a different corporate structure (or both, obviously). The
>> first thing that comes to my mind, that I have hinted already in my early
>> comments - but then not elaborated upon - is vertical integration. I am not
>> claiming to be an expert on the domain name business, but as co-chair of
>> the Vertical Integration Working Group I have learned a lot.
>> PIR, as registry, has to treat all the registrars equally. When PIR owned
>> a registrar, it was obliged to provide to all other registrars the same
>> information given to it. However, a registrar can pick and choose
>> registries to partner with and with whom to share information even of
>> strategic nature. Considering the relationship that folks in Ethos have
>> with Donuts, it would not be surprising to see in the future a
>> collaboration where - to be compliant with ICANN rules - Donuts is running
>> the show, and PIR would set its business accordingly.
>>
>> Should we take this also into account to assess the situation? Maybe we
>> should. But maybe the first step could be to discuss whether this is a
>> reasonable scenario or whether I am off the mark.
>>
>> Cheers,
>> Roberto
>>
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