[CPWG] A white knight on the horizon for .ORG?
Marita Moll
mmoll at ca.inter.net
Sun Jan 12 23:33:52 UTC 2020
Hi Greg. I totally second what you are saying here -- we should set out
the conditions under which such a sale could happen and point out that
Ethos does not, as yet, appear to meet them.
Conditions would include need to retain the public interest aspect of
the registry, and elements about how the board is constituted and
conditions for transparency. The most recent info. from the PIR response
to ICANN presents serious issues about the board of this organization --
whose members they not prepared to reveal.
Marita
On 1/12/2020 5:33 PM, Greg Shatan wrote:
> I think it's critical that At Large focuses on what the future of .org
> will look like, and how we get there.
>
> I don't think there is any legal basis for the .org contract to be
> terminated with PIR.
> Similarly, I don't think there is any legal basis for ISOC's control
> of PIR to be terminated against the will of ISOC.
> It's a waste of time to consider solutions based on these end results,
> whether from the Coalition or otherwise.
>
> However, it is entirely realistic (even it seems unlikely) to think
> that ICANN could block the sale to Ethos Capital.
> If ICANN does block the sale, the result will be the /status quo
> ante/: ISOC will continue to control PIR and PIR will continue to be
> the registry operator for .org.
> Same thing if the sale doesn't go through for other reasons (e.g.,
> Pennsylvania Attorney General review, which appears to be required
> under these circumstances). ISOC/PIR/.org remain linked.
> At that point, ISOC either ends this exploration or looks at other
> options.
>
> Alternatively, it's realistic to think that ICANN could put binding
> conditions on its approval of the sale.
>
> Therefore, I suggest that we concentrate on providing advice to the
> ICANN Board on how it should review and analyze this sale. We should
> consider what criteria ICANN should use, and how these relate to ICANN
> Bylaws, the .org contract, etc. This analysis could result in ICANN
> blocking the sale or imposing conditions on the sale. If the latter,
> we should advise what those conditions are, and how they would be
> enforced.
>
> There are multiple legitimate reasons to critique the sale, the seller
> and the buyer -- both the process and the result, and the actions and
> statements throughout. Unfortunately, there are also multiple
> criticisms driven by self-interest, score-settling, animus,
> stereotype, exaggeration or lack of information; the latter type tends
> to obscure the former, because the latter are more sensational. We
> need to separate the wheat from the chaff -- a frustrating but
> necessary step -- and provide the best advice we can based on
> legitimate concerns about this transaction. And it's not a bright
> line between the two.
>
> Take, for example, the non-profit status of the .org registry
> operator. I see no reason or evidence to show that ICANN or PIR or
> ISOC were mandated or required to preserve the non-commercial status
> of PIR. Claims that they were have led to some fairly scorching
> allegations. But this is a distraction. The better question is
> forward looking -- being confronted with this fork in the road, should
> the .org registry operator be required to remain a non-profit? If so,
> on what basis? If not, on what basis? In either case, what are we
> trying to protect and preserve about .org as it is and as it should be
> (but not as some wish it had been but wasn't -- e.g., an official
> non-profit registry)?
>
> If we can keep our discussion on track, we will get to a result more
> quickly.
>
> Best regards,
>
> Greg
>
>
>
>
> On Sat, Jan 11, 2020 at 7:44 PM Holly Raiche
> <h.raiche at internode.on.net <mailto:h.raiche at internode.on.net>> wrote:
>
> A really good summation of what has happened, and why. The
> outstanding question for ALAC in this context is whether it was
> ever in ICANN’s mandate to preserve the non-commercial mission of
> PIR - or whether it should have been - and whether there are steps
> that can be taken that can mitigate the for-profit nature of the
> takeover - in Katherine Maher’s words, preserve the long term
> commitment to the open and non-commercial nature of PIR - now in
> the hands of a for-profit corporation.
>
> Holly
>
>> On Jan 12, 2020, at 3:48 AM, David Mackey <mackey361 at gmail.com
>> <mailto:mackey361 at gmail.com>> wrote:
>>
>> 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
>> <mailto: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
>>> <mailto: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
>>> <mailto: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 <mailto: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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