The Economics of Everyday Things - 43. Top-Level Domains

Episode Date: April 8, 2024

Those letters at the end of web addresses can mean big bucks — and, for some small countries, a substantial part of the national budget. Zachary Crockett follows the links. SOURCES:Vince Cate, technical contact for the .ai domain in Anguilla.Kim Davies, Vice President of Internet Assigned Numbers Authority Services and President of Public Technical Identifiers at ICANN.Tianyu Fang, contributing editor at Reboot. RESOURCES:"The Two-Decade Fight for Two Letters on the Internet," by Jacob Judah (The New York Times, 2024)."Whose Domain Is It?" by Tianyu Fang (Reboot, 2023)."How a Tiny Pacific Island Became the Global Capital of Cybercrime," by Jacob Judah (MIT Technology Review, 2023)."The Tropical Island With the Hot Domain Name," by Rachel Metz (Bloomberg, 2023)."The Never-ending ccTLD Story," by Peter K. Yu (SSRN, 2003).

The island of Anguilla is rich with natural beauty. If you venture to this tiny oasis in the eastern Caribbean, you'll find turquoise waters, palm trees, coral reefs, and some of the most picturesque white sand beaches in the world. It's the kind of place you go to when you want to escape modernity and bathe in the wonders of the physical world. For many years, Anguilla's economy rested on that beauty. The island made its money from tourism and lobster fishing. But in more recent times, Anguilla has struck gold with a digital asset. Two little letters at the end of website

addresses. When we first started, it was around $4,000 or $5,000 a month. And now we're, this month will be around $4 million that we're seeing from.ai. We'll be over half the government budget within a year. For the Freakonomics Radio Network, this is the economics of everyday things. I'm Zachary Crockett. Today, top-level domains. On the internet, websites are identified by an address, known as a uniform resource locator or URL. When we talk about websites, we usually refer to URLs by two parts.

There's the second level domain, which identifies the particular website, say Google, and then there's the top level domain, which might be com. The parts of a URL are separated by dots. So we usually call the top-level domain.com. A top-level domain is a way of sort of categorizing a domain name into a certain subject area, if you will. Kim Davies is the head of the Internet Assigned Numbers Authority, or IANA for short. It's the organization responsible for keeping a record of all the domain name identifiers on the internet. All in all, there are nearly 1,500 of them,

and each one serves its own purpose. .edu is for educational institutions, .mil is for the military, and.gov is for government. Some are serious, others can get a little sillier..jl is for the military, and.gov is for government. Some are serious, others can get a little sillier. .info,.museum,.ninja. What our team does is maintain the official records of which identifiers have been assigned and make sure that they're used in a standard way on the internet.

When the system for organizing domains was being developed in the early 1980s, the newborn internet was dominated by researchers in the United States. As the rest of the world began to connect to the network, there was a recognition that each country should have its own domain too. There was different research networks popping up in different countries, and they were contacting the researchers in the US to work out how to connect to this growing network. There needed to be a sense of agency for each country to sort of own and control their part of the network. The result was something called Country Code Top Level Domains or ccTLDs. Each country got its own two-letter top-level

domain,.us,.ca,.uk,.fr. The idea was that these domains would be reserved for businesses and institutions in the associated country. If you were a construction firm in Colombia, your domain name would end in.co. And if you were a bike shop in Italy, your website would end in.it. The task of assigning all these domains to countries was overseen by a man named John Postel. John Postel was one of the original researchers on the team that invented what we know of today as the internet. Postel had a knack for being a record keeper for all sorts of things.

Technical people are not particularly well versed in matters of international diplomacy, and therefore he made a rule that IANA shouldn't be in the business of deciding what is or is not a country. To avoid international disputes, Postel used a list of country codes published by the International Organization for Standardization. But he also had to find someone in each country to manage the domain. And that process was a little less rigorous. By most accounts, the power to manage domains was delegated to the first person in any given

country that requested it. In some cases, that was a government body, a research institution, or a non-profit. But in others, it was just a random guy who asked for it before anyone else. I'm the technical contact for the.ai domain in Anguilla. Vince Cate moved to Anguilla in 1994 after getting an advanced degree in computer science from Carnegie Mellon University. I wanted some country that didn't have income taxes, and so I read some books about tax havens and then I went down and checked out a few islands and decided that I could live in the Caribbean.

At the time, Anguilla didn't have internet or email. Kate would connect to a computer in the US using a telephone modem. He was interested in registering a website for a company he was starting. So he contacted John Postel. To his surprise, Postel said that he needed someone to oversee the.ai domain that had been assigned to Anguilla.

And he said, nobody's managing that yet. Did I want to manage it? I'm like, okay. As the domain administrator for Anguilla, Kate had the power to decide which websites got to use.ai. At first, there wasn't much interest on the island. The first few years, I was letting anybody in Anguilla that wanted to register a name for free, but I wasn't letting anybody outside of Anguilla.

By the late 1990s, millions of ordinary people were using the internet. Websites were displaying ads and offering things for sale, which meant that a catchy domain name was like an attractive storefront. And as new technologies emerged, certain top-level domains like.ai took on a new meaning. Kate realized that companies all over the world wanted to be associated with artificial intelligence, and they were willing to pay money to register a website ending in.ai. They started to trickle in around 2015. An AI cloud platform registered H2O.AI, and an AI tool for developers registered API.AI.

Kate could feel that a wave was coming, and he wanted to make sure Anguilla would benefit from it. Somewhere along the line, a few years in, I decided it really shouldn't be in my name. The whole thing was in my name. I was the admin contact and the technical contact. And so I changed the admin contact to the government of Anguilla. Anguilla opened up the.ai domain to entities outside of the island and began charging a registration fee for its use.

Throughout most of the 2000s, those registration fees brought in a small but steady trickle of business. And then artificial intelligence became hot. In November 2022, ChatGPT came out and it just took off. I was printing off a page of domains and bringing it to the government every month. These are the domains that we sold this month, right? And then after ChatGPT, we stopped printing them out. We just gave them a spreadsheet and a PDF file. And then it got so big, we couldn't even

generate the PDF file anymore. Revenue for.ai domains grew from 7.4 million in 2021 to around 30 million in 2023. This year, Kate says that figure could be north of $50 million, more than 40 percent of the country's annual revenue. Most of that is from registration fees, which now cost $140 for a two-year contract. But some of it comes from auctions. If somebody stops paying for a domain name,

then what we do is we auction it off. And some of the ones that we auction off might sell for $30,000 or $20,000 or something. And so we've made around a quarter million dollars a month for the last couple of months just selling domains that people stopped paying for. Recently, the address vision.ai sold for $100,000.

Task.ai commanded $79,000. And dog.ai fetched $47,000. That's serious cash for an island that only has 16,000 inhabitants and 35 square miles of land. But not every country with a desirable domain has had a success story like Anguilla. Some CCTLDs have become geopolitical and commercial battlegrounds. That's coming up. Today, nearly 250 countries, sovereign states, and dependent territories have been assigned a top-level domain.

Kim Davies of IANA says that in many cases, a country's designated domain has become a hot commodity. Each country has been sort of gifted two letters and the two letters, you know, nominally relate to the name of their country. But sometimes there is some kind of alternate value in what those two letters stand for. St Vincent and the Grenadines, for instance, has dot VC, which has become a desirable domain for venture capital firms. Turkmenistan has the lawyer-friendly.tm. Djiboutis.dj is popular with musicians. And Columbia has.co, which many companies around the world now use as an alternative

when the.com version of the name they want is taken. But many smaller nations who have a potentially lucrative domain name lack the digital infrastructure to take advantage of it. They have to seek out a marketing partner in a more developed country. Vince Cate says these arrangements are often a raw deal. Some of the other countries that didn't know how to run their own domain, some company would come in and say, oh, we'll give you a million dollars a year for the next 50 years. And then they're stuck with that company.

And some of them spent years and years and years trying to break those contracts because the company is making all the money. This is what played out in Tuvalu, an island in the South Pacific. The nation was assigned the.tv domain, which became lucrative with the rise of online media. It decided to outsource the management of its domain

to private companies. And eventually, it inked a deal with the American tech firm VeriSign. VeriSign paid Tuvalu a flat sum of around $5 million a year from the revenue it made. In 2021, Tuvalu signed a new deal with the domain registry GoDaddy, also based in the U.S. The island now receives $10 million a year, which accounts for nearly 20% of its GDP. The money from these deals has been a windfall for Tuvalu, which has used it to

build roads and expand access to electricity. But it's only a fraction of what they'd earn if they set up their own technical infrastructure like Anguilla. That's going to look stupid again in another 10 years, right? The money's becoming worth less and less all the time, and any fixed amount after a while it's going to look ridiculous. So I don't think they really learned their lesson. This imbalance is a common story in the world of CCTLDs.

These profits are not going to the people who live in places underrepresented on the international stage. They're going to the pockets of corporations in the United States and Europe. Tianyu Feng is a contributing editor at the tech publication Reboot, where he's written about the politics of top-level domains. He says that other places have fared far worse than Tuvalu. Like Niue, a small island nation in the South Pacific Ocean. In the early years of delegation, it was assigned.NU.

An American businessman convinced Niue officials to let him control the domain in exchange for connecting the island to the internet. This businessman later transferred the ownership of DotNU to a non-profit in Sweden. In the past two decades, that company has made millions of dollars selling domains ending in DotNU, which means now in Swedish. The Niue government was never able to claim it back to get it re-delegated with the IANA. Niue has been trying to get.nu back for several decades. The nation has an ongoing case in the Swedish Supreme Court and is seeking around $30 million in damages.

Being a country in the Southern Pacific, you probably don't have a lot of access to legal resources in Sweden. So in many ways, it's a rigged game, right? You don't have the level playing field with a jurisdiction that basically sets the laws. A similar story played out on the Pacific island of Tokalau. It delegated the management of its.tk domain to a New Zealand entrepreneur who ended up giving out registrations for free..tk became the top-level domain of choice for spammers and cyber criminals who wanted

to create burner websites. Other top-level domains like.io are embroiled in the politics of colonialism. The.io domain is extremely popular with tech companies in the Silicon Valley, mostly because I O stands for input output. So you see a lot of programmers and startups using it as their domain name. .io was assigned to the British Indian Ocean territory. It fell into the hands of a British entrepreneur who profited from it for 20 years. He then sold his domain management firm for 70 million dollars to an American domain

registry company. Today it's under the ownership of a private equity firm. But the native Chagosian people who were forcibly removed from the territory in the 1970s believe that they are the rightful beneficiaries of.io. Kim Davies says that IANA generally stays out of such affairs. The basic principle is disputes over how a top-level domain operates in a country should be resolved in the country. This has led to some tricky situations. In Afghanistan, for instance, the.af domain is now under the control of the Taliban, and repeated calls for a redelegation of the domain have gone unanswered. But some situations do require intervention. In the event that

a country disappears, IANA's policy is that the domain will go down with a ship. The letters will be retired, and all the websites that use them will become unreachable. That was the case with Yugoslavia. Yugoslavia was assigned a.yu cctld, and as we know, the country dissolved. All the websites that used to be on the.yu domain have simply disappeared. The death of one domain led to the birth of others. In the years following Yugoslavia's dissolution, Serbia and Montenegro became independent nations,

and each was assigned a new CCTLD. Serbia got.rs for Republika Serbia Serbia and Montenegro got.me. Montenegro started to heavily advertise that domain name because it stands for me. In the late 2000s we were seeing all these personal websites that were ending with.me that was only made possible by this complex politics that was going on in the region. .tv might meet the same fate as Yugoslavia's.yu. Climate scientists say the island of Tuval are associated with warfare, with diplomacy, with sovereignty, and with, you know,

in the future climate change. In Anguilla, which continues to rake in around $4 million a month from the.ai domain, there are fears that the gold rush won't last forever. If the AI boom recedes, so will the demand for domain names registered in Anguilla. These industries, you know, are not exactly stable. The trends do die, right? And I think the possibility of something going wrong in Silicon Valley changing the economy of an island nation is a pretty staggering image.

But Vince Cate says Anguilla has been cautious about getting too accustomed to the high life. In the meantime, the tropical island is focused on becoming even more of a paradise. They have paid down some debt and they've eliminated property taxes on residences. And I don't know of any other country that ever had a property tax and got rid of it. It's very possible that Anguilla wouldn't need any taxes at all, which could make it the perfect place if you wanted to live someplace where you don't pay taxes. I think the future looks really good for Anguilla. For the economics of everyday things, I'm Zachary Crockett. This episode was

produced by me and Sarah Lilly and mixed by Jeremy Johnston. We had help from Daniel Moritz-Rapson. Help from Daniel Moritz-Rapson. Are you a hero on the island now? There's a few people that know who I am now. The Freakonomics Radio Network. The hidden side of everything.