While recently purchasing a new domain name on GoDaddy.com, I noticed something interesting about their pricing model which gives great insight into how they value the registration of web domains. In most service industries, customers receive a discounted rate when signing up for a longer service period (think magazine subscriptions), meaning you'd pay less per year for a 5-year subscription than you'd pay for a 1-year subscription. In retail or manufacturing, this would be synonymous to a quantity discount.
Such is not the case in the domain registration space. Wholesale domain registrars such as GoDaddy.com follow an inverted pricing model in which the annual fee for a 5 year domain registration is more than double the 1 year fee. The following pricing data was taken directly from GoDaddy to illustrate this point.
Annual web domain registration fee
1 year - $12.99 per year
2 years - $21.49 per year (65% increase)
3 years - $24.32 per year (87% increase)
5 years - $26.59 per year (105% increase)
Why does GoDaddy allow customers to register their website for one year at a price of $12.99, yet charge double the annual rate to lock down the site for 5 years? Why doesn't everyone just register on an annual basis to get the cheapest price? The value in establishing a long term web presence can only be part of the answer.
With the domain registration market constrained by the supply of marketable domain names, there is no guarantee that these valuable assets will stay cheap forever. What if the price to register the same website is $49.99 next year? Or even $99.99? For the same reason homeowners are willing to buy the land their house is built on, growing businesses are willing to pay more in order to secure their online property and hedge against changes in the price of internet real estate.
Tyler Logsdon is a CPA and Registered Securities Representative located in Newport Beach, California. He is actively employed in the blockchain industry.
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