On 13 September 2013, ICANN entered into what may well be the most lucrative contract ever granted in ICANN’s history with Power Auctions LLC to conduct its Last Resort Auctions for new gTLD strings with more than one applicant.
Under the ICANN rules if there is more than one applicant for a particular domain name extension or string otherwise known as a new gTLD,(including those strings found by panels to be confusingly similar) the winner will be decided by a Last Resort Auction held by ICANN.
However ICANN in not going to be conducting the auctions themselves, instead they entered into a contract with Power Auctions to conduction the Auctions.
Under the agreement ICANN paid Power Auctions $230,000 which is “intended to cover the development of the auction rules, the auction system and system user manual”.
So ICANN is covering all the costs of Power Auction development of the auction platform.
The contract with PowerAuctions is one of no downside, all costs have been paid by ICANN leaving Power Auctions only with Tremendous upside which can easily reach tens of millions of dollars in fees.
Moreover it seems the same platform that ICANN paid Power Auctions $230,000 to develop that they are using under a related company, Applicant Auction, to hold private auctions to settle contention between new gTLD applicants.
In addition to the upfront fee of $230K, Power Auctions will be paid an auction management fee, per auction.
For each auction that is conducted, Power Auctions will receive 4% of the winning price, for winning prices up to $10 Million.
Should the winning price exceed $10 Million, Power Auctions will receive 4% of the winning price up to $10 Million and 2% of the amount of the winning price in excess of $10 Million.
The minimum fee for an auction of a contention set that is conducted is $15,000.
If a contention set is scheduled for an auction but is resolved by the participants prior to the auction, the auction management fee payable to Power Auctions will be $10,000.
Power Auctions is guaranteed at least $135,000 in total auction management fees.
If the aggregate fees for auctions (both conducted and cancelled) is less than $135,000, ICANN will pay the difference between fees earned and $135,000.
This agreement as I said was signed just recently in September of 2013.
I do not recall ICANN issuing an RFP for this service in recent years nor do I recall any comment period which was opened up by ICANN on the extremely lucrative contract.
The fact that ICANN clearly anticipated new gTLD auctions going over the $10 million mark on some strings indicates that both ICANN and Power Auctions anticipated that they system they designed was designed to increase the prices paid by the applicants which would increase the amount of money paid by the winning applicants to ICANN and increase the amount of money Power Auction made from the auctions.
In the case of private auctions applicants have the option to use Applicant Auction or RightoftheDot.com, the two parties who are actively holding private auctions, each of which have their own offering and fees where applicants can choose between single sealed bid where the winner pays the 2nd highest bid as ROTD offers or go with the ICANN/applicant auction model where bid keep increasing to return the highest amount to ICANN and the auction provider
However the ICANN last resort auction will be governed by set rules and fees which are set by ICANN where both ICANN and their chosen auction provider will extract the highest possible bid from the applicants which in both ICANN and the auction provider encouraged all parties to bid the highest price to benefit ICANN and the auctioneer.
Correct me if I’m wrong, but isn’t 4% the standard fee that both you (ROTD) and Applicant Auction are charging?
Hi Kevin, actually RightOfTheDot is charging less than 4%. Although we offer both ascending clock auctions and single sealed bid auctions, we are actually encouraging contention sets to use the single sealed bid second price auction model because it results in lower winning bid prices compared to an ascending clock auction where everyone can see each others bids or steps they participate in and where there are multiple rounds.
So a single sealed second price auction eliminates auction fever and the behavioral factor which compels you to keep bidding over your allotted budget. You just submit your max bid in a sealed envelop and the highest bidder pays the second highest bid price but no one sees each others bids until they are all opened at once.
Why would we do that when it would ultimately reduce commissions? Because we would rather see applicants apply the proper use of funds and budgets to have successful launches of their new TLDs rather than go over budget to win their TLD in auction. This may result in increased chances of failure, even in the best TLD sets if applicants pay more than budgeted to win their TLD.
In other words, if you bid over your budgeted amount, you would be using funds that you have set aside for marketing, PR, Incentives, operations, etc. This could dramatically change the business and success rate. There have been several winning applicants that have gone over their budget to win their TLDs already in some of the private auctions that have been conducted to date using the ascending clock auction model.
When this plan was configured by ICANN, they did not intend to make the applicants pay the absolute highest for their TLD if they ended up in auction with another applicant. They intended the winning applicant to pay the fairest and lowest winning bid price. Unfortunately, that is not how things will end up if folks end up in a last resort auction.
In addition to the above, we are offering applicants a chance to receive all or part of the winning bidders proceeds. In some cases, some contention sets may want the majority of the winning funds to go to a charity or a third party industry association instead of having all the funds go to the non winning bidders. We offer that option as well as a blended payout model.
So in the end, the private auction process is better than the last resort auction where no one receives the funds other than ICANN and where auction prices will be higher than in private auctions where a single sealed second price auction is conducted. Lower commissions and fees will go to the auction provider and more funds will be used for the applicants to use for successful launches and business plan implementation.
Monte
” we are actually encouraging contention sets to use the single sealed bid second price auction model because it results in lower winning bid prices compared to an ascending clock auction ”
Monte, why would someone pay ROTD much, if anything, for a sealed bid auction? The parties can just do this themselves.
Tucows and Donuts did a variation on this, and all it cost them was a plane ticket and a little bit of legal time.
No that was not a sealed bid auction. That was a partnership, much different. We are still licensed (have to have a licensed auctioneer to conduct an auction), have to prepare the legal docs, have set up the escrow agent, pay the escrow agent, process and procedure, withdrawal method, payouts, neutral law firm to keep the bids secure, open and video tape the opening of the bids, etc. A lot went into the process, planning, set up, etc.
I know it seems simple, but that is only because we spent months and lots of money to make it that way đ
You got to love this business, you really can’t make this shit up, Wall Street Bankers are saying damn that’s some business model.
“The minimum fee for an auction of a contention set that is conducted is $15,000.
If a contention set is scheduled for an auction but is resolved by the participants prior to the auction, the auction management fee payable to Power Auctions will be $10,000.
Power Auctions is guaranteed at least $135,000 in total auction management fees.
If the aggregate fees for auctions (both conducted and cancelled) is less than $135,000, ICANN will pay the difference between fees earned and $135,000. ”
i an familiarized with these kind of deals in my country. it’s the best capitalism possible. no competition, guaranteed profit and no risk for the company. here it’s made between the government and private sector. ICANN is almost government.
@Kevin @Andrew
I think the point of the story was that private auctions are a choice.
An applicant can choose to engage in a private auction or not.
Once the decide they want to be in a private auction they can choose the provider and the method they want to use.
Aside from ROTD business model is neither one of you concerned that ICANN did not place this contract worth most likely tens of million in dollars in fees out to bid?
Or even ask the community to comment on it before they just awarded it?
Could they have gotten a lower rate?
Would another company have done the system without ICANN paying them the guaranteed $235K in costs back.
Is no one concerned that ICANN paid Power Auctions $235K to develop a system they already have?
I think that was the point of the story guys
Monte, it was not a partnership. It was a buy/sell price. One of the parties delivered a price to the other. The other party could either buy the domains at that price or sell the domains at that price.
To be fair, that probably only works in a two member contention set. But it’s a lot cheaper.
Your are correct Andrew. I was thinking about the TuCows / TLDH deal, so I stand corrected. In any case, most feel it necessary to have a legal and licensed entity perform their contention resolution. Although some do know each other well in the space, most have not dealt with the other parties in their contention set before as many of the entities are new to our industry. So we help with a secure, licensed, and efficient process.
That $235k should go to Right of the Dot, to make up for Power’s shortfall in experience in the space. I told you to go apply as a subcontractor to Power – did you even consider it?
Quote “I think that was the point of the story guys”
I think the point of the responses is that we are used to obvious corruption from ICANN.
It is disgusting, but it is not surprising.
I brought up this issue a couple of months ago, in relation to another procurement that appeared to take place without any competitive tender, and apparently without following the set guidelines, see:
http://gnso.icann.org/mailing-lists/archives/ga-201306/msg00005.html
http://gnso.icann.org/mailing-lists/archives/ga-201306/msg00008.html
http://gnso.icann.org/mailing-lists/archives/ga-201306/msg00009.html
ICANN has yet to make a satisfactory response. I made direct reference to ICANN’s own procurement guidelines, specifically section 3.1 of:
http://www.icann.org/en/about/financials/procurement-guidelines-21feb10-en.pdf
As a competitive vendor who was shut out of the process entirely, and since Mike/Monte would appear to have standing (i.e. they were directly affected by the lack of a competitive RFP), perhaps they should seek a review of the decision, in order to compel an open and transparent RFP.
The public, of course, is also affected, since ICANN is spending *our* money (i.e. domain name registrants) ultimately, and is supposed to be doing that in a sound manner.
It’s a non-issue.
You’re smart, Monte & MHB! What you said here, @ Monte,
is giving info away for free. Just pop it into a proposal template, and fax it to Dr. Ausubel, then just CALL THE DUDE!!!
Tell him theDomains is one of the main conduits of new gTLD info to the investing public, is why your ticker’s spots are filled, and you will smooth things for his company. I don’t see how he could refuse . . .
Folks,
This is going to get very interesting, especially if ICANN did not have a competitive bid/tender for the auction services. This looks like profit maximization to me without any accountability. Both Michael Berkens and Monte Kahn are spot on with their comments too and their approach is the best for such a process in my opinion.
What was ICANN thinking? Is there a copy or a link to the ICANN contract with Power Auctions?
Why this Process will get very interesting:
1) ICANN allows many to pass Background Screening e.g Google even though they have a history of FTC fines, copyright violations, privacy violations. Just form a shell company with no history and you are fine.
2) ICANN allows Applicants to submit PICs materially changing their Application even if other Applicants are harmed e.g community applicants
3) ICANN allows Panelists in Objections to also represent Applicants in Objections (e.g Amazon). Wait didn’t Amazon win a conflict of interest case for .AMAZON? Double-standard perhaps?
4) ICANN makes material changes and adopts new Category Advice Resolutions to the new gTLD Program during Community Objection proceedings without contemplating the harm against Objectors who submitted their Objection before any GAC Advice and before such resolutions were made.
5) ICANN changes the Registry Agreement during the Objection proceedings to not allow exclusive access but gives Objected to Applicants a “pass” in Community Objections when they have a change of position e.g Amazon
6) ICANN allows Panelists not to have any accountability on the facts given in Objection Responses, even if they are false and ludicrous e.g music community is not dependent on the DNS for core activities
7) ICANN decides to ignore GAC Advice to give preferential treatment to community Applicants and instead introduces a material change in the form of the Specification 13 proposal in the new registry agreement for .brands (See the .MUSIC public comments on this issue here: http://forum.icann.org/lists/comments-spec13-06dec13/pdf2AiufIWAfi.pdf)
8) ICANN creates an auction process which is geared to maximize profit and does not create a “tender” or “RFP” so that other auction providers could participate in e.g RightoftheDot which I have supported from the get-go because I fully endorse their sealed-bid approach and both Berkens and Monte know their craft better than anyone in this business (See the .MUSIC public comments on this issue here: http://forum.icann.org/lists/comments-spec13-06dec13/pdf2AiufIWAfi.pdf).
I also wrote a personal blog post on how we can improve the current auction process and why it does not fulfill ICANN’s Bylaw’s to promote competition and diversity (http://mytld.com/articles/3023-how-icann-new-gtld-auctions-serve-public-interest-promote-competition-innovation-diversity.html).
Was pleased that the European Commission agreed with our points: http://forum.icann.org/lists/comments-new-gtld-auction-rules-16dec13/msg00016.html
These are just a few issues.
ICANN is digging itself a hole with these auction the way that they currently have it constructed. I suggest all auction providers should seek some answers. Just as in the case of the Amazon Re-Consideration which is decided upon today in regards to .MUSIC, ICANN will likely just ignore and move on because it is what is best for ICANN, not the public interest or its Bylaws. I think there will be a tipping point coming unless ICANN changes their approach a little to serve their objectives with this new gTLD Program
Constantine Roussos
.MUSIC
http://music.us
https://twitter.com/mus
Looks like ICANN put up the link of the 15th of January
http://newgtlds.icann.org/en/applicants/auctions
http://newgtlds.icann.org/en/applicants/auctions/summary-development-management-agreement-15jan14-en.pdf
Of course others might have also bid on the contract if it was put up for bid in a proper RFP so its not just an issue for ROTD
Thanks Michael.
Hope you guys do something about this because it is unacceptable. I would certainly would like to know how this entire Power Auctions deal come about and how decisions were made without feedback from the community and without a proper RFP process.
I am baffled.
Constantine Roussos
.MUSIC
http://music.us
https://twitter.com/mus
It isn’t objectional, because some projects are too sensitive to delegate to the contractor with the lowest quote. If Power had blemishes on its reputation or relationships in the domain space which could be construed a conflict of interest, it would be a big issue.
Showing decisiveness on this matter isn’t a grounds to question ICANN’s motives. Please, commenters and @MHB, pick your battles more carefully when crying, “foul!”
@Louise
I think you are missing the critical nuances of the repercussions of what is being discussed here. If you think this is not a big issue then please tell me why it is in the public interest that ICANN should be given the green light to select providers without any formal discussion with the community or participation of providers? Remember ICANN is a non-for profit. On the same token, are you saying that gTLDs should be awarded based on ICANN’s discretion without any formal procedures?
No-one said ICANN should delegate the auction process to a provider with the lowest quote. The arguments here question why other providers were not provided the opportunity to participate in a “tender” or RFP. If ICANN’s Bylaws are followed and the goal is to increase competition and given everyone equal access and opportunity to participate then the big issue here is how was PowerAuction selected and why did others not have the opportunity to at least present their case.
Constantine Roussos
.MUSIC
http://music.us
https://twitter.com/mus
@ Constantine Roussos, Hi, I mean on the surface of it, from the 3rd person perspective of an uninvolved layperson.
Thanx for responding. From the surface discussion and articles about dot music, I thought you got a raw deal.
I’m the only domainer who cries, “cartel, cartel,” on the ICANN/Verisign/Major Registrars syndicate. operating behind the scenes in an elaborate scheme of offshore companies, P.O. boxes, and nominee directors hiding the same group of investors, including China, as a major investor, of many US tech companies. These behind-the-scenes operators are disintegrating the internet. I shake my head so many times, I have to step away and move forward like everything is okay, or I’ll lose my agenda with my own business.
It’s no surprise there are alot of disappointments in the new gTLD space. dot Music’s was justified disappointment. If ICANN erred in its choosing Power without proper bottom-up public contribution, I think ICANN made a choice which makes sense for the welfare of new gTLDs. That is, the new gTLDs reputation. Lots of real money got invested in the applications, and it seems reasonable the investors are being respected to receive an univolved 3rd party auctioneer with loads of experience in major auctions . . .who you might say, bring good pr to the process, because it DOES have a good reputation, and is founded by a professor with a background in economics. It even seems university-affiliated, so it seems very neutral.
ICANN CEO to Meet with Chinese Internet Industry Leaders in Beijing
http://www.ag-ip-news.com/news.aspx?id=33010&lang=en
So, Fadi ChehadĂ© arrives ahead of time to talk to Chinese ” Internet community stakeholders” – Isn’t that a surprise?
UPDATE
ICANN announced today that it has Updated its agreement today with PowerAuctions to provide for:
Indirect Contention Sets
In September 2014, ICANN amended its agreement with Power Auctions LLC to add the scope of work and fees associated with auctions for âindirect contention sets,â as defined in section 4.1.1 of the Applicant Guidebook (AGB).
The period of performance began 5 September 2014 and concludes two years from the first auction conducted by Power Auctions for âindirect contention sets.â If no auction for âindirect contention setsâ has been conducted on or before 5 September 2016, the final date of performance shall be 13 September 2016.
Similar to the previous version of Auction Development and Management services scope, Power Auctions will provide endâtoâend support from design to execution of auctions for âindirect contention sets.â The services in support of âindirect contention setsâ will be provided in addition to those listed in the original agreement (as described above in the âSummary of Auction Development and Managementâ) and shall include:
Auction design based on the Applicant Guidebook:
Rules will be created for the bidding process (âIndirect Contention Set Auction Rulesâ) between participating applicants in âindirect contention sets,â which will conclude upon an auction round being completed with at most a single âfeasible setâ remaining. The feasible set is defined as a single or multiple applications within a contention set that are not in âdirectâ contention with one another. The feasible set with the highest bid will win the auction, and each application in this feasible set will be responsible to pay the price established for the winning application in accordance with the exact procedures of the Auction Rules (âWinning Priceâ).
Deliverables beyond those listed in the original agreement include: o High Level Auction Design Paper
Indirect Contention Set Auction Rules
Auction implementation based on the Indirect Contention Set Auction Rules: Services and deliverables will be provided in accordance with the original agreement with the addition of a functioning auction system approved by ICANN to accommodate the Auction Rules for indirect contention sets.
Operational Management:
Services and deliverables will be provided in accordance with the original agreement.
Power Auctions will receive both a fixed fee and variable fees for the auction management services for âindirect contention sets.â
The upâfront, fixed fee of USD 120,000 is to be invoiced to ICANN following a system acceptance demonstration and before the occurrence
Summary of ICANN â Power Auctions Agreement of any auctions and is intended to cover the development of a suitable solution, the writing of the Indirect Contention Set Auction Rules, support to the ICANN public comment process, customization of the software platform to account for âindirect contention sets,â and all preparatory steps to facilitating an Auction.
The variable fees shall remain as indicated in the original agreement, but shall be applied per contention set, i.e. fees will be paid to Power Auctions for each contention set in the winning âfeasible set,â as defined above.