2020.01.23; ThJa23rd: The Attempted Corporate Takeover of .Org - The American Prospect
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The Attempted Corporate Takeover of .Org
A shady private equity transaction could open up nonprofits and nongovernmental organizations to financial exploitation, and threats to their security and privacy.
On Friday, activists will take to the streets in Los Angeles to attempt to prevent a consequential giveaway of an obscure piece of technological architecture. A newly formed private equity firm named Ethos Capital is bidding to take over the registry that handles the .org domain, which is reserved for nonprofit and nongovernmental organizations. Ethos would be able to raise prices without limit on website owners, and it could use its power to sell the browsing data of users of .orgs, which include practically every human rights organization in the world.
Since the announcement of the proposed purchase, .org owners, advocacy groups, and members of Congress have howled in protest of this injection of the profit motive into a rare unspoiled, public service–focused corner of the internet. As a full disclosure, the Prospect is one of those nonprofits with a .org website, and we are a signatory to a petition opposing the sale, joined as of Tuesday by over 21,000 individuals and over 600 organizations.
The entire market for domain name registries is broken, a troubling combination of government-granted monopoly, disinterested (at best) regulators, and eager extractors of profit. Users pay a relatively trivial amount for the rights to website names, and don’t really notice the enormous amounts of excess profit taken from them and hundreds of millions of their colleagues, a few bucks at a time.
"The entire market for domain name registries is broken, a troubling combination of government-granted monopoly, disinterested (at best) regulators, and eager extractors of profit.
Verisign controls the registries for .com and .net, two of the internet’s most popular. All it does is administer a database and collect small sums from website owners, but with computing power rising and practically no marginal cost to adding another website to the database, the entire enterprise is a license to print money. In the third quarter of 2019, Verisign showed operating income of $205.6 million on $308.4 million in revenues, a profitability margin of 66.67 percent. This makes Verisign one of the most profitable companies in the world.
Verisign’s competitors have consistently offered to provide the same service at a fraction of what Verisign charges, but the company has an exclusive contract to manage .com and .net with the Internet Corporation for Assigned Names and Numbers (ICANN), a nonprofit that oversees top-level domains. I wrote about Verisign for The Nation in 2018.
Because .org serves nonprofits, ICANN created a purpose-driven organization 16 years ago to safeguard it. The Internet Society (ISOC) founded a subsidiary, the Public Interest Registry (PIR), to carry out this mission, seeding it with a grant of $5 million. "The entire purpose of this organization is to stop this from happening," said writer Cory Doctorow, a special adviser to the Electronic Frontier Foundation, which is leading the charge against the sale of .org.
Neither of these two firms actually manage the .org database; they pay a third firm to handle that. But even after writing a check to PIR, which writes a check to the third party, ISOC manages to make tens of millions of dollars, which feeds a series of side projects like building community networks and other activities to increase access. The projects are laudable but orthogonal to the mission of protecting .org. "ISOC has a weird idea of its purpose, it thinks the side projects are the rationale," Doctorow said.
In June 2019, ICANN decided to lift the cap on price increases on .org domains, allowing for unlimited hikes. Over 98 percent of the comments to the ICANN website opposed this change, to no avail. ICANN’s board didn’t even approve it; staff members negotiated and finalized the agreement, in the form of a contract extension with the Public Interest Registry.
That made it all the more suspicious when former ICANN staff subsequently formed Ethos Capital, the private equity firm that would snap up the rights to .org. Former ICANN Senior Vice President Nora Abusitta-Ouri is one of two Ethos Capital employees (she serves as its "chief purpose officer"), and Fadi Chehadé, former ICANN CEO, registered EthosCapital.org (note the irony of the domain suffix) last May. (It’s since been changed to a .com.)
Financial backers of Ethos include the family fortunes of Ross Perot and Mitt Romney (or at least his son Tagg). Erik Brooks is the founder/CEO of Ethos; he previously worked at Abry Partners, which bought the domain registry Donuts in 2018. Jonathon Nevett, co-founder of Donuts, is now CEO of the Public Interest Registry.
So you have a bunch of people involved in the domain registry industry and its chief regulator responding to the new profit-making opportunity for .org by creating a private equity firm, and making its biggest investment the company that runs .org.
"Nonprofit websites will be trapped: If they want to keep their longtime brand and their archives, they’ll pay whatever price. "When you buy a domain you own it, but after a couple years it owns you."
Ethos announced the purchase of PIR in November, for a whopping $1.135 billion. Some $360 million of that is debt-financed, and as per usual with private equity, that will be thrown on PIR to service. Ethos must believe PIR will be so profitable that it can handle the debt load and still provide extra-normal returns, on the backs of nonprofits with limited resources.
ISOC’s strange reason for selling PIR is that the $1.135 billion price tag will serve as an endowment for their various projects. "They’ve said that with all these new domain names out there, .org will be worth less," said Doctorow. "But if .org stops mattering, we don’t need ISOC anymore. Handing them a billion dollars will not help nonprofits."
If the deal goes through, Ethos would have the ability to raise prices on .orgs to its heart’s content. They’ve made a vague, nonbinding promise to voluntarily limit increases to 10 percent year over year, which itself is a pretty sweet deal considering that the overhead—a database and some computing power—only ever drops in cost. Ethos would not be restricted from charging "premium" prices to certain websites, based on their ability to pay.
For their part, .orgs will be trapped: If they want to keep their longtime brand and their archives, they’ll pay whatever price. "When you buy a domain you own it, but after a couple years it owns you," said Doctorow.
In addition, domain registries have a troubling history of restricting the domains they manage. Typically this censorship has been at the behest of corporate titans who either want to suppress information that looks disfavorably on them, or claim a copyright infringement. Outlets that cover private equity, like the International Consortium of Investigative Journalists (which produced the Panama Papers), are .orgs, so private equity firms might have their own reason to suppress certain sites.
But Ethos could extend this to autocratic regimes, which would have a definite interest in curtailing the speech of .org NGOs and human rights groups. Censorship could become a profit center, where Ethos asks for a "takedown fee" to suppress a domain.
Registries can also track user visits to .org websites and sell that data worldwide. That information in the hands of an authoritarian government could be deadly. Ethos owns an advertising company called Vidmob, which could also misuse data from .orgs. And .org sites that lapse could be resold to spammers, who would get access to all the emails that mistakenly go to those sites.
Security is another issue. As we know, when private equity firms throw debt upon the companies they buy and demand high returns anyway, there’s little recourse for those companies but to cut corners on labor and equipment. Technical upkeep of .org domains could be at risk, with the effect of lingering website failures. With .org NGOs that provide vital information, that impact is magnified.
"This is the kind of boring, important thing where a lot of mischief happens," Doctorow said, and he’s right. The .org takeover will not drive headlines, but it could put people around the world in danger, in addition to extracting profit from nonprofit entities.
ICANN must sign off on the deal in order for it to proceed. In December, it paused the sale for 30 days amid public outcry, expressing concern about the lack of transparency surrounding the deal. ICANN founding chairman Esther Dyson has called the sale "the great .org heist." The protest on Friday will take place at ICANN headquarters in Los Angeles at 9 a.m. PT. Congressional Democrats, led by Senator Elizabeth Warren (D-MA), have questioned the sale in a letter last week. "The Ethos Capital takeover of the .ORG domain fails the public interest test in numerous ways," the six Democrats wrote.
Already, slowing down the deal has increased the scrutiny. "This kind of thing has to get done fast or it doesn’t get done at all," Doctorow said.
Board members of ISOC, including Mike Godwin, inventor of the term "Godwin’s Law," have pushed back, defending the deal as "the best way to ensure that .org grows and thrives in the rest of this century." But the private equity sale is only an example of the gradual fleecing of website users for a product that should cost pennies.
If the country has an interest in a vibrant internet, especially for nonprofits operating as a public service, registries should be public and impervious to this kind of capture. Even the threat of a .org takeover should never have occurred. For that matter, Verisign’s monopoly of .com and .net makes no sense either. ICANN has a choice to make: whether to continue to enable private actors undermining their mission to protect the internet, or to belatedly take a stand against the profiteering and threats to security and privacy.
David Dayen
David Dayen is the executive editor of The American Prospect. His work has appeared in The Intercept, The New Republic, HuffPost, The Washington Post, the Los Angeles Times, and more.
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