If ICANN only charges 18¢ per domain name, why am I paying $10?

ICANN lists a set of qualifications that registrars must be able to perform. Among these are:

  • Capabilities for registration and transfer of domains
  • Requirements for security and scalability
  • Backups
  • 5 employees
  • Carry insurance
  • Have cash in the bank

ICANN maintains a list of hundreds of accredited registars. All these registrars have to compete with each other on price, customer service, and brand recognition. Given the stiff competition, I would say that fees that registrars charge are determined by the market. If a registrar could meet ICANN's requirements and offer domain names for significantly less, then one would do so.

As Matt Nordhoff points out, the registry itself also gets a substantial share of the money you pay for a domain name. For example when you register a $10 .com domain, the fee is split:

  • ICANN: $0.18
  • Verisign, Inc. -- the .com registry: $7.85
  • 3% credit card processing fee: $0.30
  • Your registrar: $1.67

High prices charged by registries are likely because of lack of competition. There have only been a handful of registries, and of those, the .com registry has been the most popular by far. In the last year ICANN has created many new top level domains run by different companies. They have done so partly in the hope that it will increase competition and drive down prices. It is unclear at this point whether that will work. The costs that new registries must pay to ICANN to apply are very steep. That may prevent any of them from being able to offer low prices on the domain names in their registry.

As other answers have said, large portion of your money goes to Verisign. Verisign is essentially government sponsored monopoly over .com and .net domains. You may ask how did that happened when US supposed to so despise monopolies?

Here's how:

Early on registries were free, funded by government and run by InterNIC. Then the government decided to privatize it. The contract to manage .com registry was granted to a company called Network Solutions, Inc (NSI). At that time the US Government actually paid $5.9M to NSI to do administration but then NSI managed to convince them that people should be charged to cover the cost instead. Eventually Verisign bought Network Solutions and become the entity which manages the .com registry.

Everyone was starting to realize that NSI/Verisign was becoming a monopoly for an important part of the modern economy. ICANN was formed in 1998 and chartered to introduce competition in this area. But instead they ended up doing almost exactly the opposite in the next series of events.

Early in 2003 Verisign introduced a service called Site Finder which redirected users to a search engine if the domain didn't exist. ICANN said this was "overstepping the contract terms". Verisign shutdown the service but also sued ICANN for not being allowed to bring any improvements. Eventually ICANN had to settle with Verisign and the prize of the settlement was that Verisign would be awarded contract renewal without any bidding plus the right to raise prices without showing cost justifications. There were even terms that indicated Verisign can continue its monopoly for the long term. If you ask me this is blunder and incompetence by ICANN at mega scale.

Industry was furious. Lot of people commented on ICANN's proposal of settlement by saying that .com registry is not the property that ICANN owns to leverage in settlements. Others said no other government agency knowingly consented to unchecked price increase without cost justification. But it was all in vain and ICANN directors voted 9-5 in favor of settlement. Due to industry outrage, the US Department of Commerce had to intervene and eliminate the clause for Verisign's right to increase prices by 7%. You can say that Verisign showed benevolence for not increasing prices to what was already considered ridiculous.

In cases like this, typically competitors bring antitrust lawsuits. It happened against Verisign in 2010 but they escaped without a bruise because the organization CFIT which had filed this case wasn't considered a competitor or financially injured. It also surprises me that real competitors haven't come forward against Verisign to bring a large scale antitrust suit.

So when you pay that $10, it's ICANN's massive blunders of the last decade to allow Verisign to continue their absolute monopoly. Verisign has benefitted dearly with this. They have $2 billion in cash and $1 billion of yearly revenues from all the payments you hand out to them. Verisign's financials indicate that this is their highest margin business.

One light at the end of the tunnel is that US government has announced plan to relinquish the control of Internet which means ICANN might not have authority to hand out monopolies any longer. Their stock took big hit when US government announced this.

ICANN and your registrar are not the only parties involved. There is also the registry, the organization contracted by ICANN to operate the TLD in question. The bulk of the revenue is actually going to them. The .biz, .info and .org registries, for example, all charge over $8. Verisign, who operates several major TLDs, was famously forced to stop increasing .com prices in 2012, leaving them at $7.85. They're still allowed to raise prices of their other TLDs, though: .net was raised to $5.62 last year, and .name to $6.60.

On the other hand, I suspect the story is different for all those new $50-100 domains. The registries charge a lot of money, and the registrars probably mark them up, too. I bet they're both raking in the dough.