Ad hoc COVID-period registrations aren't being cancelled

Domain name market update and outlook

The Dutch domain name market is a stable, mature market with one of the highest penetration levels in the world (2 domain names per 3 people). The peak in domain name registrations during the lockdowns of 2020 and 2021 was therefore all the more striking. In the space of a few months, annual market growth went from 2 per cent to more than 5 per cent. Ultimately, the total number of registered domain names increased during the pandemic years, from 9.5 to 10.5 million. Given the level of market maturity, that is a huge jump. The growth was almost entirely attributable to a shift from offline commerce to online commerce during the pandemic. Not surprisingly, therefore, there was considerable speculation about what would happen when the lockdowns ended. Would there be a period of correction, when registrations levelled off or even declined?

Back to the pre-COVID level

We have yet to see any evidence of a significant correction. Since the lockdowns ended, the rate of growth has slowed, but merely to its pre-COVID level of 2 per cent. That's reassuring news for the domain name industry, because it indicates that the enterprises that were more or less forced to move online during the pandemic have not simply taken their activities back off line. Investments in online channels have generally paid off, and enterprises are persisting with their internet initiatives.

Notable decline in cancellations

In the .nl domain, the inclination to continue online activities is reflected particularly in the cancellation rate: the number of domain names cancelled in a month as a percentage of the total number of names in the zone. Before the pandemic, the rate was 1.2 per cent, but has now fallen to 1.05 per cent. In absolute terms, too, cancellations are slightly down. As a result, although registrations have dropped back from their 2020 and 2021 peaks, the zone has not contracted. In that context, .nl has also benefitted from a sharp rise in the cost of registering a domain name under the second biggest TLD on the Dutch market. The cost of a .com domain name has been pushed up by the registry's price rises and the high value of the dollar.

Figure 1: The development of the .nl zone in the period January 2020 to mid-2022.

Brand preference and intention to buy remain strong

Another positive observation is that the preference for .nl and the intention to buy have increased in the last 2 years. In summer 2020, 67 per cent of business registrants preferred a .nl domain name; by summer 2022, the figure had gone up to 70 per cent (source: SIDN/GfK). The percentage of respondents planning to register a domain name also rose in that period.

Do you anticipate registering another domain name in the next 5 years? (Source: SIDN/GfK, n=1000)

Mid-2020

Mid-2022

Yes

20.00%

27.20%

Maybe

52.10%

46.00%

No

27.90%

26.80%

European and global picture

Outside the Netherlands, the picture is less clear, mainly due to uncertainty about the correct data. The total size of the global market has barely increased in the last 2 years: there are currently about 350 million registered domain names. Meanwhile, the European landscape is broadly similar to that in the Netherlands: continued net market growth on the back of declining cancellations. It is worth noting, however, that many of the annual registrations taken out in 2021 have yet to fall due for renewal. Consequently, we must wait until early 2023 for a proper picture of post-COVID growth.

Prices and costs

One source of concern is the rising prices and costs throughout the sector. Not only have registries put up their prices, but market players are facing higher energy costs, challenging conditions on the ICT labour market and a 20 per cent rise in the value of the dollar. The dollar exchange rate is significant because many services in the domain name and hosting sector are ultimately settled in dollars. A strong dollar therefore pushes up prices on the Dutch market, which could prompt end users to economise on hosting and domain name services.

Outlook for 2023

In light of the trends described above and the macroeconomic forecast, we anticipate a stable market in 2023, with growth not exceeding 2 per cent. The number of new registrations is likely to decline. However, with cancellations falling as well, we do not anticipate any net contraction. Growth is likely to pick up only if the macroeconomic climate changes (e.g. due to developments in the COVID-19 situation or the geopolitical situation). The domain name market therefore looks set to remain a beacon of stability. That is reflected in the share prices of companies active on that market. On the stormy NASDAQ, such shares performed less well than in 2021, but on average better than other tech shares.