Change of address

It is now two years since the Internet Corporation for Assigned Names and Numbers (ICANN) delegated the first new generic top-level domains (gTLDs). Symbolically, those first four strings were all internationalised domain names (IDNs): two in Cyrillic script, one in Arabic and one in simplified Chinese characters. For the Asia-Pacific region – home to nearly half the world’s internet users and more than a billion people whose native languages use non-Latin script – the gTLD expansion promised exponential new opportunities for people to engage online in their mother tongues. For international companies – which for years have sought to tap into the region’s burgeoning middle classes – the move dramatically increased their ability to address consumers directly; but it has also raised a host of new concerns around issues such as cybersquatting.

As the new domains represent the first major change to one of the most fundamental ways in which we interact with the Internet – by entering web addresses in a browser – gradual evolution has always been more likely than overnight revolution. As such, the jury is still very much out on what shape domains in Asia will take in the coming years. At this stage, however, some trends are emerging which may suggest the direction in which the Asian online experience is headed. Companies that have decided to invest in the space – whether by securing IDNs featuring their trademarks as either top or second-level domains or by registering domains with Asia-focused new gTLD registries – may find some of these trends encouraging. Others, however, suggest that such efforts may take a bit longer than expected to deliver value.

One the one hand, surveys commissioned by ICANN show that, in terms of both consumers and domain registrants, Asia-Pacific is well ahead of the pack when it comes to awareness of the new domains. Companies that have moved aggressively to capitalise on the expanded domain opportunities may find that they are getting the best return on their investment in the region. However, the situation is developing differently in each individual country. As is often the case when it comes to engaging with netizens, China poses a unique challenge. For a variety of reasons, Chinese-language IDNs have not yet made much of a mark, especially when compared with those in neighbouring Japan. This represents a missed opportunity, given the market’s importance to many brands. And as usual when it comes to dealing with the Internet in China, an extra layer of regulatory hurdles is giving pause to some.

What seems clear is that the new domain space looks brightest when taking the long view. Most brands have adopted defensive strategies when it comes to the new gTLD process, if they have got involved at all. But as Asian web users become more accustomed to IDNs and small and medium-sized enterprises (SMEs) in the region finally come online, the face of the Asian Internet will almost certainly change – and the early movers among Western brands may benefit the most.

Top levels – how Asian companies stack up

One of the first questions that companies faced when the new gTLD programme was announced was whether to get into the registry business themselves by applying for a so-called ‘.brand’ gTLD. The list of top-level strings delegated to brands reveals that take-up by Japanese companies has been by far the most enthusiastic. At the time of writing, around 20 such strings had been delegated. Carmakers are at the forefront of this trend, along with leading electronics companies such as Sony, Canon, Seiko Epson and Brother. Interestingly, however, none of the Japanese applicants has sought a ‘.brand’ IDN in Japanese script. One explanation may be that they are largely global brands that are seeking to establish a more universal online presence. But even companies that are clearly focused on Japanese consumers have opted for Latin strings. For example, electronics retailer Yodobashi, which has no physical stores outside Japan, successfully applied for both ‘.yodobashi’ and ‘.goldpoint’ (the name of its customer loyalty programme).

According to Nao Matsukata, president and CEO of domain consultancy Fairwinds Partners, this may come down to the fact that Japanese consumers are more used to Romanising words than most others in Asia: “Although Japanese companies are pretty big into getting top-level domains, none of them has used Japanese characters; the distinction is that it is much more challenging to Romanise languages like Chinese.” Indeed, the major Chinese companies that have applied for ‘.brand’ domains – including CITIC, the Industrial and Commercial Bank of China and Sina Corp – also tended to apply for simplified Chinese IDNs. Outside Japan, however, demand for ‘.brand’ domains in Asia-Pacific was generally soft. “Only about 6% of all the new gTLD applications were IDNs; and while some companies such as Samsung have used IDNs as part of their strategy, generally speaking the process was still too new and a lot of companies probably didn’t see the opportunity there yet,” says Matsukata.

Likewise, Western companies have not rushed to acquire ‘.brand’ IDNs – perhaps unsurprisingly, given that not all of those which acquired their own Latin ‘.brands’ have made full use of them yet. “After two and a half years, we are only starting to see some companies start to take full advantage of their new gTLDs,” confirms Matsukata. “European companies like BNP Paribas have been the first movers.”

In terms of Asia-focused IDNs, the only delegated ‘.brand’ strings so far are ‘.飞利浦’ (‘Philips’ in Chinese) and ‘.google’ IDNs in both Chinese and Japanese script. Western companies with active applications for Chinese IDNs include Walmart, Volkswagen and Nokia; while L’Oréal withdrew its bid for a Chinese ‘.brand’ (along with applications for several non-IDN strings). Luxury conglomerate Richemont has active applications to administer Chinese IDNs meaning ‘.jewellery’ and ‘.watch’. However, Matsukata – whose consultancy advised many international brands on the process – says that most have opted for a wait-and-see approach: “It’s frankly inexperience. IDNs were one of the most unknown aspects of the application process and it was unclear technically how they would work. If people were interested in them, it was probably from an offensive perspective; whereas it’s safe to say that most brands were looking at this from a defensive perspective.” There is also a sense that people around the world are used to navigating to English domains, especially those of globally recognisable brands.

Vibrant second-level market

However, looking solely at the big Asian corporates that have secured ‘.brand’ gTLDs makes it easy to underestimate the degree to which companies and people have taken to the new domains in general. “If you look at brand only, I think the Asian brands may be lagging behind a bit in terms of the Trademark Clearinghouse (TMCH) and registration numbers themselves,” suggests DotAsia Organisation CEO Edmon Chung. “What is interesting, though,” he continues, “is that out of the top 10 registrars of new gTLDs, five come from Asia. I think this shows a significant shift in the domain industry itself.” The biggest of those five registrars is GMO Internet of Japan; the other four are all Chinese. In addition, three of the top six strings in terms of registrations so far are China-focused: ‘.网址’ (‘.web address’ in Chinese), ‘.wang’ and ‘.top’. This suggests that new gTLDs are doing significantly better in China than the paucity of Chinese ‘.brand’ applications might suggest.

And many of these domains are being sold to local businesses, especially in China. A defining characteristic of the Chinese domain market is its business-to-business (B2B) nature. “Chinese registrars actually do not sell many domains via their websites,” notes Simon Cousins, co-founder and CEO of Allegravita. “That’s quite shocking to a typical American; but if you’re a China hand, it’s a no-brainer.” One reason for this is that blogs and personal websites are not very prevalent – in part because of the tight restrictions on the Chinese Internet. Consequently, says Cousins, “In China, it’s companies that buy the vast majority of domains. It’s a B2B market, with accounts managers and large, busy call centres.” This would all suggest that commercial new gTLD sites are set to play a bigger role in everyday life in China.

It is not just China-focused domains or simplified Han IDNs that are recognisable to the average Chinese consumer. “You want a domain that is both short and has some type of cultural awareness,” says Cousins. “One of the most successful has been ‘.club’: in less than a year, it now sells 20% of its global domains in China.” ‘Club’ is one of the English words that is seen in every Chinese city, so it translates very well. Other success stories include ‘.xyz’ and ‘.ceo’ – first because they are universally recognisable and second because they are short. “Chinese netizens don’t want to type any more English letters than they have to,” observes Cousins. Thus, if a ‘.brand’ string is relatively short and the brand itself is widely recognised in China, web users should be comfortable using it, regardless of the script.

Indeed, studies commissioned by ICANN show that awareness of new gTLDs in Asia has far outpaced that in Europe and North America. Last May, the organisation released the results of a multi-year consumer survey which found that 53% of Asian respondents were aware of at least one new gTLD, compared to 29% and 33% of respondents in North America and Europe, respectively. Of those users who had heard of a new gTLD, 70% in Asia had actually visited at least one, again outpacing North America and Europe (55% and 49% respectively). It would seem that, if anything, Asia might be the ideal testing ground for Western brands to experiment with their domain strategy before making changes in home markets.

“The underlying current,” says Chung, “is that there are tons of SMEs looking to get online in Asia, and the registrars which are willing to do more to reach those customers are turning them into online businesses.” Indeed, Google’s Rajan Anandan recently cited statistics showing that only 5% to 6% of India’s 51 million SMEs have websites. China and Southeast Asia are likewise home to millions of businesses with no online presence. “As the domain space develops in Asia-Pacific, that allows more and more SMEs to get their real names, because of IDNs and new gTLDs,” says Chung. “That creates a different mentality about brands for these SMEs and they are going to value their brand name a lot more in the future.”

That said, the great shift online, combined with heightened brand awareness, also creates the potential for a wave of disputes – something that brand owners everywhere should be aware of.

Table 1: Top 10 registrars of new gTLDs (at time of writing)

Disappointing start for IDNs in China

Even the most bullish of advocates for new gTLDs in Asia would admit that, while IDNs show signs of flourishing in Japan, they are lagging behind – some say “terribly” – in China. EURid, the registry for ‘.eu’ domains, released a report on IDN deployment in 2014 which analysed the prevalence of second-level IDNs in a range of TLDs, including ‘.com’ and ‘.eu’. The study found that Japan hosted more IDNs than any other country, with over 290,000. China checked in fourth, with about 119,000; Korea was not far behind, with 82,000. Given that China has far more web users than any other country on the list has people, it seems reasonable to guess that Chinese netizens are coming across domains in their own language less frequently than some of their neighbours.

Table 2: Top 10 new gTLD extensions

Perhaps the biggest barrier is the interplay between new domains and search engine optimisation (SEO). “There is a constellation of reasons why IDNs have not done as well in China,” muses Cousins, “but in my opinion, first and foremost is the fact that Baidu, 360 and the other major search engines do not index IDNs. There’s no talking around that problem.” This stands in marked contrast to Japan, where improved SEO is one of the biggest motivating factors for new registrants of IDNs. “We see the IDN market developing in Japan especially targeted towards SEO,” says Chung. “That will be a very important factor in IDNs becoming more popular and more prevalent.” But it is not yet happening in China.

The logic is simple: most Asian web users have their default input method in their native language, whether they are using mobile phones or desktop computers. Rather than changing input methods to enter a web address, it is often faster and more convenient to type the non-Latin search terms into a search engine, which can then point you to the appropriate website – no typing of Latin script necessary. If IDNs are ranked highly in search results – either because they more closely match the search terms or because such sites are considered more likely to be authentic – brands will be keen to capitalise. But in China, just the opposite is true: it is difficult to reach a site with an IDN using the major search engines.

This will doubtless be a concern to brands that have invested time and money in applying for top-level IDNs, such as Wal-Mart, Volkswagen and Richemont; as well as the many others which have registered IDNs across top levels new and old. Matsukata, who works with a number of such brands, says: “One of the first questions that’s always asked is, ‘What will moving to our top level do to our SEO?’ The answer to that question is that it’s probably going to evolve over time as content finds its way to new gTLDs.” Some take encouragement from the fact that Google itself has been at the forefront of the shift to new domains, applying for many of its own; but how that plays into its infamous search algorithm is anyone’s guess for now. In China, the general consensus is that search engines are fearful of losing traffic to direct navigation. The major search engines account for a huge proportion of traffic on the Chinese Internet because most people use Chinese input keyboards, making it inconvenient to key in Latin-script web addresses. So there is a lot at stake for operators such as Baidu and Qihoo 360.

In exploring why IDNs have had a slow start in China, it is also useful to delve a bit deeper into the history. CNNIC, the registry behind ‘.cn’, was one of the first in the world to implement IDNs, back in the early 2000s. Around that time, CNNIC and another company called 3721 were both marketing Chinese-language web navigation products. “They were called ‘internet keywords’ and basically allowed people to type a Chinese keyword into their browsers and have it resolve to a web page,” recalls Alex Lee, general manager of international at the China-based ‘.商标’ (‘.trademark’ in Chinese) domain registry. But the keywords operated outside of what is known as the Domain Name System (DNS) root zone, meaning that they would not work on just any computer. “Basically, you had to install software or a browser plug-in,” says Lee. “The only way to get people to install it was to bundle it with other software and there was fierce competition between these two companies.” In the end, the system just didn’t work very well, because few people had the right software installed. As a result, a lot of the businesses which had bought into these products felt short changed. And that, to some extent, may explain the scepticism towards IDNs a decade later. “The primary challenge for all Chinese registries is to convince users that this time is different; that these IDNs will work anywhere in the world, just like a ‘.com’ or any other domain extension delegated to the DNS root zone,” says Lee.

Taking the long view

Another view is that those early false starts reflect the protracted desire to win the Chinese internet race. “Chinese stakeholders have been at the forefront of IDN development for 15 years,” Lee points out. “It’s been a long time coming for Chinese people to have domains in their own language, so it’s not surprising that we saw some of the first delegations in Chinese script as well as a majority of non-English extension applications.” Participation in the Chinese IDN space should thus be seen as a long-term bet that the Internet is moving in the direction of localisation and multi-lingualism.

One of the simplest reasons for optimism is the belief that the market will eventually deliver what most people want. “Chinese netizens have a radically different experience using the Internet compared to Westerners,” notes Cousins. “The average user does not speak English and does not enjoy using an English keyboard, but right now has to anyway.” As ever with China, though, patience is a virtue. As Cousins puts it: “I have to remind people that the entire new gTLD programme itself took more than six years to get approved by ICANN.”

In terms of search engines, one interesting wrinkle is that the chairman of China’s second biggest search provider, Qihoo 360, is Zhou Hongyi, the internet entrepreneur who was pushing proto-IDN ‘keywords’ as the founder of 3721 all those years ago. So Zhou is clearly someone who has long believed that there is a promising potential market for Chinese-language web navigation. Chung suggests that it is just a matter of time: “I think we will get to the point where indexing for search will be more tied to domain names, because they really do provide a good indicator of what the content is about.”

The degree to which Chinese players are active in the secondary domain market is another reason for confidence. “If you look at domain investing, virtually every super-valuable multimillion-dollar domain name in recent times has gone to a Chinese buyer. China is spending huge sums of money on domain products and for that reason the consensus is still very positive,” Chung continues. Chinese businesses are highly attuned to the importance of domains; it is in just such a highly competitive market that you would expect to see innovative strategies springing up.

Of further significance is government interest in encouraging IDN development. Through both official bodies such as the Chinese State Commission for Public Sector Reform and semi-governmental organisations such as CNNIC, Beijing has pushed IDNs for years. It was reported in 2014 that the government had itself registered over 20,000 domains within the first two Chinese-language IDNs: ‘.在线’ (‘.online’) and ‘.中国网’ (‘.Chinese website’). This was supposedly the result of a mandate that local governments use IDN addresses. “I think there are already works underway,” says Chung, “but what would be really exciting is if government IT procurement procedures required IDN support or universal acceptance. We would definitely see awareness of the new technology increase.”

China requires an extra step

Besides enhanced usability for Chinese users, there are more pragmatic reasons for the government’s promotion of IDNs. China has strict rules requiring that domain registrations be accompanied by government-issued identification documents; these are obviously easier to enforce when registries as legal entities are based in China and Hong Kong, which is the case for most registries promoting Chinese IDNs.

This brings us to questions over domain-related regulations recently promulgated by China’s Ministry for Industry and Information Technology (MIIT). An official document released in May (“Policy interpretation of special operation to regulate domain name registration service market”) made clear that all registries and registrars would need to meet certain conditions and obtain a licence from MIIT to operate in China. As only 14 TLDs and eight companies had obtained approval at the time of the announcement, it was anticipated that the additional layer of approval (described by Brandma’s Cathy Peng as “a mini-ICANN application process, but this time in Mandarin”) would significantly hamper registration numbers.

But Jian-Chuan Chang, senior research fellow at registry ZDNS, suggests that the regulations are not as restrictive as they might seem at first blush. In the first place, the essential requirements of the MIIT ‘action’ have been in force since a set of domain industry regulations was released in 2004. “Except for the new requirement that any foreign registry has to establish a legal entity in China, all the other requirements for the licence have maintained unchanged,” says Chang. He goes on to state that the registration process is straightforward, reassuring registries that: “Our experience indicated that there are no secret or under-the-table deals in the whole process.” Cousins maintains that although MIIT registration does pose an extra hurdle, it’s not a game changer: “We are talking about perhaps a six-month delay. Yes, many registries have application fatigue and taking an extra step can be exhausting; but it is not awful in the big picture.”

Moreover, Chung believes that the regulatory attention being given to domains augurs well for the industry: “In China, regulations often accompany the development of an industry. To my mind, the regulations mean that the domain market is growing rapidly and approaching a more mature stage.” No matter what the emerging industry, the Chinese government has a tendency to create an environment in which domestic companies can thrive by enjoying competitive advantages for a certain period. But Chung again says: “It signals that this is the right time to enter the market; foreign companies should get in and compete.”

Awaiting proof of concept

Undeniably, it is still early days; and for those brands that have dived headlong into the new domain space, it will likely be some time before a full and honest assessment of their strategies can be made. While some have adopted offensive approaches, many with ample resources have simply tried to cover all bases. “A lot of corporations simply say, ‘I don’t care what the extension is; I want these marks registered in all of the new extensions,’” says Lee. “Nobody wants to get left behind. The initial reaction will often be fear; but as the technology progresses and improves, that fear will begin to give way to the embrace of new innovation.”

Chung advises companies that have applied for their own ‘.brand’ gTLDs to go ahead and use them. “Yes, most of your traffic will still come through the ‘.com’; but the new gTLDs offer an opportunity for the long tail to develop and that is what the promise of the Internet is all about.” For those which have secured their own ‘.brand’, “it really gives a competitive advantage, over those which didn’t apply in this round, to explore innovative uses like loyalty programmes and other customer-oriented sites”.

Matsukata says that most of the big brands he has worked with are starting to see the value in their investments. “The take-up is starting to move in a direction that brands see as positive. If you asked me a year ago, nobody had formed an opinion yet; they were in a wait-and-see situation.” But first movers such as Abbott and BNP Paribas have demonstrated the potential for value creation. According to Matsukata: “Some of the brands that didn’t participate have asked when the opportunity will open up again. So there may be some sense that they have missed out.”