.ORG Isn’t Broken, and We Don’t Need Private Equity to ‘Fix’ It

Ethos Capital—the private equity firm poised to purchase the .ORG domain registry for $1.1 billion—and Public Interest Registry (PIR, the entity Ethos wants to buy) have been attempting to respond to the concerns raised by the .ORG community. These after-the-fact changes just make clear that while there is nothing currently wrong with .ORG, there is a lot that could go wrong if this deal moves forward. 

Last week, we wrote about a proposal by Ethos Capital to add certain “Public Interest Commitments” to the contract governing the operation of the .ORG domain registry. Our post explained why that proposal doesn’t solve the problems with the planned sale. Since then, Ethos and PIR have hosted two webinars to discuss how their plan supposedly addresses the concerns that EFF and over 800 other organizations—along with Members of Congress, UN Special Rapporteurs, and state charity regulators [pdf]—have raised. Nothing said on those webinars changed our analysis. Instead, they only further reinforced that Ethos’s plan for a for-profit PIR is one that’s unsound at its very foundation.

While we can—and will—point to specific places where Ethos and PIR’s arguments fall apart, the broader theme to take note of is that this cannot be fixed. All of the proposed changes have holes that don’t get at the underlying problems presented by the deal. On the other hand, the current system is stable and functional, and changing it threatens to introduce instability and dysfunction with no countervailing benefit to the community.

Ethos Touts Its Willingness to Take Risks—But at Whose Expense? 

Ethos and PIR have repeatedly defended the proposed deal by arguing that converting PIR to a privately owned, for-profit enterprise will allow it to offer “new products and services,” but without explaining what those new offerings might be. On Thursday, they finally admitted that they actually don’t know what additional products and services .ORG registrants want or need, citing a lack of market research. Ethos founder and CEO Erik Brooks then made a troubling case for why Ethos’s purchase of PIR would make these hypothetical new offerings possible: Launching new products requires taking financial risks, and non-profit organizations “are not in the business of taking risks”—but Ethos is.

This is not the selling point Brooks seems to think it is.  .ORG’s value to its registrants is being a reliable and recognized domain for hosting their websites and email systems—which it already offers. The .ORG registry should decidedly not be in the business of taking risks with non-profits’ essential infrastructure by adding bells and whistles that no one is asking for. If those risks don’t pan out, it may well be the non-commercial .ORG community that suffers as Ethos makes up for the loss by skimping on technical upkeep, raising prices, engaging in censorship-for-profit—or bankrupting PIR and walking away with the gains.

A Misleading Financial Picture

Ethos and PIR continue to push a narrative that goes like this: PIR currently has to send all of the money it makes to its non-profit parent organization, the Internet Society (ISOC); ISOC then uses those funds for purposes that don’t benefit PIR. As a result, PIR has not had funds to invest in reaching new markets or introducing new offerings. If PIR is freed of that burden, every dollar that PIR would have sent to ISOC will now be available for reinvestment in PIR.

There are a few problems with this narrative. For one, the assertion that PIR is required to send its entire net income to ISOC is at odds with PIR’s articles of incorporation, which establishes charitable purposes other than just financially supporting ISOC. And history shows that PIR can, in fact, invest in itself should it choose to. PIR’s 2018 Form 990, for example, states that PIR spent $1,369,537 on “advertising and promotion” and another $863,042 on “marketing” that tax year. In 2012, PIR took a gamble and applied for six new gTLDs (including .ngo and .ong) to add to its domain portfolio, costing $1.1 million in application fees alone.  In short, we’ve seen no evidence that PIR is an organization in crisis, in need of the kind of radical, fundamental change that Ethos has planned.

At the same time, the financial analysis Ethos presented last Thursday didn’t account for additional expenses that PIR would face post-acquisition. In particular, it didn’t factor in the tax burden that PIR will face if it gives up its tax-exempt status. Nor did it make clear whether PIR will face costs associated with other credit or financing obligations, dividend recapitalizations, or being forced to do business with Ethos’s favored vendors.  A letter we sent to ICANN in partnership with Americans for Financial Reform Education Fund explains our questions and concerns about the financial terms of the proposed transaction, which remain unanswered by Ethos and PIR.

Illusory Safeguards

In both recent webinars, Ethos and PIR have sought to assure community members that they would never take actions that would harm the .ORG community—and that even if they wanted to, their proposed Stewardship Council would stop them. Based on what we know about the Stewardship Council, we’re not convinced. Here’s why:

  • The member selection process guarantees that the Council will always be composed of people friendly to PIR’s board and owners and will not be truly independent. Six out of seven inaugural Council members will be selected by the board, while the seventh inaugural member and all subsequent members will be subject to the board’s veto.
  • The Council’s remit will be narrow—effectively as narrow as PIR’s board and management want it to be. The Council’s charter allows PIR to keep virtually any of the company’s actions or decisions outside of the Council’s scope simply by framing them as operational or financial matters. We’ve already seen PIR do this to justify not consulting its existing Advisory Council about the Ethos deal before agreeing to it. It’s also something we see frequently at ICANN, where any issue relating to registry contracts—including the changes to PIR’s contract that we challenged last year—is framed as an operational, non-policy matter, delegated to staff and exempt from multi-stakeholder processes.
  • It’s a safe bet that the Stewardship Council will be kept in the dark about critical decisions, just as PIR’s current Advisory Council was in the lead-up to the Ethos deal. We asked in both webinars how we could be sure that wouldn’t happen. PIR’s Jon Nevett responded that the Stewardship Council would have a larger role on “certain issues,” but he had no answer to whether and how the Council would have access to information it would need to make informed decisions.
  • Although PIR’s spokespeople repeatedly touted their dedication to free speech, they haven’t offered to change their existing anti-censorship policy one bit. It’s full of loopholes: PIR reserves the right to make websites go dark for “illegal or fraudulent actions.” Depending on which laws are applied and how they’re applied, anything from satire to political commentary to trivial copyright infringement on the website of a business competitor could be justification for taking away a site’s domain name. The power to interpret and apply this policy would rest entirely with PIR and its secretive owners. Nothing in PIR’s “PIC” and “Stewardship Council” announcements would change this—the risk of censorship-for-profit remains.

In Conclusion, Ethos and PIR Want to Change Something That Works Into Something Untested

The for-profit PIR that Ethos envisions would be a fundamentally different organization than today’s PIR, and we have serious concerns about its business model and financial stability.  Nothing we’ve heard from PIR and Ethos has convinced us that PIR should be transformed from something that we all know works to something that’s unproven. To the contrary, the Ethos deal raises concrete dangers of censorship, financial and technical instability, and price-gouging of non-commercial .ORG registrants. And despite making their case for months, proponents of the deal haven’t identified any specific benefits it would impart to .ORG users.

ICANN can, and should, reject this change to the .ORG registry. But that time is running out; ICANN’s current deadline to make a decision is Friday, March 20. You can still speak out: the ICANN Board is holding a public forum next week, Monday March 9 at 10am–11:30am Eastern Daylight Time. Anyone can join by videoconference and address the Board.

Leave A Comment...

*