Daniel Negari thought he hit the jackpot when HBO’s tech send-up “Silicon Valley” jokingly registered fictional company Hooli.xyz from his very real domain registry business, XYZ Inc.
Then Google Inc. called.
As part of its restructuring into a holding company named Alphabet, the Internet giant last week unveiled a landing page with the URL ABC.xyz, a subtle nod to the mockery it often receives from “Silicon Valley.”
The effect on XYZ’s business was immediate and profound.
“My phone blew up, GChat blew up, Facebook blew up and people were running into my office,” said Negari, founder and chief executive of XYZ.
According to domain registration tracking site nTLDStats.com, XYZ was registering between 2,000 and 6,000 domains a day through the early part of August. But the day after Google’s Aug. 10 announcement, registrations spiked to more than 11,000 and the next day exceeded 13,000.
XYZ received the rights for the dot-xyz domain name in 2013 from the Internet Corp. for Assigned Names and Numbers, or Icann, a Marina del Rey nonprofit that manages domain names for the Internet.
XYZ has been selling dot-xyz registrations since June of last year and holds the rights to sell eight other domain names, including dot-rent and dot-college. In all, more than 1.1 million dot-xyz domains have been registered since they became available last summer, according to nTLDStats.
XYZ is headquartered in Las Vegas but employs nine people at an office in Santa Monica. Negari splits his time between the two. Now 29, he attended Beverly Hills High School and USC and also founded real estate and mortgage brokerage Beverly Hills Mint in 2008, which is run by his mother.
Icann has been expanding the number of domain name suffixes in recent years, and Negari said he went after the so-called generic top-level domain dot-xyz because it was so generally applicable.
“Pretty much everyone went for industry-specific domains like dot-rent,” he said. “What I was trying to do was create a true generic ending, like one that wasn’t seen on the Internet. Dot-xyz doesn’t have any specific meaning; the meaning is what you use it for.”
Competition for the right to register a top-level domain when it comes available often prompts an auction. But no one else was interested in dot-xyz.
“I was the only applicant,” Negari said, “so for that reason I got it for (the base) $185,000 fee. It’s been a great investment, for sure.”
XYZ’s domain-selling business is a mixture of speculation and keen branding. After acquiring the right to the top-level domain from Icann, the company then allows website registrars such as GoDaddy, Network Solutions or Namecheap to sell site-specific names – such as ABC.xyz – to website builders. XYZ charges registrars $8 for each site-specific name, which must be renewed annually, though registrars can pay for several years in advance. In turn, registrars sell them to end users typically for $10.
Whatever the price XYZ sold them for, the firm has so far been paid for more than 1.1 million dot-xyz domains, or about $8.8 million, handsomely repaying Negari’s initial $185,000 investment.
Negari said he saw dot-xyz as the next generation’s dot-com: a generic suffix fit for any website. The company has been spending gobs of money marketing the domain as such. What it got from Google, however, is hard to emulate.
“This is the ultimate validation of new generic domain names because a lot of businesses questioned whether Google would rank new domain names well,” said Negari. “I don’t think there will be another true generic like this that will come up. This is a once-in-a-generation opportunity.”
Not everyone is happy with the way XYZ has capitalized on that opportunity.
Network Solutions purchased 375,000 domains from XYZ in June 2014 and automatically distributed to its customers with matching dot-com names at no charge as a promotional offer.
That prompted complaints that XYZ unfairly counted those names when it described dot-xyz as the “No. 1” new domain name in an online video, because the Network Solutions customers did not actually purchase the names themselves.
Negari countered that the names were paid for by Network Solutions and that he had no control over how they were distributed.
“We were paid for them,” said Negari. “These are real registrations.”
In December, industry-leading domain registry Verisign Inc. of Reston, Va., owner of the right to license the popular dot-com and dot-net names, accused XYZ of lying in its promotional materials, including a video on its website that suggests it is “impossible” for consumers to find the exact dot-com domain name they’re looking for due to an oversaturated market. Verisign also cited the bulk sale of names to Network Solutions.
“XYZ’s promotional statements, when viewed together and in context, reflect a strategy to create a deceptive message to the public that companies and individuals cannot get the dot-com domain names they want from Verisign, and that XYZ is quickly becoming the preferred alternative,” reads a document filed in the Eastern District of Virginia as part of a lawsuit brought by Verisign. “This false advertising campaign appears to be part of a larger scheme to unfairly target, and unfairly compete with Verisign.”
Even though he said he spent $200,000 in legal fees in July alone, Negari views the legal battle as badge of honor, suggesting that Verisign is only picking a fight because it views XYZ, and its domain name, as serious competition.
“The whole lawsuit is ridiculous and it’s actually a big compliment to us,” he said.
A Verisign spokeswoman declined to comment on the case.
Erik Syverson, a partner at Raines Feldman in Beverly Hills who reviewed the case for the Business Journal, agreed with Negari that the case lacks merit.
“I don’t think very much at all of Verisign’s claims,” he said. “Competitors are given relatively wide latitude to promote their services and take shots at their competition.”
Verisign, he said, might want to force the smaller XYZ to cave to its demands rather than spend heavily on litigation.
Negari said that won’t happen, and that he’s ready and willing to fight the case at trial, which is expected later this year.
“This is the 800-pound competitor pounding its chest,” said Negari. “It’s not slowing us down.”