FINAL VERSION SUBMITTED (IF RATIFIED)
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FINAL DRAFT VERSION TO BE VOTED UPON BY THE ALAC
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DRAFT SUBMITTED FOR DISCUSSION
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Please see Google Doc - 05 August 2019 (view only)
AT-LARGE ADVISORY COMMITTEE
ALAC Statement on Draft Financial Assumptions & Projections and Operating Initiatives for the development of Fiscal Years 2021-2025 Operating & Financial Plan
Introduction
On 14 June 2019, public comment opened for Draft Financial Assumptions & Projections and Operating Initiatives for the development of Fiscal Years 2021-2025 Operating & Financial Plan. On the same day, an At-Large workspace was created for the statement. The At-Large Consolidated Policy Working Group (CPWG) decided it would be in the interest of end users to develop an ALAC statement on the public comment.
During the CPWG meeting that week, members of the working group discussed the public comment, as well as the end user stance on the public comment and prior ALAC statements on the topics of finance, operations and the ICANN Strategic Plan. Maureen Hilyard, ALAC Chair, Marita Moll, ALAC Member of the North American Regional At-Large Organization (NARALO), and Judith Hellerstein, Member of NARALO, volunteered as co-penholders for the statement.
ICANN policy staff in support of the At-Large community sent a call for comments to the ALAC Finance & Budget Subcommittee, CPWG and ALAC mailing lists. Staff created a Google Doc for drafting the ALAC statement.
On 24 July 2019, the first draft of the ALAC statement was posted by the co-penholders for community comment. ICANN policy staff in support of the At-Large community sent a call for comments to the CPWG and ALAC mailing lists, requesting feedback by 04 August.
On 05 August 2019, the ALAC Chair, Maureen Hilyard, requested that the statement be transmitted to the ICANN public comment process, copying the ICANN staff member responsible for this topic, with a note that the statement is pending ALAC ratification.
Executive Summary of ALAC Responses (full statement on following page)
We suggest that ICANNs revenues will remain fairly constant -- neither growing exceedingly nor shrinking excessively over the next five years. Maintaining such equilibrium will require careful curation of the domain name assets through unfailing attention to the primary strategic goal of security, stability and trust (Assumption H). Reliance on New gTLDs as a source of new revenue is a strategy the ALAC does not support.
Not yet completed section
AT-LARGE ADVISORY COMMITTEE
ALAC Statement on Draft Financial Assumptions & Projections and Operating Initiatives for the development of Fiscal Years 2021-2025 Operating & Financial Plan
Background:
As stated in the document, the ICANN Draft Strategic Plan for Fiscal Years 2021–2025 set out strategic objectives and strategic goals. The Draft Strategic Plan will be complemented by a five-year Operating and Financial Plan that describes ICANN org’s Operating Initiatives and Operating Activities. Operating Initiatives are major initiatives ICANN Org will undertake to achieve the objectives and goals set out in the Strategic Plan. Operating Activities are the day-to- day activities supporting the organization’s mission. For ICANN to achieve on those objectives it must prioritize its work, plan resources appropriately and ensure that its financial plan is developed thoroughly., also considering existing projects, daily operations and anticipated projects not related directly to the Draft Strategic Plan.
- ICANN shared these 16 Operating Initiatives that ICANN Org plans to focus on during the period of FY21-25. These are major workstreams that support the objectives identified in the Draft Strategic Plan. ALAC commented on this public comment and their comments can be found here.
- Additionally we commented on the related public comment regarding the two year planning process and this can be found here.
- As well as to the ICANN Draft FY20 Operating Plan And Budget And Five-year Operating Plan. This statement can be found here.
- Lastly, ALAC also provided comments to the ALAC Statement on Evolving the Multistakeholder Model at ICANN, this statement can be found here.
This public comment references all of these past comments as they are all relevant to the Operating Initiatives mentioned in this document.
AT-LARGE ADVISORY COMMITTEE
ALAC Statement on Draft Financial Assumptions & Projections and Operating Initiatives for the development of Fiscal Years 2021-2025 Operating & Financial Plan
The ALAC has considered the draft financial assumptions, projections and operating initiatives, and we offer the following comments:
Financial assumptions
We are being asked to comment on assumptions that are yet to be validated by external information, such as market research. We note that we do not have all the background data that financial planners would use to make such assumptions. However, our deep involvement in the evolving context in which ICANN operates leads us to present several cautionary points with respect to the financial assumptions.
The assumptions and market trend documents place a great load on the assumption that a new round of new gTLDs will continue to allow for the creation of new gTLD-based business models, and greater identity specialization for registrants. This also assumes that registries and registrars will encourage greater awareness of what these models might be, and how they can help registrants develop their businesses based on geographic or brand gTLDs.
For example, some registries and registrars have been most proactive in helping to build their particular brands by offering support and advice for registrants and businesses to make the most of their domains and websites, with marketing and website development advice to support a successful digital presence for their users via social media, as well as on an individual basis.
The ALAC is not optimistic that assumptions A and B will be highly successful vehicles to new revenue. Although the first round of new gTLDs did bring in considerable revenue, we point out that these earlier rounds represented the “low hanging fruit” in the new gTLD market. Future rounds will require more resources. Additionally, while we know how much money came in from the earlier rounds, we do not know how much the next round will cost, nor do we know the sustainability of new gTLDs which are still dormant or somewhat dormant. Moreover, there is no evidence that there is a pent-up demand for brands and geoTLDs. Although there have been some lessons learned, any next round would seek to reach more difficult areas (see assumptions F & G), and this new round could be more expensive. We also have not seen any cost-benefit analysis for doing this new round. Has this been done?
The ALAC notes there is little to no evidence that either of these gTLD categories will generate large profits for ICANN in the long run. In the attached paper, ICANN even noted this and stated many of the brands picked up in the last round were picked up solely for defensive purposes. The assumption that this will suddenly change is just that - an assumption.
The ALAC has already registered its concerns and recommended caution with respect to new GTLD rounds.
ICANN’s financial health requires that the case for domain names remain strong, and ICANN’s focus should be on security, stability, strengthening the multistakeholder system and other fundamental tasks noted in the strategic plan, rather than focussing on further rounds of new gTLDs for the time being. In addition, it is still too early to know the real financial impact of the most recent gTLD expansion, in terms of a cost-benefit analysis.
What we can agree on, and what ICANN is putting money towards, is that there is an urgent need to resolve current challenges around Universal Acceptance, which will open new markets in areas with a low rate of domain name adoption (assumption G).
We suggest that ICANN’s revenues will remain fairly constant - neither growing exceedingly nor shrinking excessively over the next five years. Maintaining that equilibrium will require careful curation of the domain name assets through unfailing attention to the primary strategic goal of security, stability and trust (assumption H). The ALAC cannot support the strategy of reliance on these new gTLDs as a source of new revenue.
Our conclusions, given the concerns above, are to find a middle ground. The ALAC believes that reasonably conservative financial projections would be the best way forward.
Operational issues
In the ALAC comment regarding the Strategic Plan and its 16 different objectives, the ALAC condense these 16 down to 5 overarching objectives:
- Strengthen the security of the Domain Name System (DNS) and the DNS Root Server System
- Improve the effectiveness of ICANN’s multistakeholder model of governance, facilitating diverse and inclusive participation in policy-making
- Evolve the unique identifier systems to continue to serve the needs of the global Internet user base
- Address geopolitical issues impacting ICANN’s mission to ensure a single and globally interoperable Internet
- Ensure ICANN’s long-term financial sustainability
As we have noted above and in our comments concerning the strategic plan, 2-year planning process, financial budget and operating plans, and the evolving multistakeholder model, we agree that the security of the DNS and the root server system is the primary goal in the ICANN strategic plan. We agree that resources towards promoting DNSSEC and increasing its deployment is key. Security, stability and trust are the fundamental pillars upon which financial assumptions rest.
The ALAC agrees that work which needs to be done on evolving the multistakeholder system is substantial and complex and that it must be ongoing with adequate resources directed towards its completion. The objectives related to diverse and inclusive participation in policy making in an efficient and effective way are essential to improving the system. The At-Large community is already devoting as much energy as possible to this process, on the assumption that the process will continue to be supported as fully as possible. We welcome the commitment in this document to continue to provide a high level of staff and resource support to SOs and ACs engaged in this process, and some of the suggestions regarding prioritization, standard protocols, etc. as long as they are a result of engagement and agreement at the level of affected ICANN constituencies.
We share the goal that internal and external ethics policies must be exemplary. However, we are somewhat concerned about the review and evaluation of the current face-to-face meeting strategy. The ALAC underlines that face-to-face meetings are essential to the functioning of the multistakeholder model. At-Large and other members of the volunteer community will not be able to maintain the level of engagement needed to do this work if they are unable to hold some of their discussions in the most efficient manner as possible, by utilizing face-to-face meetings. There may be efficiencies to be found in meeting logistics, but they must not compromise the ongoing work of volunteer teams at these face-to-face meetings. Volunteers are already contributing considerable personal resources - including time and money - towards supporting the multistakeholder system.
The ALAC commented on the importance of the unique identifiers system and root zone management in this recently filed comment.
With respect to a new round of gTLDs, we have pointed out that this is not a priority for Internet end users. We do not support allocating major resources to a new round until there is more evidence that a major demand exists and that such an activity will truly benefit the global Internet community.
The ALAC agrees and has also noted in previous comments filed on the multistakeholder model that ICANN must continue to engage with other bodies in the Internet ecosystem. Keeping abreast of relevant regulatory and legal issues around the world, engaging with IGF, ITU, governments and regulatory bodies is essential. Stepping away from these responsibilities would result in an organization which was out of step with changing conditions around the world.
Formalizing ICANN’s funding model and determining the long-term drivers is a responsibility of any organization of the size and importance of ICANN. We expect that the community will be part of this process. Getting these assumptions right will be the driver of success in most of the other operating initiatives. We expect opportunities for all ICANN constituencies to have some input to the eventual model and see our responses to the financial assumptions in this comment as part of this process.
Planning at ICANN
As ALAC stated in its response to the 2-year planning process public comment, would find it extremely helpful if ICANN org provided a priority level to each of the published projects. As the orientation document to this public comment stated, each of the ICANN funded projects corresponds to a different strategic objective, but there is no indication as to the priority level for that project and where it falls in the budget cycle. Providing some sort of clarity as to the priority given each project and how it compares to other projects on the list in terms of priority would provide the community with a better idea of the established priorities of all projects in the published list.
The ALAC/At-Large community propose some clarity via a listing of priorities and statements on the impact of each project on ICANN org and on each of the unique ACs and SOs. This would be helpful, in the context of a vast number of ICANN org projects. If the At-Large community were aware of ICANN org priorities, it would help the community reshape our agenda to become more in line with the ICANN org workflow. It would give us an idea of which issues we need to emphasize, should we feel an issue is extremely critical. Without an understanding of the priority of each of ICANN project, it is difficult for the community to respond and advocate effectively.
As the ALAC wrote in its response to the ICANN Strategic Plan, we believe that keeping the system up-and-running, safe, and maintaining the multistakeholder system are the top priorities. Beyond these priorities, the community should be directly involved in setting other priorities. As priorities are usually linked to funding, the community should also have an opportunity to identify and point out the impact of changes to funding. Ample time needs to be given for community input.
The ALAC/At-Large community believes that while policy development and implementation activities are integral to the planning process, so are other activities, such as those that enable communication, collaboration, and outreach, between RALOS, At-Large members and other constituencies. Such activities are integral to the planning process. A jointly developed priority list would help the community advocate for the projects they feel are essential to each constituency. It would also help us plan better and target our own policy and outreach and engagement activities.
Auction Proceeds
It is gratifying to read that ICANN org will be prepared to support the next phase of this work by providing staff support to deliver feasibility assessments and costing as inputs to the ICANN Board for consideration of the Cross-Community Working Group on New gTLD Auction Proceeds (CCWG-AP), and will implement the adopted recommendations, as At-Large members have spent hundreds of hours working these past 2.5 years on the CCWG-AP and are working towards the conclusion of phase two of this project. Phase three is implementation of the recommendations.
ICANN Reserves
The ALAC is a strong supporter of the need by all constituencies and of the ICANN Board to safeguard ICANN’s long-term financial sustainability, and to be accountable to the public in pursuit of ICANN’s mission. Please see our comment on the replenishment of the reserve fund. Specifically, that while the ALAC supported the allocation of operational savings at the average level of US $3 million per year, it did so with the understanding that this implicit reduction on spending budgets must be spread evenly over the entire budget. As seen in the draft FY19 budget, there is a temptation to focus reductions on specific (vulnerable) parts of the community, potentially endangering the multistakeholder model. That must not happen in this case. We stated that ICANN might need to consider a temporary increase on per-domain registrar fees. In past years, where ICANN finances were growing, we did not hesitate to reduce registrar fees in some years. We similarly should not hesitate to increase them in this case.
9 Comments
Maureen Hilyard
Financial assumptions
Hi Maureen and Judith. Here are some thoughts on draft financial projections after a first reading some of which could be used for a first draft.
We are being asked to comment on assumptions that are yet to be validated by external information like market research, etc. -- or at least these data have not been offered to us. The information given is based on a trend analysis study done by an independent consulting group. Our comments on this trend analysis are as follows:
Assumption A -- that the key growth enabler has been the roll-out of new GTLDs.
We know how much money came in from the most recent effort but we don't know how much it cost to do this or the sustainability of new gTLDs which are still dormant or somewhat dormant. Although there have been some lessons learned, any next round will be seeking to reach more difficult areas (see F & G), and could be more expensive. Has there been a cost/benefit analysis?
Assumption B -- that the next marketing push should be on brands and geoTLDs
There is little or no evidence that either of these gTLD categories will generate large profits for ICANN in the long run. It is admitted in the paper that most of the brands picked up in the last round were for defensive purposes. The assumption that this will suddenly change is just that -- an assumption that has no basis in reality.
The subpro workgroups are still struggling with new rules on geonames.
Assumption C - establishing digital presence
In the face of powerful social media platforms of today, there is an equally strong argument to be made that domain names will become increasingly irrelevant. Although this may be an extreme view, it is is not unreasonable to expect the domain name industry will remain fairly constant -- neither growing exceedingly nor shrinking excessively -- into the future.
Assumption D -- interfaces on platforms and apps
see C and B
Assumption E -- Sales channels
n/c -- except perhaps in relation to end-user costs -- but sure this is relevant here
F. Regional disparity
Declining growth in "high income" areas due to penetration. Largest potential is in hard to reach areas -- it will be more expensive to grow the market in these areas
G. Difficult ensuring universal acceptance
'A key assumption in this forecast is that progress will be made over the next five years to resolve many of the current challenges hindering demand for IDN domains, namely the lack of universal acceptance. Moreover, this will result in demand and expansion in new markets which have historical low rates of domain name adoption."
This assumption is dependent on a great number of variables which will probably take more than 5 years to resolve.
H. Security concerns and trust
"Although security and trust will remain significant ongoing concerns within the DNS industry, the assumption is that confidence and trust in the industry and its overall impact on demand for domains will also remain largely constant. To date, these concerns have not fundamentally altered the underlying demand for domains, but remain potential concerns going forward."
Studies do confirm this overall trust despite problems, so probably not going to detrimentally effect the bottom-line
I. Potential for fractures within the DNA
No one can predict whether this will fundamentally change the demand for domain names
Our conclusions, given the concerns above, is that we would prefer a more conservative projection.............
Marita
Marita Moll
This was submitted a little before it was ready for public viewing – but here it is, very rough thoughts and not yet including anything on the "operational" issues in the second document.
Maureen Hilyard
My comments:
The assumptions and market trend documents place a great load on the assumption that a new round of new gTLDs will continue to allow for the creation of new gTLD-based business models and greater identity specialisation for registrants. This is also assuming that registries and registrars will encourage greater awareness of what these models might be and how they can help registrants develop their businesses based on geographic or brand gTLDs.
But established domain registries are doing the same with their brands as well. PIR and DotAsia, for example have been most proactive in helping to build their particular brands by offering support and advice for registrants and businesses to make the most of their .org and .asia domains and websites with marketing and website development advice to support a successful digital presence for their users via social media as well as individually.
Registrar advice and support for new registrants overall is poor, yet it is much needed in underserved regions especially where there is 70+% growth in brand gTLD domains under management. New registrants need any support they can get to establish their online identity and it would could contribute to the encouragement of renewals once a successful digital presence has been established. But this is reliant on the will of the registry and registrar wanting to help their registrant rather than the actual initial domain name sale. Resellers have a chance to develop a better relationship with their registrants because they are more local and can better identify with registrant needs. More outreach and support at this level could help to build domain growth as well as create job opportunities within underserved regions.
Social media and other platforms are still largely reliant on the use of a digital presence. Businesses still rely on their online identity and presence so that they can maintain control over their digital presence and its functionality. Most social media information that is being sent refers back to a website with the full information given. Social media is very much dependent on user behaviour and cultural norms and with 900 million WeChat users and 717 million Facebook users in the Asia Pacific region (in 2017 and predominantly male), this is an influential medium.
Cable connectivity in previously unconnected areas is opening up opportunities for more users connecting to social media rather than a website of their own. For example, even without a cable connection, the Cook Islands with its population of 13000 was identified by an APAC Social Media survey in 2017 as having 70% social media penetration, yet 113% of social media growth. Kiribati with a population of 25000 had 163% social media penetration growth. The Pacific is an area of expansion for outreach with a focus on supporting these new connections and the development of Internet use to encourage a new source of demand for domain names and new registrars and thus encouraging growth for small island developing state economies.
At the same time, it is important that awareness about privacy and security issues are directed to the decision-makers of these developing countries to protect new users and their businesses.
With regards to ensuring ICANN's long term financial sustainability, the first operational initiative reinforces that there needs to be a better understanding of the marketplace of the future and to concentrate on those areas of stakeholder needs where there is identified growth.
This could require some support from Auction Proceeds, but an imperative set by the CCWG is that the drive must come from the community rather than from ICANN while maintaining that one of the key objectives of Auction Proceed projects is their alignment with ICANN's mission.
The work on evolving ICANN's multistakeholder model has major implications on optimising the effectiveness and efficiency of ICANN's activities. To do this may require a major restructuring of the ICANN ecosystem which will require considerable reworking of any current financial predictions. It is being perceived that the current ICANN model with its siloed mentality may not be as effective as it was first envisaged. The greatest successes within ICANN have been through equitably established multistakeholder-engaged working groups. ICANN should be structured in a way that improves and facilitates this model of working together and more regularly encourages this. At the same time specialist groups need to be able to meet together to provide for their specialist policy development and discussions. But there has to be a more effective way of restructuring what has become a really unwieldy organisation.
ICANN Reserves appear to be set according to current ICANN needs which are always perceived to be overly high for ICANN Org and minimal and falling for the volunteers who do a lot of the heavy lifting with regards to the policy setting which is a considerable part of ICANN's work. We have endured lots of reorganising through regular reviews of individual ICANN sections and now the multistakeholder model that impacts on the volunteers at great cost to the ICANN coffers, Yet there has been no evident full-scale review of ICANN Org and and the level of efficiency and effectiveness of its current structure and if any cost savings can be made within the Org system overall. The Reserve Fund may not necessarily require such a high target if operating expenses were not so demanding.
Judith Hellerstein
Thanks for your work. which I agree with, but also think we need to comment on the second report, which is the Draft Operating Initiatives which come from the Strategic plan and Multistakeholder comments. We need to review these two comments and highlight the most important issues. In my mind this is the ranking of these priorities within the strategic plan. We need to state which of these initiatives are most important to us and also where in the order or structure these will go. Each of these initiatives will be funded in a different year cycle and so some of our initiatives which we think should be priorities we need to tell them in what 5 year cycle they will be in. This is the time to do that so that we identify our priorities and also we identify which of the objectives and goals they are tied to and so in which of the phase ICANN will be working on theses initiatives. This is why understanding which objectives will be in which phase is so critical. This is why I think a priority list is so essential so we can focus on it.
In an earlier Comment, we consolidated all 16 initiatives into 5-6 categories when we filed our statement, I think we should use the same construction here but also talk about which of these are At Large priorities that we would like funded sooner than later. ICANN cannot accomplish each of these objectives in one 5 year operating plan and so we need to mention which of these are most important to us and why we think they should be earlier in the strategic goals and which could be done in a later phase. I think a table would be very helpful here. I will have some more time this week to work on this
Maureen Hilyard
Hi Judith.. I only commented on the operational initiatives that related to the financial sustainability Section 5. The other sections didn't relate to what had been raised in the Financial Assumptions which I mainly grouped together according to the Trends and Impacts, so didn't think they were relevant to my discussion anyway.
You can do the other sections if you like.
Judith Hellerstein
I think we can add your comments and mine to a re-statement of the priorities we had with the strategic plan.
Marita Moll
There is a bit of confusion here, I think, about what we did on the evolution of the MS model and this proposed comment on financial assumptions. They are connected in the broad scheme of things, but this financial piece relates specifically to this issue of where ICANN expects it's future resources to come from – that's how to keep the bank accounts healthy in order to facilitate what ICANN does.
So, all we need to do here is suggest to ICANN what we think the market will look like over the next few years and which parts of it we think ICANN should be focussing on.
Judith Hellerstein
Marita Moll I disagree, It says that Operating Initiatives are major initiatives ICANN Org will undertake to achieve the objectives and goals set out in the Strategic Plan. Operating Activities are the day-to-day activities supporting the organization's mission. For ICANN to successfully achieve the objectives set out in its Draft FY21–25 Strategic Plan, ICANN must prioritize its work, plan resources appropriately and ensure its financial plan is developed with those objectives in mind.
The public comment is asking if the listed Operating Initiatives an accurate depiction of what would be needed to advance the objectives of the Strategic Plan? Are any major initiatives missing or are their ones that we think should be in Phase 1
Maureen Hilyard
Hi Judith
I think the confusion is to do with their lumping of the Operating Initiatives with the Financial Assumptions when only one section of the Operaing Initiatives really applies. The Assumptions are really based on the marketplace viability of the new gTLDs and how much income ICANN assumes it can make from the introduction of more new gTLDs. So I think that the financial initiatives should be applied to the Financial assumptions section, and the other initiatives could be commented on separately - reaffirming what we may have raised in other comments where it is appropriate.