Budgeting for Brand gTLDs
For most companies, the gTLD was an investment in the future of the internet in response to a short time window in which to apply for a gTLD. Wanting to gain a competitive edge, half the world’s top brands invested the $185,000 application fee for one or more gTLDs. Now that gTLDs are moving forward and more money will need to be invested to actually develop the gTLD as platform, whose budget should cover the costs? In many companies the initial application fee came out of a slush fund or extra fund for these types of unexpected opportunity costs. In others, it came out of legal, IT or marketing. As the gTLD moves forward and development costs begin, however, it is helpful for companies to consider how to structure the gTLD in the budget as a capital asset.
The gTLD is an intangible asset. It’s much more than a domain name, it’s a technology platform. So the gTLD can be structured much like acquiring enterprise software, a patent, or other intangible capital assets. As a capital asset, it can be amortized over the life of the asset, providing financial benefits to the company. General rules of thumb in accounting provide for an intangible asset to be amortized over fifteen years so it’s safe to say that could be used as a benchmark for amortizing the gTLD costs rather than just assigning a line item budget for it. But, what is included in the amortized amount – how is it valued? Consider how the asset is acquired and developed to create an acquisition and development basis in the gTLD.
First, there were the acquisition costs. This would include the filing fee and consulting or legal fees needed to get through the ICANN process. For some, it could include an auction, which could be substantial.
Second, there are the operational costs. This will be what you have to pay to a registry, registrar, data escrow and to ICANN each year. This might be more traditional IT operating costs and come out of a budget annually for ongoing operations rather than as part of the amortized capital investment. For most brand gTLDs this will be around $125,000, possibly more depending upon how many subdomains are used.
Finally, there are the development costs. This will include significantly more in research and development to utilize the asset. Similar to other Research & Development costs, these can be contributed to the cost of the asset as part of the overall development and allow you to enhance the value of the gTLD as an asset.
By capitalizing this asset (inclusive of development costs) and amortizing over fifteen years, rather than finding a budget placeholder, it may allow for broader thinking about how to use the gTLD and certainly makes more fiscal sense than just pulling the money out of a slush fund. It may also facilitate more significant investment in developing the technology platform to its fullest potential, providing a key competitive edge in the digital marketplace.
Ultimately, the gTLD will have value as an asset, which could also boost the company’s balance sheet. Much like patents, trademarks, and the intangible value of the brand itself, intangibles contribute to the asset value of a company. In fact, more and more companies are tipping in favor of intangible assets over traditional assets. The gTLD becomes an important part of the company’s intangible asset base. Accordingly, the way it’s budgeted and amortized should be strategically considered for the long-term value of the asset.
As you look at budgeting for the gTLD, be sure to check with finance to ascertain if the acquisition and development costs can be amortized and how the budget and investment is structure is done correctly to maximize that value.