The Internet Corporation for Assigned Names and Numbers (ICANN), the central governing body that oversees domains on the internet, has voted to reject a proposal that would have seen .org domains come under the control of private equity firm Ethos Capital. Under the deal, Public Interest Registry (PIR), which maintains the .org registry, would have transferred from its ownership under the non-profit Internet Society to the decidedly for-profit equity firm.
The reasoning for rejecting the proposal is pretty simple. The firm that currently maintains the registry of .org websites is a non-profit entity with an interest to serve ICANN's mission of keeping the internet "secure, stable, and interoperable." Ethos Capital, on the other hand, has an interest in serving its corporate shareholders by delivering strong financial returns they can't get elsewhere.
The private equity vultures were circling — Ethos didn't plan on purchasing PIR using just its own money but it also intended to finance a portion of the acquisition with $360 million in new debt and place that debt on PIR's own books — meaning PIR would have to pay that off itself, potentially by raising the price of .org domains or instituting new fees. Private equity firms are often referred to as "vulture capitalists" because they acquire companies thinking they can cut costs and slim down until the company starts turning a profit, after which it can be sold again for a big payday. And even before that big payoff comes, private equity firms reduce their risk by taking money out of the company in the form of fees.
Because of this, ICANN doubted how members of the .org community — everyone from Wikipedia.org to Mozilla.org — would benefit from the sale.
Private equity isn't always bad. Dell was taken private by a similar firm and returned to the markets several years later at a higher value after it had a chance to go through a deep restructuring away from public scrutiny. But the horror stories of companies being destroyed by private equity are much more abundant.
Cutting costs and paying off new debt oftentimes means spending less time on innovation, and in turn falling into a downward spiral. Private equity firms are ultimately placing a bet when they make these acquisitions, and the bets often don't pay off but leave behind wrecked lives and dreams of those who worked for the companies that get hollowed out and stripped for parts if they don't perform in line with expectations.
Public pressure helped — Back in January, California's Attorney General stepped in requesting information regarding the sale to Ethos. ICANN is a California public benefit corporation, meaning it's subject to the state's regulations regarding such entities. Maybe that scared them into today's downvote? Still, it's concerning that the possibility of such a sale was ever brought into question.
People were so worried about .org being transferred to Ethos that it even sparked protests in downtown Los Angeles. Domains are a core underpinning of the internet, the address book that helps you get where you want to go. The companies managing them need to be free of any interests that might undermine an open internet.
Internet Society responded to ICANN's decision by saying that the organization overstepped its purview of ensuring the stability of the internet and based its decision on a "subjective interpretation" of what Ethos might do with PIR and .org. Internet Society has argued that Ethos could invest more money in the .org community than it currently is able to, though it's hard to overlook all the money the company would have received in the deal. But Internet Society will just have to take its ball and go home — nobody wants private equity controlling important infrastructure. PIR says it will continue to support the .org registry like always and nothing will change. Phew.