Here's what Tucows (ticker: TCOW.ob) CEO Elliot Ness said about the domain name registration business on his February 10th conference call to discuss fourth quarter earnings:
...domain registration transactions for the quarter were 919,000, an increase of 8% from 853,000 for the same quarter of fiscal 2004. Domains under management increased to more than 4.3 million representing growth of approximately 548,000 names or 14% on a year-over-year basis. Domain registration transactions for the year totalled more 3.75 million, 18% higher than the number of transactions for fiscal 2003.
Our performance during the year is indicative of our dominant position in the wholesale domain business and our ability to consistently win new business. I would note that much of the growth in the domain registration industry last year as a whole was the result of the dramatic growth in the expiring domains market which we do not yet participate in.
Turning to some of the other Internet services, during the quarter we continued to be successful in our strategy to diversify our revenue streams through wholesale services other than domain names. As I’ve discussed previously, our progress is best measured by the contribution of these new services to gross margin and revenue. For the fourth quarter of 2004, the percentage of gross margin build in our wholesale business, other than domain names, increased to 16% from 15% for the third quarter of 2004 and 4.8% for the fourth quarter of fiscal 2003.
We’re very pleased with our progress as we continue to see significant customer wins across all of our service offerings and, perhaps most importantly, for the first time we’ve seen wins based on cross-selling amongst only our new Internet services. For example, a substantial billing customer becoming an e-mail defense customer or a Website building tools customer.
I want to be clear that when I’m talking about these customer wins I’m talking about wins in the top 1 or 2% of our customer base. Obviously, with every quarter that passes we are adding a much greater number of new resellers for each of our new services. However, the customer wins that I’m talking about here are significant, at least relative to our typical customer size.
With each passing quarter, our exposure to domain registrations decreases as we diversify the services which are making contributions to the business, and the contribution of each of those services grows. When we look at the proportion of gross margin contributed by all services other than domain registrations, which I will remind you includes retail services other than domain names and our content business, that number increased to 38.4% for the fourth quarter, up from 22.3% a year earlier.
I want to make a couple of brief comments about our content business. Content, our shareware business, was one of the fastest-growing areas of the business in 2004 and we’re expecting another good year from that line in 2005. Over the past few years, we’ve focused on the demand side of that business, increasing revenue and increasing yields per page, and we’ve had great success in this regard. We are now turning our attention to the supply side of the business.
We are currently in the process of effecting plans around re-invigorating the actual product offering both in terms of what content we offer and the usability of that content, and you should expect to see some of this work in the first couple of quarters of this year. Our hope and expectation is that over the course of 2005 these changes will start to impact the supply side of the equation for this business.