As of April 2014, there are 271 million domain names registered to ICANN through authorized registrars. All of these domains need to use a number of services in order to keep the site up and running. These services include web hosting, storage, site creation and maintenance tools, email services, security, and other cloud services. Internet giant Google (GOOG, GOOGL) currently offers an extensive web services package that includes almost all aspects of creating, operating, and maintaining a website. The only piece in the puzzle that Google has not offered yet is a domain name registration service.
The web services market includes a large number of players that offer a wide range of specialized services. Wix.com (NASDAQ:WIX) offers a simple web creation service and specializes in website creation and design tools. Other players, such as GoDaddy (DADDY) or Rightside (through enom.com) offer a complete web services package.
GoDaddy is dominating the domain name registration market and has almost 57 million domains under its management, which represents approximately 21% of the world's domains. GoDaddy uses its market share to offer complementary services to its customers in an attempt to create a web services one-stop shop that includes domain registration, web hosting, site builder, site protection and security, email services, and cloud services. GoDaddy is probably the most known brand in the web services market mainly due to unique marketing approach in its famous Super Bowl ads and sponsoring car racer Danica Patrick.
At the beginning of June, GoDaddy filed for IPO in order to join the wave of successful tech IPOs since the beginning of the year and to raise $100M. Although GoDaddy states in its S1 that Google going into the domain registration business is a risk for the company, it probably did not expect Google to introduce its domain registration service only two weeks after they filed for IPO.
A few days ago, Google announced its domain registration service, named Google Domains. The new service will allow Google to offer businesses a full web services packages that include domain name, web hosting, storage, email services, cloud services and site creation. In its announcement, Google mentioned that currently this service is only a test and registration by invitation only. However, this is the first step in changing the web services market to a more consolidated market with fewer players than prior to this move.
Google Domains will have a broad impact on the web services business. On one side, GoDaddy will get hurt and probably lose some if its market share to Google. GoDaddy, which lost $200M in 2013, would probably lose some of its market share to Google, increase its losses, and become less attractive for investors. On the other side, Wix.com will benefit from Google's presence in the domain registration market as it provides website building services for clients of the service. Wix's biggest competitors in the web building market are GoDaddy, Weebly, and Squarespace, and with GoDaddy losing market share to Google in the domains segment, it will also lose market share in the site creation segment and will pose less of a threat to Wix.
Google Domains will not have a significant impact on Google's revenue in the short term and should not drive a buy or sell decision in the near term. However, the impact on Wix's revenues are immediate and decisive. Wix's improving financials and latest partnership with Google make it a good choice of a micro-cap tech stock. GoDaddy has not announced a date for its IPO, but in the case that it will go public this year, it will have to explain how it is going to compete with Google and present some alternative revenue streams.
Google Domains transforms Google into a one-stop shop of web services that threatens the market leader, GoDaddy, and may affect the result of its IPO. As it did with Gmail, Google Search, Google Apps, and many other web services, Google is expected to win a substantial market share that will also help its partners such as Wix, Weebly, and Squarespace. Google Domains' partners will probably increase market share in site creation at GoDaddy's expense as companies will prefer to consolidate all their web services under one umbrella. Google should be able to leverage this new service to increase its ad sales through its services and its partners' services, but this service should not bring substantial revenue in the short term for Google. However, for Wix, this move means more customers, higher revenue, and a great strategic alliance with the internet giant that could be leveraged in the future.
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