Inside the Billion-Dollar Battle Over .Org

A private equity firm wants to buy the internet domain used by nonprofits. A group of online pioneers says it is not the place to maximize profits.

Two months ago, Ethos Capital, a private equity firm, announced that it planned to buy the rights to a tract of internet real estate for more than $1 billion.

But it wasn’t just any piece of digital property. It was dot-org, the cyber neighborhood that is home to big nonprofits and nongovernmental organizations like the United Nations (un.org) and NPR (npr.org), and to little ones like neighborhood clubs.

The deal was met with a fierce backlash. Critics argued that a less commercial corner of the internet should not be controlled by a profit-driven private equity firm, as a matter of both principle and practice. Online petitions and letters of concern came from hundreds of organizations, thousands of individuals and four Democrats in Congress, including Senator Elizabeth Warren of Massachusetts.

Rarely has the acronym-strewn realm of internet addresses — so-called domain names — stirred such passion.

Now, a group of respected internet pioneers and nonprofit leaders is offering an alternative to Ethos Capital’s bid: a nonprofit cooperative corporation. The incorporation papers for the new entity, the Cooperative Corporation of .ORG Registrants, were filed this week in California.

The goal of the group is not only to persuade the Internet Corporation for Assigned Names and Numbers, which oversees internet domain names, to stop the sale. It is also to persuade ICANN to hand it the management of dot-org instead.

“This is a better alternative,” said Esther Dyson, who served as the first chair of ICANN, from 1998 to 2000, and is one of seven directors of the new cooperative. “If you’re owned by private equity, your incentive is to make a profit. Our incentive is to serve and protect nonprofits and the public.”

Since 2003, dot-org has been run by the Public Interest Registry, which is controlled by the Internet Society, a nonprofit that helps develop internet standards, education programs and policy. The registry holds a contract to manage dot-org, which was renewed last year for 10 more years. With a sale to Ethos Capital, the Internet Society would gain an endowment to fund its operations and get out of the business of operating dot-org.

In buying the Public Interest Registry, Ethos Capital would acquire the rights to run dot-org and collect annual fees from the nearly 10.5 million registered dot-org names, held by both nonprofits and domain-name speculators. Those yearly fees are $10 to $20 on average, but can be far higher for big sites that buy several names to protect their brand and get added services like security against online attacks.

Opponents of the private-equity sale said they feared that to make an attractive profit on its pricey deal, Ethos Capital would have to raise prices, cut expenses, skimp on service — and most likely sell users’ data.

Ethos Capital said those concerns were unfounded.

In a blog post in December, Erik Brooks, the firm’s founder, said that “we understand that change brings uncertainty and concern,” which was reflected in “alarmist statements.”

Ethos Capital, Mr. Brooks said, wants to invest in dot-org “for the reputation of the platform and the values it represents in the marketplace.” He said his firm planned to build on that asset.

Big price increases have been a major concern for critics of the deal. When ICANN renewed the 10-year contract with the Public Interest Registry last year, it removed a price cap that limited price increases to 10 percent a year at most. That move was part of a broader ICANN policy to ease price controls across all internet domains.

Ethos Capital has pledged to adhere to the 10 percent cap, though it would have no contractual obligation to do so. In blog posts, the private equity firm said it planned to invest in new services and clamp down on spam, security attacks and other abuse launched from some illicit dot-org domains.

Some nonprofits worry that any cleanup effort could result in censorship, even if inadvertently. As the owner of the registry for dot-org, Ethos Capital would manage the acceptable business practices and conduct for dot-org domains. The same freedoms that open the door to extremist groups on some dot-org sites, nonprofit leaders say, also help protect free speech on public-interest dot-org sites in developing countries with authoritarian governments.Ethos Capital said it would never facilitate censorship. It has also vowed to set up an independent “stewardship council” to monitor its management of the dot-org network.

Since the deal was announced, Mr. Brooks and top executives of the Internet Society and the Public Interest Registry have spoken with skeptics in person, in web sessions and on conference calls, seeking to reassure them that dot-org would be in safe hands. And on Tuesday, they submitted a detailed response to the questions raised by the four members of Congress.

But whether the trust-building campaign has made progress is uncertain. Amy Sample Ward, the chief executive of NTEN, a nonprofit that assists other nonprofits with technology, is unconvinced.

“The internet was meant to be this democratizing force around the world, and nonprofits do that,” Ms. Sample Ward said. By contrast, she said, Ethos Capital is a creature of the “capitalist-based internet industrial complex.”

For the Ethos Capital deal to succeed, ICANN must give its approval. In December, it sent out a request for more information about the proposed transaction. ICANN has not indicated the timing of a decision, but one is expected early this year.

The newly formed cooperative group is hoping it can keep dot-org out of the for-profit economy. “There is a common good here that is at risk of being undermined,” said William Woodcock, a director of the cooperative, who is the executive director of the Packet Clearing House, a nonprofit that provides internet operational support for domains.

The cooperative corporation, which would run dot-org, collect fees and distribute savings back to the nonprofit users, is an “alternative model with a long-term commitment to the open and noncommercial internet,” said Katherine Maher, a director who is the chief executive of the Wikimedia Foundation, the nonprofit parent of Wikipedia.

“There are some things that operate better noncommercially, and that’s O.K.,” she said.

The bingo method

You might need help to turn an idea into a project.

Most of the time, though, project developers walk up to those that might help and say, “I have a glimmer of an idea, will you help me?”

The challenge: It’s too challenging. Open-ended. To offer to help means to take on too much. And of course people are hesitant to sign on for an unlimited obligation to help with something that’s important to you, not to them.

Consider the bingo method instead.

Build a 5 x 5 grid. 25 squares. Twenty-five elements that have to be present for your project to have a chance. If it’s a fundraising concert, one of the grids might be, “find a theater that will host us for less than $1,000.”

Here’s the key: Fill in most of the grids before you ask someone for generous help. When nine or twelve of the squares are marked, “done,” and when another six are marked, “in process,” then the ask is a lot smaller.

A glimpse at your bingo card indicates that you understand the problem, that you’ve highlighted the difficult parts and that you’ve found the resources and the knowledge necessary to complete most of it.

You’ve just asked a much easier question.

The Plight of the Overworked Nonprofit Employee

the Department of Labor finalized the most significant update to the federal rules on overtime in decades. The new rules will more than double the salary threshold for guaranteed overtime pay, from about $23,000 to $47,476. Once the rules go into effect this December, millions of employees who make less than that will be guaranteed overtime pay under the law when they work more than 40 hours a week.

.. But pushback also came from what might have been an unexpected source: a progressive nonprofit called the U.S. Public Interest Research Group (PIRG)

.. These responses expose a gap between the values that many nonprofits hold and the way they treat their own staffs. There’s no doubt that nonprofits today face serious financial difficulties and constraints, but do they have no choice but to demand long, unpaid hours of their employees?

.. the “nonprofit starvation cycle.” The cycle starts with funders’ unrealistic expectations about the costs of running a nonprofit. In response, nonprofits try to spend less on overhead (like salaries) and under-report expenses to try to meet those unrealistic expectations. That response then reinforces the unrealistic expectations that began the cycle. In this light, it’s no surprise that so many nonprofits have come to rely on unpaid work.

.. “Can you imagine Lockheed Martin or Boeing putting up with a government contract that didn’t allow for overhead?”

.. The Urban Institute report found that most nonprofits choose to cut salaries, benefits, and other costs long before scaling back their operations.

.. These nonprofit employees are saying that their operations depend on large numbers of their lowest-paid staff working unpaid overtime hours.

.. a culture that can put the needs of staff behind mission-driven ambitions.

.. “There’s a culture that says, ‘Young people are paying their dues. It’s okay for them to be paid for fewer hours than they’re actually working because it’s in the effort of helping them grow up and contribute to something greater than they are,’”

.. “Too often, I have seen the passion for social change turned into a weapon against the very people who do much—if not most—of the hard work, and put in most of the hours,” Hastings recently wrote on her blog. “Because they are highly motivated by passion, the reasoning goes, they don’t need to be motivated by decent salaries or sustainable work hours or overtime pay.”

.. A more recent study of nonprofits in the U.S. and Canada found that turnover, one possible indicator of burnout, is higher in nonprofits than in the overall labor market.

.. Low-paid workers who do not have executive decision-making power and do not manage a staff, according to the Department of Labor’s criteria, shouldn’t be classified as exempt

.. one easy place to start is simply to write higher salaries into budget proposals.