Many people have seen advertisements on the internet for free domain names, which often seem too good to be true. After all, with most reputable companies offering domain names for $8 US Dollars (USD) to $15 USD, how can other companies be offering free domain names with no strings attached? The short answer is that they can’t: although many companies may claim to offer free domain names, in reality what they are doing is bundling a domain name with other services, which do cost money. This is a sense of free that is used in the case of “free gift with purchase.”
Domain names are regulated by the Internet Corporation for Assigned Names and Numbers, or ICANN. ICANN accredits certain Domain Name Registrars to sell the generic top-level domains, such as .com, .net, .org, and .mobi. Additional domains, which are country specific, such as .uk or .tv, are handled by the nation itself, which licenses its own Domain Name Registrars. Depending on the domain suffix involved, the fees that absolutely must be incurred by the Domain Name Registrar are different. Since the majority of domains sold are within the .com space, however, we will look at those.
If free domain names were to exist, at the very least a Domain Name Registrar would have to expect to be able to give away the domain names without any loss. In reality, however, whenever a Domain Name Registrar sells a domain name, they have to pay a $0.20 US Dollars (USD) fee to ICANN. Additionally, with .com domains, they must pay a maximum fee to VeriSign of $6.86 USD. At that price, it becomes easy to see why no Domain Name Registrar could sell a .com domain for any less than $7.06 USD without losing money. On the other hand, a very cheap Domain Name Registrar could sell a domain for something like $7.20 USD and still make a profit if the quantity of domains sold was large enough.
Of course, outside of the .com domain space, that pricing can be even lower and still be profitable. With ICANN’s $0.20 USD fee, a .info domain name could be sold for $1.99 USD and still have a strong profit. And many other domain spaces have similarly low overhead. Even with these, though, giving away free domain names would still result in a $0.20 USD loss per domain name for the company giving them away.
What allows free domain names to work is that the company bundles them with required packages a customer has to buy to get the domain name. If, for example, in order to receive your free domain you have to sign up for at least a year of hosting, where the hosting is $9.95 USD each month, then the Domain Name Registrar is making nearly $120 USD each year from your hosting fees, which means they can easily afford to give away a $7 USD domain name. Similarly, a company can sell a .com domain name for around $7.06 USD even without requiring users to buy additional packages, so long as they make those packages so visible that many customers will choose to buy them, helping to boost their overall profit margin.