The New Yorker has written an article explaining the new gTLD program, and the Applicant Auction is featured prominently as the way to resolve contention for gTLDs:
Despite the intense demand for what ICANN is offering—a potentially once-in-a-lifetime opportunity to attain the Internet equivalent of beach-front property—the global nonprofit isn’t equipped to administer dozens of auctions between hundreds of bidders and the possible legal liabilities that come with that responsibility. It has instead encouraged applicants to resolve disputes for contested domains among themselves.
That’s where the firm Innovative Auctions comes in: it holds private auctions to resolve these feuds. At its first domain auction in June, six contested strings fetched $9.01 million. Two weeks ago, its second domain auction resolved contention on eight g.T.L.D.s at a value of $9.65 million. As the auctions continue, Sheel Mohnot, the project director for Innovative Auctions, expects the value of in-demand domains to continue to rise. Last week, he told me, “I would not be surprised if we had eight-digit auctions in the near future.”
The primary motivation for settling disputes in early, private auctions is money. If ICANNruns an Auction of Last Resort, the application fees and bids are non-refundable. By contrast, the Applicant Auction works on an ascending-clock model, which normally works much like an eBay auction: bidders name a maximum price they are willing to pay, and the auction price rises at each stage of the auction, until all bidders but the winner have dropped out.