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Google sunsets Domains business and shovels it off to Squarespace
(www.theverge.com)
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Using that argument, domains could be used to upsell customers. Oh you want a domain? You know what? We'lll give you a year of gmail business (whatever that's called) for half the price! Or maybe you fancy a 100$ Cloud Services voucher?
That way you can lock in customers.
But what percentage of their userbase wants to use them for domains. I'm sure it was profitable, but I doubt they were making as much on that as they could elsewhere. A service making them $50 million a year might not be enough for them to decide to continue with it when they are regularly dealing with products that make hundreds of millions or even billions from. It might just not be worth the effort.