Domain registration has to be renewed, either per year or per <x> years if you buy a bunch of licenses up front. So what's the alternative to this then? A lot of domains can cost around $20 per year.
It is totally reasonable to charge a recurring fee for providing an ongoing service, but to be clear you are not buying a domain that needs registration. You are buying a subdomain of the domains that this company already owns. Some other sites give those away for free because there is no marginal cost per subdomain.
I think the main difference is a proper domain from a major registrar grants you ownership rights that you don't get from leased subdomains like OP's (mainly the ability to keep the domain even if the registrar goes out of business; and moving the domain between registrars).
You can move between registrars, but the registrar's not the one that you're leasing the domain from; they're just a reseller.
The entity that you're actually leasing the domain from is the registry operator-- such as Verisign for .com or PIR for .org. And, yes, it's still a lease relationship-- while there are some ICANN-mandated consumer protections around your "purchase" of a domain, if you stop paying your annual renewal (or run out of whatever amount of time you've prepaid), that domain isn't yours any more.
Omg.lol is operating the same way (albeit not under ICANN oversight, as they're not running a gTLD); they've just cut out the middleman and are leasing subdomains directly rather than via third-party registrars.
Not entirely true; I'd argue it's closer to subleasing a part of the property they're currently leasing from an ICANN accredited registrar.
> they've just cut out the middleman
Quite the opposite! They've just introduced themselves as yet another middleman on top of the already existing middleman (there's still a value proposition to this, but it's not the same).
If you buy a gTLD domain through a registrar, your ownership of the domain is bound by the rules established by ICANN [1][2]. If you purchase an eTLD+1 [3] subdomain from omg.lol (as part of the offered services) you're not covered by [1][2] but instead by [4, Section 1.5 part B, Section 3.2 part A].
What this means is OP can arbitrarily shutdown their offering at their sole discretion and, as a result, you'll lose access to the eTLD+1 you've purchased (domain, email, all gone). However, if you purchase a gTLD domain through an ICANN accredited registrar, the registrar can't unilaterally do the same (even if the registrar implodes, you still own the domain and you can move it elsewhere).
The only real difference is that Verisign makes more money than omg.lol, hence they have more resources and incentives to not screw you over. That, of course, has incredible weight, and indeed I'd not trust omg.lol while I do trust Verisign.
That’s the main issue I see, they can stop the service at any time and then you’ll have no chance to get the subdomain back. You’re in a much better position with an actual second-level domain, because you can move the domain between service providers and registrars, and depending on locality you may also have actual legal rights to keep owning the domain.
Even for newer second-level domains like .lol and cool-looking ccTLDs like .io, the possibility that the registrar is going to end it, become unstable, or change policy is real. They’re marketing gimmicks.
The thing with a domain registration is that you know if you pay for ten years in advance, you WILL have it for ten years. With most SaaS, you have absolutely no guarantee this is going to be the case.
