Domain Squatting vs Domain Investing

By Kevin Quia  |  Apr 25, 2022

Domain Squatting and Domain Investing - the two terms sound similar, don’t they? Yet we instinctively know that investing sounds a lot better than squatting. In fact, most of us have heard of domain squatting, also known as cybersquatting, and have come to associate it with wrongdoing (which you'd be right to do).

But you think of investing as being a savvy, responsible, and farsighted practice. Right again! So what’s the difference between the two activities, and how can we do the one and avoid doing the other?

Good questions; let’s start from the top.

What is Domain Squatting?

Domain squatting is the practice of claiming domain names to benefit illegally or unethically by the impact to other organizations or individuals. To be officious about it, the feds define domain squatting, or cybersquatting, as being the bad faith practice of registering and using the names with “the intent to profit from the goodwill of a trademark belonging to someone else.”

Let’s go back even further and review what a domain is: simply the name you choose for your website. For just three of millions of examples it’s Facebook.com, Amazon.com, or CNN.com. Incidentally, it’s not the same thing as a URL or Universal Resource Locator. The URL is the name of the individual page, not the site as a whole.

One way domain squatters hope to make money is by grabbing a website name before a more authorized party can try to register it. In the early days of the web, that might have meant registering your local bank’s name before your bank even thought of getting a website.

This blatant action was made more difficult with the advent of the Anti-Cybersquatting Consumer Protection Act (ACPA) in 1999. However, under this federal law, the proper trademark owners still have to bring suit against domain squatters. That takes time and money, so the hope of the squatter is that the other party will throw them a little (or a lot of) cash to go away.

Squatters can sometimes get around the ACPA by grabbing alternative versions of the company name, hoping to force a sale. Companies fight back by trying to register every conceivable version of the name.

Take JPMorgan Chase & Co. for example You can visit JPMorgan.com, JPMorganChase.com, and Chase.com, and they all belong to the sprawling banking entity. All of the websites have different content and look as though at least one motive was to keep squatters out.

In other cases, the legitimate company will simply buy up and register every version of the company name they can think of and redirect visitors to the one legit site.

However, domain squatters can squat in ways that can’t be so easily beaten. Consider Borders Bookstore, the defunct national chain. We don’t know its old domain name, but let's say it was Borders.com. A poorly run book enterprise might have tried to call itself Bourders.com or Boarders.com if either domain name was available at the time. If even a small fraction of the millions of web surfers hoping to visit the rightful business came to the squatter site by accident, the sketchy bookstore might have sold enough inventory to turn a profit on merchandise that might have been shoddy or overpriced.

Companies that have difficult names to spell will sometimes register close misspellings as well as the actual name as another way to block squatters.

So there you have it. The strategy of domain squatters is to cheat organizations or individuals who have a legitimate claim to the website name or to perhaps take advantage of misled customers. They’re the bad guys who disrupt e-commerce and the smooth operation of the internet in general.

So How Are Inventors Different From Squatters?

It’s mostly a matter of intent and opportunity. Whether you’re investing in gold, apartment buildings, or baseball cards, you hope to buy low and eventually sell high. Same with those who invest in domain names.

But isn’t that the same thing squatters are doing? They “invest” by registering a domain name at a very low price, with the expectation of eventually forcing the proper owner to buy it from them at an astronomical profit.

The difference is that an honest investor gets there before there is a legitimate party for the name. The investor, in other words, sees the opportunity before it exists, not to screw anyone. Here's how they do it.

Profiting by Owning the Generic

Here are just a few of the many leading (and honest) sales of domain names, with the sale price in parentheses:

Sex.com ($13,000,000)

Hotels.com ($11,000,000)

Diamond.com ($7,500,000)

Beer.com ($7,000,000)

Casino.com ($5,500,000)

Toys.com ($5,100,000)

These are just a handful of the examples available of outrageous profits made by honest domain investors. If you’d like to see a list of the 500 highest-priced domain name transfers, visit this Aftermarket page.

This type of successful domain investment activity doesn’t involve stealing anyone else’s name. These investors registered generic names — hotel, beer, diamonds, and whatnot — and waited for other entrepreneurs to discover how profitable such a site might be if marketed properly.

This strategy was especially attractive in the early days of the internet before search engine use became so common. Let’s say you have small children and are starting your holiday shopping. You might start your online venture by guessing that you might find some useful content at a site named Toys.com if such existed. And profitability in domain names is all about guessing where others are going to go online before they try to get there.

Check out our web page and you’ll see many examples of profitable generic domain name transfers even after search engines were established as the initial go-to by most of us.

And registering the generic name isn’t the only way to profit through domain investing.

What You Can Learn From Tesla.com

If you visit that site today, you’ll see that it’s owned by Tesla Motors, just as you might have suspected. But that wasn’t always the case. Until 2016, Tesla.com was owned by a Silicon Valley engineer named Stu Grossman. He certainly wasn’t cybersquatting.

Grossman had owned the Tesla domain name since 1992, years before the “other” Tesla was even founded. As a result, Elon Musk had to use the longer and less obvious name TeslaMotors.com. That is, until 2016 when Musk bought the simpler and more direct domain name from Grossman for $11,000,000.

Grossman had already successfully fought off a court challenge brought by another company with Tesla as part of the name. Obviously, the long-deceased inventor who originally owned the moniker didn’t need it back. So Musk could assume the judicial system wouldn’t get him what he wanted.

The original owner had landed on the name years before Musk had trademarked his own corporate name. Grossman said he just admired the innovative inventor, but regardless of his motive, he wasn’t out to defraud any individual or corporation. Nonetheless, he had an incredibly valuable parcel of digital real estate and was a highly motivated buyer.

He was a savvy investor with foresight, not a squatter. See the difference?

Domain Investors, Consider Aftermarket Your Primary Source for Buying and Selling Domain Names

Reach out to us. At Aftermarket.com, domain name brokering is our business. We help web domain investors buy and sell and strategize both activities. Our experience, expertise, and dedication are solely in connecting buyers and sellers with premium domain names that can turn a considerable profit.

Drop us a line here or send us an email at info@aftermarket.com. You’ll find us to be knowledgeable, responsive, and a great partner to work with.