Previously, we explored how to acquire an existing domain name or choose a good one to register. You can get a domain for a new project, but you can also buy one and resell it later, without building a website or utilizing it in any way. This practice, known as domain investing, has been around for years, and with the right strategy and a bit of luck, you can make good money by buying and selling domain names.

In this article, we will look at the differences between domain investing and a similar practice – cybersquatting. Both involve buying and selling domains, so it is important that you know the difference to make sure that you operate within legal boundaries if you decide to start such a business.

• What is domain investing
• Is domain investing worth it?
• Where to buy and sell domains?
• Useful domain investing tips
• What is cybersquatting?
• What are the consequences of cybersquatting?
• Why does cybersquatting still exist?
• Wrap-Up

What is domain investing

Domain investing, also known as domaining, is the practice of buying domain names with the intent of holding them for a period before selling them for a profit. You can do that with a single domain, but some domainers manage extensive portfolios that contain hundreds of domains.

Investors typically focus on generic, brandable domains that hold some value and appeal to entrepreneurs launching new projects. They avoid trademarks or any terms that could lead to legal complications.

Unlike cybersquatting (or domain squatting), which we will discuss below, domain investing is a legal and ethical practice. Investors set fair market prices, based on factors such as industry trends, demand, and historical sales. They serve as partners to businesses and continuously adjust their pricing strategies.

Is domain investing worth it?

There are hundreds of thousands of domain investors and millions of successful sales across all marketplaces. While domains can sell for as little as $20, the average sale price usually falls within the range of several thousand dollars. In some cases, premium domains have been sold for hundreds of thousands of dollars or more. These figures highlight the profitability of this market.

There are different investment strategies. Some domain investors prefer quick flips, while others hold valuable domains for a long period, waiting for the right buyer. Some prefer high-volume trading with smaller profit margins, while others sell a few premium domains for a significant price.

If you decide to become a domain investor, you have to choose the strategy that aligns with your budget and time commitment. You should also decide whether to use marketplaces, or to focus on direct outreach to potential buyers.

Where to buy and sell domains?

There are different ways to acquire domain names. If you prefer to register brand new domains, you can use any domain registrar that supports the extensions you need. If you are looking to purchase existing domain names, you can explore domain marketplaces such as Sedo, Afternic or NamePros, where thousands of domains are listed for sale.

When it comes to selling domains, you can list your domain portfolio on these same marketplaces. Another option is direct outreach, where you can proactively contact potential buyers. This approach carries some risk, though. Unsolicited offers may be perceived as spam/scam and could be ignored.

Useful domain investing tips

If you decide to become an ethical domain investor, following best practices can help you stay on the right side of the law and even increase the price of your domains. Here are a few key tips:

• Avoid trademarked terms. Acquiring domains that contain trademarked terms can lead to legal disputes and/or lawsuits. Additionally, reselling such domains through legitimate channels will be almost impossible. This is why, it’s best to steer clear of any trademark-related risks.

• Focus on generic and brandable names. There is always demand for short, keyword-rich, and brandable domain names. Consider exploring new gTLDs and domain hacks to find valuable options. A strong domain will appeal to a wider range of potential buyers.

• Do your research. If you decide to buy an existing domain name, check its history for potential issues. Make sure it doesn’t contain any trademarks, and it hasn’t been used for sending spam or distributing malware, for example. There are lots of online tools you can use to analyze a domain’s background, many of them free.

• Provide additional value to buyers. You can make your domains more attractive by adding landing pages with relevant content. Another option is to offer bundled domains at a discounted price. Enhancing the perceived value of your domains can lead to higher sales prices.

What is cybersquatting?

Cybersquatting, also known as domain squatting, is the practice of intentionally registering domain names that include trademarks (or closely resemble them) to profit from the established brands. These domains are often identical or confusingly similar to well-known company/brand names or even personal names.

Cybersquatters typically sell the domains at highly inflated prices or attempt to deceive buyers into believing they are purchasing an official domain. They may also target trademark owners, pressuring them to buy the brand-related domains. There are several types of cybersquatting:

• Trademark infringement. This is one of the most common forms of cybersquatting. It involves registering domains that are identical to an official domain of a brand/trademark, but with a different extension, or domains that incorporate a trademark within a longer phrase (e.g. CheapNikeShoes.com). Sometimes these domains are used to create fake websites that mislead customers.

• Typosquatting. This form of cybersquatting exploits common typing errors made by users when entering a domain name. Cybersquatters register misspelled versions of popular domains.

Yahoh.com, for instance, closely resembles yahoo.com. However, in this case Yahoo has proactively registered the misspelled domain to protect its brand. In fact, it is forwarded to the official Yahoo.com domain.

Another popular example is gamil.com, which appears to be a mistyped version of Gmail.com. Many users accidentally visit this website, assuming it is Google’s email service. However, Gamil.com was registered in 1998, six years before Gmail’s launch, meaning it wasn't registered in bad faith.

• Expired domain squatting. When a domain name is not renewed on time, it expires and eventually becomes available for registration. Anybody can register it at this point and some individuals monitor and acquire such domains. There are several motivations behind this practice - to capture and monetize the existing traffic the domain previously had, to impersonate a legitimate business/organization, or to try to sell the domain back to the original owner at an inflated price.

• Name jacking. This is a common form of cybersquatting, which is very similar to trademark infringement. Cybersquatters register domain names based on famous people’s names and try to either sell them or profit from them in other ways. Proving that such a domain has been registered in bad faith can be challenging.

What are the consequences of cybersquatting?

Cybersquatting is unethical and, in many countries, illegal. To combat this practice, laws such as the Anti-Cybersquatting Consumer Protection Act (ACPA) in the United States and the Uniform Domain-Name Dispute-Resolution Policy (UDRP) by ICANN have been implemented. The World Intellectual Property Organization (WIPO) is a United Nations agency that oversees domain disputes under the UDRP framework.

Despite its appeal to some people, cybersquatting comes with significant risks. In most cases, trademark holders acquire the domains that incorporate their trademarks. Here are a few reasons why cybersquatting is a bad idea:

• Legal risks. Trademark holders can open a UDRP dispute at any time to challenge a domain registration, but they can also pursue legal action against cybersquatters. The risk far outweighs any perceived benefits, especially in countries with strict laws on this subject.

• Financial risks. A lawsuit for cybersquatting can result in substantial financial penalties (up to $100,000 per domain in the US, for example). Additionally, the expenses for registering and renewing multiple domains can add up quickly.

• Damage to reputation. Nobody considers cybersquatters to be trustworthy partners or legitimate domain investors as they try to extort people or companies. Even if they decide to transition to legitimate domain investing at some point, it will be very hard to build relationships with potential buyers.

• Ethical issues. While some people may not be concerned about it, cybersquatting is inherently wrong. It is widely regarded as an unfair practice, and it offers no long-term potential.

Why does cybersquatting still exist?

Despite legal frameworks and potential risks, cybersquatting remains a persistent issue. There are various reasons for that. Both ACPA and UDRP require that companies file legal complaints, which often take a lot of time and money. Sometimes, businesses find it more practical to pay cybersquatters rather than engage in lengthy legal battles. Even if a company pursues legal action, cybersquatters can simply drop the disputed domain and register another one. Enforcing decisions across international jurisdictions also poses a significant challenge.

The constantly increasing number of generic top-level extensions provides cybersquatters with more opportunities to register variations of popular brands or names. In addition, many of these extensions support privacy protection, making it harder for trademark owners to track down cybersquatters and take action against them.

Completely eliminating cybersquatting is nearly impossible, but it can be significantly reduced with stronger regulations, better enforcement mechanisms, and proactive brand protection, although the latter can be costly for companies due to the sheer number of domain extensions. Nonetheless, measures can be taken at the registrar level. Some companies also use AI to detect cybersquatting attempts.

Wrap-Up

To many, domain investing and cybersquatting may seem very similar – both involve acquiring domains and selling them for a profit. The key difference between these two practices lies in intent and legality. Domain investing is a legitimate business, which involves buying and selling valuable domain names legally and responsibly. In contrast, cybersquatting is often illegal, and it seeks to exploit established brand names, forcing businesses to pay or to engage in legal battles. Understanding these differences can help you to engage in ethical domain trading and to avoid potential legal consequences.