Domain Tasting: Hard to Swallow

Domain tasting and domain kiting have been highlighted by the press lately. They’re the bane of trademark holders, though they don’t always have to be. If you’re wondering what these practices are, why they’re so profitable, and whether you need to worry about them, keep reading.

Domain tasting is the practice of registering a domain for a very short period of time, loading it with pay per click ads from the major search engines, and seeing whether the return on investment is worth paying to keep the domain. If it isn’t, domain tasters (also called “domainers”) return the domain for a refund; if it is, they pay the $6 registration fee to keep it. Domain kiters don’t even pay the fee; they return the domain, then instantly re-register, in effect creating a continuously registered domain for nothing.

Both domain tasters and kiters typically register large numbers of domains at one time (on the order of thousands or more). The International Corporation for Assigned Names and Numbers (ICANN) has noted that five million domain names are registered every year – and of these, only about one percent are registered with the serious intent to keep that particular domain and build a web site, rather than just “taste” it.

It wasn’t always like this. Back in 2000, right around the time the web bubble burst, ICANN instituted a “grace period,” giving everyone who registers a domain name five days to decide whether they want to keep it; if a domain registrant changes their mind during that period, they can return the domain name for a full refund. At the time, most people had become somewhat disillusioned with the web, but early domain tasters worked on registering domains that were generic and generated type-in traffic with names like lionsandtigers.com or musclecars.com. These sites could generate traffic and eventually be sold for respectable sums of money.

At the time it took a while to find out whether these sites were worth keeping (registry root zone files were updated only every 12 hours). VeriSign went after this era’s domain tasters to stop what it considered an abusive practice; by 2002 it had tapered off. So why is it garnering attention again?

The landscape changed a bit in late 2004. At that time, VeriSign started allowing domain names to go live almost right away rather than having to wait up to 12 hours. Also, traffic on the Internet had increased significantly. Between those two factors, domain tasters could find out more quickly whether a particular domain name yielded a good return on investment. So the modern era of domain tasters could register lots of domain names more quickly, and delete them even faster in the hopes of flying under the radar of registries and registrars.

By this time Google’s AdSense and AdWords programs were in operation, which made domain tasting even more profitable. This let domain tasters keep even more of the domains they had registered than before. More domain names being held onto meant more money in the pockets of VeriSign and other registries, because more domain name registrations went past the grace period and were actually paid for by the registrants. So VeriSign and other registries (and ICANN, for that matter) were a little less inclined to discourage this generation of domain tasters.

But these domain tasters work a little differently. Large scale commercial registrants register domain names based on queries put into search engines, and many of these include a trademark of some kind. At the same time as domain tasting became more popular, so did phishing – con artists setting up web sites designed to look just like another site (usually of some kind of financial institution) in order to lure victims into giving them information which they could use for purposes of identity theft. In response to phishing issues, many firms hired trademark monitoring services, which then found tons of domains that were variants of their clients’ trademarks. Naturally, they assumed that they were phishing sites, at least at first. This is one of the reasons domain tasting is controversial (more on that in a bit).

In any case, there can be little doubt of the profitability of domain tasting these days. For example, some tasters don’t keep their domain names, but sell them. An article in Times Online noted that the “secondary market for domain names, which incorporates both the sale of popular names and the advertising revenues they bring in, is thought to be worth several billion dollars worldwide.” When you consider that the practice entails no risk, it’s no wonder that the number of domain names being sampled on any given day have gone from 100,000 in late 2004 to around four million today. Those numbers come from Jay Westerdal, CEO of consulting firm Name Intelligence Inc.

Some have argued that domain name tasting is a simple consequence of the open market. As Frank Schilling has pointed out in an article on the history of domain tasting, “It is conceivable that even at this late stage anyone can register 100,000 domain names and keep 20 or 100 generic defensible names with organic traffic that have somehow slipped between the raindrops undetected until now. It is also conceivable that those names will have a secondary market value in the thousands or tens of thousands of dollars.”

Arguably, from that point of view, domain name tasters are simply tapping into a value that’s already there. They’re getting more out of it by loading the domain name with advertising that helps direct the web surfer to what he or she was looking for anyway, of course – and advertising from search engines gives the practice an added incentive. Indeed, that added incentive is so lucrative that there are whole companies engaged in the practice of domain tasting.

Take Maltuzi Holdings. That name is practically a curse to anyone who tries to register a domain name by first checking Whois to see whether it’s taken. Google “Maltuzi Holdings” and you’ll read all sorts of reports of people who checked Whois for one or several domain names, then came back later (sometimes as little as an hour later) to register an unused name, only to find out that Maltuzi Holdings had beaten them to the punch. Maltuzi owns more than 100,000 domain names and sees its business as akin to real estate. “In simplest terms, this is no different than acquiring an apartment building for rental income…” it states on its web site.

Some executives at domain tasting companies even argue that they provide a service. They point out that a company can buy an ad on their page that redirects web surfers to the site they were really looking for if they arrive at the domain taster’s site because of a typo. The reputable ones supposedly negotiate to hand over domains that involve trademarks to the trademark holders when they are informed of the issue, but nothing I have read bears this out in practice.

As I’ve mentioned, VeriSign has been disinclined to clamp down on the practice of domain tasting. ICANN claims that it is not its place to unilaterally change the policy. Tim Cole, chief registrar liaison for ICANN, says that its constituents should make a proposal to change the policy, at which point the organization’s board of directors will look into modifying it. “We’re definitely taking action to inform the community about the issues involved, and it’s up to them to decide what they want to do,” he said. Those aren’t hollow words. The ICANNWiki is independent from ICANN itself, but does a good job of keeping the ICANN community informed; it includes excellent resources for those looking for information about domain tasting.

Domain tasting has even inspired a lawsuit. In June 2006, Neiman Marcus Group brought a federal suit against Dotster, charging that the domain name registrar engaged in the practice and targeted companies such as Google, Playboy and Walt Disney. Verizon lawyer Sarah B. Deutsch is also steaming about the practice, which is hardly surprising since her company is often a taster target. A Business Week article quotes her as saying that “Tasters aren’t adding anything to the Internet but instability,” but does not mention whether her company plans to sue.

It may take some kind of concerted action to change the status quo. For example, VeriSign believes that the five-day grace period can sometimes be legitimate, though it doesn’t support any abuse of it. In the meantime, VeriSign critics point out that the float from all those $6 fees piles up even when they’re eventually refunded. Additionally, the registry launched an expensive new service that in part helps companies protect their brand against tasters and similar threats. A true cynic would point out that VeriSign is actually profiting from domain tasters.

Still, now that large companies are pressuring ICANN and VeriSign, we may see some action. Some have proposed a nominal “restocking” fee when a domain name is returned. I’ve seen proposals for the fee to be as low as two cents to as high as a quarter. The point isn’t to make it impossible to take advantage of the grace period for companies just starting out, but to make it less profitable (and more risky) for domain tasting companies to buy up hundreds of thousands of domain names and then return the ones they don’t want to use. As one reader of the aforementioned Business Week article commented, “How do you stop tasting? By making the experience very bitter.”

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