Domain Name with that Latte?
Starbucks founderâs VC firm hedges its Internet bets.
May 2, 2007
By Leah Messinger
Is Starbucks chairman and founder Howard Schultz a typosquatter? Or is he a typosquasher?
Apparently, heâs both. Mr. Schultz, through his venture capital firm, has made a strategic investment decision that is rare, if not unprecedented. He put money into two companies with opposing missions: one that promotes so-called typosquatting, the buying of Internet domain names that closely resemble big brand names, and another that combats it.
It is extremely unusual for a VC firm to invest in two companies with such seemingly opposite goals, according to National Venture Capital Association vice president of research John Taylor. âIt wouldnât make a whole lot of sense for them to try to build a company that would be at direct loggerheads with the first company,â he said.
Mr. Schultzâs venture capital firm, Seattle-based Maveron, and H. Ross Perotâs investment arm last month plowed $38 million into iREIT, a Houston-based company that has been accused of typosquatting by telecom giant Verizon. But earlier this year, Maveron also invested in Aliso Viejo, California-based CitizenHawk, which makes software that helps trademark holders identify typosquatters and initiate legal action against them.
No one knows for sure how big the typosquatting market is. Groups like iREIT make money by purchasing domains in bulk with the hopes of selling highly coveted names for huge profits. In 1999, Marc Ostrofsky, a co-founder of iREIT, sold business.com for $7.5 million. Typosquatters can also cash in by selling click-through ads on these sites. Some estimates suggest typosquatting costs trademark owners millions, or even billions, of dollars in lost traffic and advertising.
Mr. Schultz declined to talk to Red Herring, but Maveron co-founder Dan Levitan said he didnât see a contradiction between his firmâs investments. He said iREITâs core business was to purchase and monetize generic domain names such as bands.com and officesupply.com. All told, iREIT owns more than 300,000 domain names.
He argued that iREIT did not intentionally seek out misspelled domain names, but rather, has acquired them inadvertently when it purchased domains in bulk. âIn the process of aggregating a domain portfolio, we have purchased names in large quantities and have systematically weeded out the undesirable ones,â said Mr. Levitan .
He noted that iREIT has worked with trademark owners to resolve infringement claims and that, in the past, the company has simply dropped domain names or transferred them to the trademark owner.
But Verizon sees things differently. The company in March filed a lawsuit against iREIT, alleging that it had âregistered over ninety domain names which are confusingly similar to the Verizon marks,â including verisonwirelss.com and verisonsuperpages.com. Sarah B. Deutsch, a Verizon vice president, said that as news of the lawsuit became public, iREIT appeared to transfer its Verizon-like domain names to anonymous accounts in the Cayman Islands. iREIT declined to comment for this story.
CitizenHawk, Mr. Schultzâs typosquashing investment, said it has worked with iREIT to help cleanse its portfolios of domains that closely resemble brand names but CEO Graham MacRobie acknowledged that iREIT has some âserious issues.â He also acknowledged that Maveronâs investment strategy is a bit unorthodox. âWe think it certainly raises eyebrows,â he said. âItâs actually very prudent on Maveronâs part and on iREITâs part.â
In an interesting twist for Mr. Schultz, attorneys familiar with the Verizon case pointed out that iREIT previously owned at least 13 Starbucks-related names, including astarbucks.com and starburcks.com. Attorneys said that after Maveronâs investment in iREIT gained attention, the company gave up those domains. They were then bought by typosquatters such as Unasi and UltraRPM, which industry experts claim are a more malicious breed of squatter.
Perhaps Mr. Schultz should stick to Frappuccinos.