This is something I get asked about by clients and business owners probably once/month on average, for the past several years. More often, I'm not exactly "asked" per se, but rather told about such efforts after the fact -- meaning that the person has already spent the money on new domain acquisition.
While the title of this article sounds fairly simplistic, the issue is actually much more complex. That's because there are many potential motivations for purchasing domain names -- many perfectly valid ones and probably a few that aren't so wise. So, let's look at some.
Common Motivations for Purchasing Domain Names
- Plans to develop a primary web site
- Plans to develop additional web sites for the business and/or mini-sites (e.g., each business unit or industry or niche might have its own distinct domain)
- Desire to use the domain for email
- Desire to use the domain for some other purpose (e.g., development, testing, staging, file server, utility server, etc.)
- Intention to use the name as a memorable shortcut to your site or pages deep within you site (e.g., you print "Visit XZY.com" on your print brochures, and when people type that in, they are redirected to a much longer URL at your main site like http://www.yourmainsite.com/services/industries/business-consulting/about-us.html)
- Desire to own a name potentially of business or personal value, but without specific plans for it at the moment
- Desire to own a really good keyword-loaded domain, but without specific plans at the moment
- Common-word traffic hopes (e.g., you obtain some very basic / common word or phrase in hopes of traffic from people randomly typing in that domain name)
- Old site domains -- purchasing old domains that are no longer used in order to capture their existing incoming links and traffic
- To prevent others from owning a particular name (e.g., because it's good, or potentially good, or perceived as a threat to one's business if it were acquired by others, etc.)
- Brand-watchdogging... (e.g., if you are widgets.com, you also want to own widgets.net, widgets.org, widgets.us, widgets.guru, widgets.everything)
- Hyper brand-watchdogging... (e.g., if you are widgets.com, you also register things like widgetssuck.com believing that this may limit options for critics who want to disparage your company). Obviously, you'll never stop an angry customer; don't waste time or money here.
- Belief in realizing an SEO benefit simply by owning a good name. Google doesn't care about your domain holdings. They're not going to rank greatwidgets.com just for the fact that the domain exists. Rather, they want good content on a real site.
- Belief in realizing an SEO benefit via simply purchasing and pointing another domain name to your main site. Similarly, even if you point greatwidgets.com to your site, Google's not going to start listing greatwidgets.com in the SERPs.
- Cyber-squatting (registering a trademarked name of another company and sitting on it in hopes to cash in on it). Good god, do NOT do this. (I know many are shaking their heads, but this is a commonly thought strategy. I get asked this all the time.)
So, there are at least 15 common motivations for purchasing domain names, and that's just off the top of my head. In reality, there are likely considerably more than that. Many are perfectly reasonable and legitimate; others probably not so much. Ergo, the answer to the main question posed by this post depends on one's motivation -- and even then it's perfectly arguable that the "answer" is largely opinion (at least some of the time).
As an indication, though, of my own answer to the above, I've color-coded the list (green = good, reasonable motivations; orange = okay, but be careful not to get carried away; red = IMHO, a waste of your time and money, with that final item being extremely bad form and potentially criminal).