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Matt Cutts: Well first off let’s talk about what addon domains are because a lot of people haven’t heard that term before.

Suppose I have this site, mattcutts.com. An addon domain might be something that your webhost would offer you where it’s basically related; maybe it’s all part of the package deal where you can get matt-cutts.com. Typically an addon domain might have a connotation of being a separate site.

So, let’s talk through this a little bit. Suppose for example I have mattcutts.com. Maybe I also want to register a matt-cutts.com. My personal advice would be rather than developing those as separate sites I would actually make matt-cutts.com redirect to mattcutts.com.

The reason is that when you’ve got things that are really, really close, maybe only a hyphen is different or maybe mattcutts.net. A lot of people expect that to really be the same site. So if you’re doing an addon domain where you are registering multiple domains my advice would be twofold;

1. Either register domains that are really different so they have different branding, different domain name. You can tell at a glance that they’re really different, and then develop them as truly independent sites. Use different sorts of templates and layout, functionality and that sort of thing.
2. The other direction you can do is you can go ahead and buy the types of common aliases or the other things that you think someone might type when they are trying to type your domain name and make that do a 301 redirect to your website.

So this goes a little bit towards the idea of how many sites can I have before I start to look a little bit unusual or artificial or something like that? Certainly we’ve seen plenty of sites where they may have two or three different domain names. Maybe one is targeted to men’s clothing, one is targeted to women’s clothing, and one is related to children’s clothing.

You can have those and have those linked and have them still be separate and have them be branded a little bit differently and not have that seem too artificial. But think about what if a competitor was looking at your website and they saw a whole ton of links down in the footer, down at the bottom and it really was not that much differentiation between them; same template, same branding, it was just nothing but keyword stuffed domain names. That can look a little bit worse.

So whenever the question comes in about addon domains, I would interpret that in a couple of ways. First I’d say either make the domain names quite separate and develop them. Then as long as you have a very small set of domains that can still make sense to cross link them.

Or, make sure that all the typos hyphenated, different utilities, all that sort of stuff, just do a 301 redirect. For example Google sometimes gets pornGoogle, or we go through domain registration where we go through arbitration and get domain names that people registered with Google in them. Google will take those and just do a 301 redirect.
So that’s kind of a very comprehensive answer to your question and that if you want to do domain names as sort of a package deal I would either make them a little bit separate and develop them separately or, if they are very similar, go ahead and do a 301 redirect. Both can make sense.

The one thing that I would avoid is making a ton of sites where they are all auto-generated and they look just a little bit spammy because you’re not really putting any time or love or attention into individually developing those domains.