The expressions niche and domain in the context of smart specialisation are closely linked. To put it in a nutshell, a promising niche in a business environment is the counterpart of a promising domain in the pursuit of knowledge and innovative ideas. This relationship is so close that the two expressions are often used as synonyms.
In other words, the word niche refers to market, while domain refers to human knowledge (scientific, technological, practice-based etc.). A market niche is a portion of user or consumer market that can be addressed by specific products or services. It is usually defined in terms of the profile of potential customers and their needs; meeting these needs is the goal of the firm identifying/occupying the corresponding niche.
The word niche carries implicitly the connotation of a small, haven-like part of the market, whereby the firm serving specific customers' needs through targeted, differentiated products, can be less exposed to low-cost, global competition. Of course, as all markets, also such niches are subject to change and require sustained innovation and business efforts by firms operating in them.
A specialisation domain is an R&D or innovation area characterized by distinctive knowledge. It can be defined either in terms of capabilities or technology or product functionality.
The existence of a specialisation domain is often a precondition for having the capacity to develop innovative products or services for specific market niches.
A smart specialisation field/area is about being able to effectively match knowledge domains with market potentials, possibly in view of a niche market. Knowledge alone does not necessarily generate per se economic value of the sort reflected in GDP or total welfare estimates. On the other hand, products with little knowledge content, usually cannot defend their niches for long, if at all, and fall back to the diminishing returns competition typical of undifferentiated, so-called 'homogeneous' goods. Smart specialisation fields are therefore often at the cross-section of different sectors, technologies or knowledge domains.