It used to be in the “old days” of the Web, domain name speculators and cybersquatters would sit on desirable or trademarked or typo domain names and demand ridiculous prices. Selling a domain name for orders of magnitude more than you paid for it was the ultimate goal.

These so-called “domainers” are playing a different game now. Instead of selling, they’re BUYING. They’ll even shell out tens of thousands of dollars if the projected amount of type-in traffic warrants it.

I sold the domain countryinn.com last year for low five figures after playing hard-to-get for several weeks. I refused the domainer’s original offer and he kept coming back, eventually doubling his initial offer.

I did not know the buyer was a domainer when I sold the domain. It wasn’t until I saw the “site” that he put up on the domain after he took it over that it dawned on me. Before that, all I knew was that it was someone out of South Korea. At the time I thought a cash payment in the low five figures was a pretty good return on my investment on a domain name that I had bought for $500 a few years earlier from a former client who didn’t want it anymore.

Boy was I wrong. After I read the article in Business 2.0, “Masters of their Domains, I felt like a total SUCKER. That was because I realized that the domainer would make his money back in probably just a few months, by monetizing the type-in traffic through Google AdSense ads and affiliate links. Then forevermore the domain will be a nice little annuity for him. As Business 2.0 describes it:

….it’s all about the income stream. A single good domain name–Candy.com, Cellphones.com, Athletesfoot.com–can bring in hundreds of dollars a day, in some cases while the owner hardly lifts a finger. Schwartz, for instance, directs his traffic to one of the many small companies that serve as go-betweens with Google and Yahoo, the two giants that make this all possible. The middlemen, known as aggregators, do all the heavy lifting, designing the sites and tapping into one or the other of the search engines’ advertising networks to add the best-paying links.

After acquiring the domain from me, the domainer put up a pretty lame “site” at countryinn.com, powered by one of the aggregators. Heck, the home page doesn’t even have a title tag! How lame is that! But of this I have no doubt: it’s making him money while he sleeps.

This is such big business, and here I was, absolutely CLUELESS about it. Of course that’s what the domainers rely on, that the seller has no idea of the money-making potential, and thus the true value, of the domain they possess.

Frank Fleischer, who runs the site breeders.NET, also owns the domain breeders.com. Frank received two phone calls last week from someone who turned out to be a domainer. In the first call the domainer offered an amount in the mid five figures. Sounds like a pretty sweet offer, eh? Well, after considering what I and some others had to say about the business of domain name buying and selling, he’s decided to keep the domain and make the most of it himself. A wise decision.

The dirty little secret is that the search engines are a party to this seedy industry. They don’t like to talk about it, but all this type-in traffic is lining their pockets BIG TIME:

No one knows for sure how much Web traffic comes from type-ins, and Google and Yahoo execs won’t discuss it. But privately, during one of the late-night parties at the Traffic conference, one Yahoo official estimates that type-ins could make up 15 percent of its search business.

The engines even wine-and-dine the domainers and go out partying with them. The Business 2.0 article regales us with the story of 14 Yahoo executives at a trade show for domainers called Traffic and how they all piled into a stretch Hummer with a few of the domainers and headed off to a Gentlemen’s Club to hang out in the VIP section complete with plush booths and red velvet curtains. I wonder if the IRS considers lap dances as expensible items?