The .co domain rolled out last week as a replacement URL for .com. And startup execs and investors, such as Tim Draper, among others, are tickled pink that new tech companies will have a range of credible and easily recognizable domain names that fit their online business or branding needs.

Says one source: “It’s nearly impossible for anyone to secure a marketable .com for their company, so they wind up with things like Dipseydoodle.com, which can impact credibility, sales, brand recognition and retention.”

Absolutely, says Chris McCann, co-founder of Startup Digest, a Palo Alto, Calif.-organization that organizes events for entrepreneurs.

McCann says that the domain startupdigest.com was already taken by a squatter when he went to register it. Instead of buying it from the other user, his organization instead registered thestartupdigest.com.

“For a startup, the choices you have are to come up with a name no one has, the dipseydoodle.com effect, is to pay off a squatter to secure a domain name or use a different extension, such as .net .org .cn,” McCann says. “Yes, available .com domains are definitely a problem for new and old companies, but at least for now it is the standard. It will be interesting to see if .co does get taken up as a real secondary choice.”

Yes, whether .co catches on remains to be seen. But Miami-based .CO Internet S.A.S., the registry operator for the .co domain, has been marketing the availability of .co since the new domain was announced in February. The organization reports that more than 39,000 applications have already been filed during a “Landrush” phase in which those wishing to secure early access to a .co domain name were able to do. In addition, more than 2,500 applications are scheduled to be settled at auction over the next several weeks.

Among those who have already registered for a new domain is the real-time Twitter search engine Chainn Search–not to be confused with the automotive tire company Chain Search–which has registered now.co. Also, VentureWebPartners.com, a DFJ Frontier investment, is now at VWP.co.

Also, the discount online shopping site Overstock.com announced last week that it purchased the registration rights to the domain name O.co from .CO Internet for $350,000. Not only will the single letter website domain be handy for the Internet company’s branding efforts, but it will also be a handy shortcut for users on desktops and mobile devices.

Overstock.com Chairman and CEO Patrick Byrne said in a prepared release: “In the new era of the Internet, where short and memorable Web addresses are critical for capturing the attention of mobile and socially connected Internet users, our O.co address will help to reinforce our brand and expand our business among these audiences.”

Supporters say that .co, once the Internet domain of Colombia, is a good replacement for .com, unlike, say, .biz or .org, because it’s similar to .com and “co.” is recognizable as an abbreviation for “company.”

Among those involved with the effort is Naval Ravikant, founder of Epinions and a Silicon Valley-area angel investor who has backed Twitter, Foursquare and Y Combinator.

Ravikant says that the shorter .co will be great for URL shortening, such as in the case for Twitter, the San Francisco-based microblogging site, which is registered now at T.co and is using the new domain for its URL shortening service similar to those of Bit.ly and TinyURL.com.

However, as the Los Angeles Times reported last week, Ben Huh, the CEO of the humor site Cheezburger Network, is concerned that the new .co domain just opens up new avenues for squatters to earn an easy buck. The “.co domain is yet another reason to be screwed by domain squatters,” Huh wrote in a recent tweet (@behuh).

Ravikant, however, emphasizes that .CO Internet is doing its best to legitimize registrants so that squatters don’t take hold of well-known trademarks.

Accredited sellers of the domain include GoDaddy.com, Register.com, Network Solutions, eNom, InternetX, Dotster, Melbourne IT, OpenSRS, My.co and Dominio Amigo.

“For all intents and purposes, the .com reservoir is empty of meaningful domains,” says Draper, co-founder and managing partner of Draper Fisher Jurvetson. “It’s a constant struggle, especially for startups, to find a credible domain name that best describes their business or product. For years, many companies have been forced to name their company based on what URLs were available, and then spend millions of dollars to educate their world that names like Afloxis, Bivly or Zoopr really stand for something else.”