It’s not just a hobby — some small sites are making big money. Here’s how to turn your passion into an online empire.

All the while, big-picture changes have been unfolding in the background, contributing to today’s blogging business sweet spot. By constantly improving its algorithms, for instance, Google engineers have made AdSense a far more powerful placer of more-varied and better-targeted ads; AdSense alone is expected to generate sales of $4 billion this year.

At a more fundamental level, the Web has become deeply embedded in our daily lives, for business and pleasure, in ways no advertiser can ignore. Today 71 percent of American households have Web access; Americans ages 13 to 24 now spend more time online than they do in front of the TV. As for blogs, they’ve exploded: There are 50 million of them, and two new ones are launched every second, according to blog search engine Technorati. To some experts, all these developments mean but one thing. “This time, Web advertising is for real,” concludes Karen Francis, CEO of San Francisco-based ad agency Publicis & Hal Riney. “And marketers are all looking for new opportunities online.”

Trying to provide those opportunities has become the mission of a host of would-be blog entrepreneurs. John Battelle, a founding editor of Wired magazine and the creator of the now-defunct Industry Standard (as well as a freelance columnist for Business 2.0), was working on a book about Google when he had an epiphany: Where mainstream publishers were spending a fortune buying subscriber lists and shoving subscription cards into magazines, bloggers were building huge audiences for free. Yet even popular bloggers couldn’t make a living full-time; existing networks like Google and BlogAds weren’t paying enough.

Unlike Denton, Battelle had no interest in owning sites. He figured he could simply peruse the blogosphere and analyze Web tracking data to find out which bloggers were already generating heavy traffic, and then serve as a middleman between them and advertisers. He launched his startup, called Federated Media Publishing, last fall with seed money from the New York Times Co. and eBay founder Pierre Omidyar.

Battelle compares FM’s model to a record company. He and his team are the band managers; the bloggers are the bands. The key difference is that bloggers own their content, earning 60 cents of every ad dollar. Like a band manager, FM works closely with its acts, yet ultimately it’s up to the bloggers to keep pumping out material. “If they stop writing, the ads go away,” Battelle says. He has signed about 75 of the most popular bloggers of various stripes and hopes to land a few hundred in all. His authors range from tech-oriented guys like Arrington and Om Malik, who writes about telecom on GigaOm and just left his full-time gig with Business 2.0, to Heather Armstrong, whose deeply personal Dooce site is bringing in enough money to allow her family to live comfortably. Her enterprise has a staff of two: Armstrong and her husband. FM’s eight-person sales force has been aggressively approaching big marketers, armed with detailed and persuasive demographics. The data has helped FM steadily boost ad rates on its sites. The average CPM doubled in the past six months to roughly $8. The aim is to get rates between $20 and $30, which, Battelle says, would put his blogs on par with sites like CNET and NYTimes.com. But thanks to the uneconomies-of-scale twist, overhead at FM sites like Boing Boing, Battelle’s top act, is almost invisible compared with that of any mainline media concern.