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

The monetization of blogging can trace its roots to late 2002, when Google created a revolutionary system that allowed anyone with a website to run ads. The technology, called AdSense, matched ads with a site’s content. Each time a visitor clicked on a linked ad, the site’s owner got paid (a model now referred to as cost-per-click advertising). For the first time, anyone could be a real publisher with real advertisers, with no need for the big sales forces that magazines, newspapers, and other traditional media employ.

For do-it-yourselfers, however, the revenue stream created by AdSense in its early days was for the most part simply beer money. At the same time, display ads–the banners, buttons, and skyscrapers that had fallen into disfavor with the bursting of the Internet bubble in 2000–began to make a comeback on major destination sites such as Yahoo and MSN. Marketers pay for those kinds of ads based on a formula known as CPM, which stands for cost per 1,000 impressions.

The promise of these two Web advertising models whet the whistles of wannabe publishers, and among the first was Nick Denton. He bet that he could run sites as low-cost one- or two-person operations and offer advertisers ready-made, easily targeted niche audiences. He reasoned that he could eventually one-up automated systems by handselling display ads for his sites at premium CPMs. But to lure advertisers into uncharted blog waters, he initially gave away ad space for free.
Denton launched his company in New York in 2002 with the media gossip site Gawker and the gadget blog Gizmodo. Gawker Media now runs 13 sites, including such edgy titles as Defamer and Wonkette. Denton recently announced that he’s “battening down the hatches” and selling two sites, but his core properties are on a tear: Gawker Media sites clocked 66 million pageviews in June, more than double the traffic they saw a year earlier. Denton won’t discuss financial details, but industry experts estimate that Gawker Media will bring in as much as $3 million in revenue this year. Gawker Media’s average CPM is between $8 and $10; CPM rates on Google AdSense and competing automated systems are estimated at anywhere from 50 cents to a few bucks.

Another pioneer, Jason Calacanis, provided a big shot of momentum to the blogging-for-bucks phenomenon last October when he sold Weblogs Inc., his conglomeration of 85 sites, to AOL for a reported $25 million. “Everyone in the ad industry took notice after that deal,” says Mark Kingdon, CEO of Organic.