Blogging for big bucks
It's not just a hobby -- some small sites are making big money. Here's how to turn your passion into an online empire.
By Paul Sloan, and Paul Kaihla Business 2.0 Magazine

(Business 2.0) -- Michael Arrington is a partying kind of guy. While showing off his home in Atherton, Calif., he boasts about how he crammed 500 people into his one-acre backyard at a bash in February. Then there are the official parties, like the one he threw last Friday at August Capital, a nearby venture firm. Weeks ago, Arrington posted an open invitation on his website at 3 a.m. By sunrise, all 500 spots were taken; the onslaught of traffic crashed his site.

Arrington, a 36-year-old entrepreneur behind a long list of unrecognizable startups, has suddenly become one of the rising stars of Silicon Valley. Why? The answer lies in TechCrunch, Arrington's blog about new technologies and companies. In the year since he launched the site, he's become a go-to person for VCs and tech execs looking to leak corporate tidbits or announce news. More than 1.5 million readers regularly check out his site.

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Michael Arrington's TechCrunch has seen a 10-fold rise in revenue since the start of this year.

But here's what gives Arrington real distinction: He's pulling in $60,000 in ad revenue every month. That's 10 times what the site was making earlier this year, which was when Arrington, convinced of the potentially monstrous riches ahead, quit his day job as president of a startup to blog full-time.

Real businesses, real money

With Internet-like speed, blogs have gone from self-indulgent hobbies to flourishing businesses. Real businesses, with real revenue streams from real advertisers.

Boing Boing, a four-person operation that bills itself as a directory of wonderful things, is on track to gross an estimated $1 million in ad revenue this year. The digital-media news site PaidContent.org, headquartered in the second bedroom of a Santa Monica apartment, is set to post even more than that.

And Fark.com, a site packed with sophomoric humor run by a lone guy in Lexington, Ky., is on pace to become a multimillion-dollar property. In short, some of the most popular blogs, long the bane of the mainstream media, are themselves becoming mainstream.

What has changed? For starters, blogs today are so cheap to create and operate that a lone blogger or a small team can, with the ever-expanding reach of the Internet, amass vast audiences and generate levels of profit on a per-employee basis that traditional media companies can only fantasize about.

At the same time, advertisers - shunning old-line media in favor of the Web - are discovering the unique power of blogs. Blogs have become our guides to a content-saturated world. As such, their recommendations are highly valued by readers - which naturally has made advertisers take notice.

In recent months, big-name companies like Banana Republic and Coca-Cola (Charts) have for the first time run ad campaigns on blogs, in the belief that blog communities often consist of concentrated numbers of the passionate and influential people all marketers want to reach. Intel bought its first blog ad in March; now all its ads run on blogs as well as traditional outlets. Says Thom Campbell, head of media strategy for Intel (Charts), "The audience on blogs is the cream of the crop."

But before you quit your day job, consider that this isn't easy money, nor is it guaranteed to last. For one thing, the market is small right now: Web ad agency Organic puts ad spending on blogs at $40 million this year. Bloggers are typically selling only about a third of their available ad space at top rates. (The rest goes at heavily discounted prices.)

Still, the blogging-for-dollars phenomenon is only in its infancy, and already blog ad spending is roughly twice what it was last year. With overall Web advertising expected to grow by 50 percent to $23.6 billion in 2010, it's certain that more and more ad dollars will land on blogs.

For a growing cadre of bloggers, the opportunities to score fat profits from pumping out posts on whatever their particular passions might be are widening - and one consequence could be a radical reshaping of our notions of how to build a successful media company.

I'm with the band

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 (Charts) when he had an epiphany: 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.

Battelle figured he could 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 (Charts). and eBay (Charts) 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.

He has signed about 75 of the most popular bloggers of various stripes, and hopes to land a few hundred in all. FM's eight-person sales force has been aggressively approaching big marketers, armed with detailed and persuasive demographics.

And Battelle believes Fark.com, a collection of reader-submitted links to amusing videos, jokes, and curiosities from all over the Web, could become the most profitable site in mainstream blogdom. Already it vies with FM stablemate MetaFilter for the top spot in blog traffic rankings.

Any downturn in the economy and ad market will, of course, hurt bloggers. The sheer numbers of blogging-for-dollars artists charging into the game could also muddy the market and put pressure on ad rates.

Still, it's far easier to weather a downturn when your costs are next to nothing. Plus, many players are diversifying, even within the blogosphere. "I know that I'm riding the Web 2.0 wave," says Arrington. Now he's preparing for a day when the wave crests.

He just launched a gadget site and staffed it with a former writer for Gizmodo. He has plans for a gaming site and a site devoted exclusively to analyzing heavy-duty enterprise software. Even as he expands, however, he expects to keep his expenses - now about 12 percent of revenue - at no more than 30 percent. And occasionally there are bonuses.

With little effort, Arrington got dozens of sponsors, mostly Web 2.0 startups and VCs, to bankroll the party he held Friday at August Capital. So after a night of revelry, Arrington had pocketed an extra $50,000. Now that's something to blog about.

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This is an excerpt from a longer story that appeared in Business 2.0's September issue. *Click here* to read the complete version. Top of page

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Market indexes are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer LIBOR Warning: Neither BBA Enterprises Limited, nor the BBA LIBOR Contributor Banks, nor Reuters, can be held liable for any irregularity or inaccuracy of BBA LIBOR. Disclaimer. Morningstar: © 2014 Morningstar, Inc. All Rights Reserved. Disclaimer The Dow Jones IndexesSM are proprietary to and distributed by Dow Jones & Company, Inc. and have been licensed for use. All content of the Dow Jones IndexesSM © 2014 is proprietary to Dow Jones & Company, Inc. Chicago Mercantile Association. The market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. FactSet Research Systems Inc. 2014. All rights reserved. Most stock quote data provided by BATS.