Hot Stock Industry For 2005 will be: The Internet  Again.

The Internet content field got plenty of attention the last six months. The reason? Google, Google and more Google.

The Web search company's $1.6 billion initial public offering brought more publicity and investor attention to the sector than it's seen since the dot-com boom.

Google took the unusual step of selling shares via an Internet Dutch auction. It launched the bidding with a price range of $108-$135 a share. A few days later the company dropped the range to $85-$95 a share. It then debuted with an offering price of $85.

The shaky start didn't scare off investors. Today the stock trades around 138 a share.

Search companies like Google, Yahoo, Ask Jeeves and InfoSpace are among the strongest firms in the Internet content sector. Other top performers include research company Jupitermedia and Shanda Interactive Entertainment, a Chinese online games company.

Profit took a back seat to growth during the dot-com boom. These days, the industry's top companies are in the black. They include Google, Yahoo, Jupiter and Shanda. (For more on Jupitermedia, see story on this page.)

Others such as online news company CNet Networks have posted a few profitable quarters, but aren't out of the red just yet. Homestore, which helps buyers find homes, is expected to squeeze out a small profit in the fourth quarter.

Other companies are further away. LookSmart, another search company, isn't profitable. Neither is eDiets.com, which provides health information to dieters, or Edgar Online, a source of financial information.

What's more, only 18 of the 39 companies in the group are trading above 10 a share.

Internet content is growing, but many companies are still diamonds in the rough - at best. "So far, it's kind of spotty in terms of where the successes are," said Martin Pyykkonen, analyst for investment bank Janco Partners.

1. Business

Most Internet content companies operate on ad dollars. That includes search firms like Google, FindWhat.com and Ask Jeeves. News sites such as CNet, iVillage and TheStreet.com also are supported by ads.

There are Internet companies, however, that make most of their money selling content.

Edgar Online, for instance, sells subscriptions to its vat of financial information, including public filings.

A few companies get their revenue from multiple businesses.

Yahoo, for example, sells advertising, but also gets revenue from content - including online personals and Internet access services.

InfoSpace, another search company, operates a wireless division that sells cell phone ring tones among other services.

Name of the Game: Ads remain key to the industry. It needs ways to build other kinds of revenue. Google, which gets 95% of its revenue from ads, is working on several plans to generate new sales.

2. Market

The field owes much of its recent revival to renewed faith among advertisers.

U.S. sales of online ads are expected to reach $16.1 billion in 2009, says Jupiter Research. That's up from $2.1 billion in 1998.

The primary reason for the resurgence? Paid search. With paid search, advertisers pay to have their company name appear in lists of search results.

Unlike other ads, advertisers pay only when a consumer clicks on their listing.

The market for paid search - the main staple of revenue for companies like Google - is growing fast.

By 2009, U.S. spending on paid search advertising is expected to reach $5.5 billion, up from $1.9 billion in 2003, says Jupiter.

Paid search helps advertisers spend their money efficiently - and better track their efforts.

"There's a real focus by advertisers to insure that dollars spent have return on investment," said David Garrity, analyst for investment bank Caris & Co. "They know the person doing a search is already looking for (a product), so it's not like a magazine ad where you don't know who is going to see it."

The market for selling content also is increasing. Paid content services run the gamut - from online dating and games to music and financial information. Most services are available by subscription.

Some companies sell content piecemeal. Apple Computer, for example, sells digital downloads of songs for 99 cents each.

In 2003, paid content revenue amounted to $1.6 billion, up 18.8% over the prior year, says the Online Publishers Association.

3. Climate

Most analysts agree that Internet content is hot.

One reason? More people are online. Better than 75% of U.S. residents use the Internet vs. 66.9% in 2000, says a new study by the University of Southern California.

But not all Net content companies are the same.

Edgar Online, which isn't profitable, sells subscriptions to financial information that is widely available for free on company Web sites. That's a major flaw in the business model, says Pyykkonen.

"Why would I go there and pay for content that I could get on a company's Web site that they are required to put there?" he said.

Investors haven't shown much interest in LookSmart, another search company. The stock trades near 1.50 a share.

It isn't profitable and doesn't have the same consumer loyalty that other search engines enjoy.

Advertisers could spend less to advertise on LookSmart, but it likely wouldn't be worth it, says Pyykkonen. "It's one of those things where the strong gets stronger because of the reach," he said.

The growth of high-speed Internet access has helped boost Web content services. Speedy Net access makes it easier to watch video or download music online.

So far, online dating is the leading paid content service, but the growth is leveling off.

Increased broadband use means more downloads of music, movies and games, says Michael Zimbalist, president of OPA.

"As people get broadband and then you spend more time with stuff that's fun and relaxing - that plays into these trends," he said.

4. Technology

Yahoo, Jeeves, Google and others are scrambling to improve their core search services.

The latest gambit is local search, which helps consumers find goods and services close to where they live.

Google also is working on building new revenue sources. One example is the company's online shopping service called Froogle.

Other companies are getting into the act. AT&T Wireless offers a service that lets consumers download songs to a cell phone.

Companies aren't standing still, says Jonathan Hurd, analyst for Adventis, a consulting firm.

"There is a lot of activity right now," he said. "A lot of companies are trying new innovations."

5. Outlook

The Internet has emerged as a full-fledged advertising medium.

Consumers prefer to find information about products and music online vs. in magazines, says a recent OPA survey.

"Experienced Internet users are watching less TV and spending less time with newspapers and magazines," said OPA's Zimbalist.

Internet content companies are also attracting more venture fund investing.

In the first half of the year, Internet content and e-commerce companies in the U.S. received $591.6 million in financing. That compares with $984.7 million for all of last year, says the National Venture Capital Association.

Upside: Search companies likely will continue to flourish. Consumers and advertisers have come to rely on search engines to find and promote products.

Other content sites like CNet are slowly becoming profitable because advertisers are getting the message that many have specific audiences, says Garrity.

"If you can add a sufficient amount of (content) depth, you can start getting advertiser interest," he said.

The continued rollout of speedy broadband Internet service also will help content companies sell more video ads, programs and other media online.

Risks: A shakeout could be coming to search companies. In addition to the publicly held search firms, a crop of young upstarts looks to top Google.

Successful Internet content firms, meanwhile, are seen by some as the flavor of the month. There's no guarantee that what sells today will sell tomorrow, says Heidi Roizen, managing director for Mobius Venture Capital.

"Success in content is very ephemeral," she said. "It's very difficult to predict what is going to be a hit and what is not going to be a hit."