Danni Ashe is a somewhat incongruous figure at internet conferences. It's not the cleavage-hugging suits that raise eyebrows, as women are hardly rare in this business. What does cause surprise is the subject of her speeches: how I made a fortune selling nude photos of myself.

Ashe is something of a pioneer: a porn star who has crossed the wire. Although known in internet circles for some time as that rare breed - a profitable e-entrepreneur - other dot.com executives were initially reluctant to welcome the porn model into the fold. But as other companies struggle to emulate her success, Ashe has found herself in demand as a technological consultant and keynote conference speaker.

She is not alone in using net porn as a springboard to business success. Dario Betti, an analyst at e-commerce consultancy, Ovum , says several adult websites in the US now offer consulting services. Despite a few failures in the dot.com shakeout of the past year, it's an unpalatable fact that porn is still the internet's big success story.

The Online Computer Library Centre's annual review found 74,000 adult websites last year, accounting for 2% of sites on the net, and together they bring in profits of more than $1bn. Though many are small scale, with half making $20,000 a year, even that figure is the envy of many mainstream brands.

Betti says: "Adult sites made money with streaming media after learning people did not want to sit and watch long two-hour films on their computer but that short films worked well. They use lots of teasers to make people want to see more and were the first to recognise the need for tight security and to offer personalisation tools."

When Ashe is not posing naked on her site, Danni's Hard Drive, she has a growing list of business engagements. Last year these included speeches at the Streaming Media Asia seminar in Hong Kong and the Internet World Conference in Sydney, and Ashe has twice testified before US congressional committees on child protection and internet-related issues.

Among other sites queueing up for her advice are medical, film and wine companies, as well as other porn sites. This work, hived off through subsidiary company DHD Media, is expected to account for 50% of Ashe's revenue within three years. Still smarting from Napster, the music industry is also keen to replicate Ashe's subscription model.

Ashe has also developed her own streaming technology, DanniVision, which eliminates the need for RealPlayer or any other plug-in. Ashe said she started the business after teaching herself HTML and, after six years, she expects to make $7m or $8m profit this year.

"There has been a shift in attitudes in the business community and we are being recognised as a serious player," she says. "Companies are still wary of overt links with porn sites and I couldn't name any of the ones I have been a consultant for, but there are more and more of them."

Of course porn is not quite the golden egg it once appeared to be and sites have been subject to the downturn as much as other online businesses, with some going to the wall. The problems have been exacerbated by a glut of smut from enthusiastic amateurs keen to post porn for free, to the chagrin of charging companies such as Playboy.com. Wired magazine reports that Playboy has lost $50m in two years on its online operations, and it has been aggressively asserting its market dominance.

Having bought up a number of smaller sites, it is now looking for new material and formats. The company now plans to offer a mobile phone picture service, Mobile Playmate of the Month, and hopes for more than a million subscribers in the first year. That probably depends on how many users upgrade to the new generation of 3G phones and video-enabled terminals. Ovum believes mobile streaming could reach the mass market by 2005.

Consolidation across the internet means smaller players are being squeezed and Wired magazine recently reported that anyone looking to make a fast buck breaking into the online porn market is likely to be disappointed. But, they add, that is not to say there is no money in it. Porn is still the biggest earner on the net and several well-established companies such as Cybererotica and Sex.com generate several million dollars a month.

Arguments about whether porn should be banned from the internet have been overshadowed by the figures which indicate a strong demand. Now the question is how to contain it. An announcement by a relatively obscure telephone watchdog that went largely unnoticed in the weeks before Christmas, points to a growing acceptance that porn is too easily available to push back into a ghetto. The Independent Committee for the Supervision of Standards of Telephone Information Services (Icstis) announced it may scrap its Top-Shelf Rule - restricting adverts for premium-rate sex lines to adult magazines and newspapers - because internet porn is so widespread it makes the rule obsolete. The rule was introduced in 1994 after a spate of reports that children had run up huge bills calling the lines.

"Several companies asked us to look again at this rule because times have changed," said Suhail Bhat, a policy adviser at Icstis. "The internet has made pornography more easily available and we can't regulate the whole net." The watchdog received more than 800 high bill complaints from consumers last year, with 50% of those resulting from unauthorised use of adult internet services. If porn becomes available on mobile phones - where 20% of new handsets are bought by children - the problem could escalate dramatically. Icstis has appealed for suggestions as to what can be put in its place to stop children having access to adult services.

It is a major problem. A study by social psychologists at the London School of Economics last year showed that nine out of 10 children, aged 11 to 16, had viewed pornography on the internet. Many had stumbled across it after putting in search requests for pop groups such as Boyzone. And a US government report said porn sites commonly use the brand names Barbie and Disney in hidden code to ensure they crop up in general searches. Last November, the EU's economic and social committee called for legislation and vigorous action by governments, ISPs and Interpol to define harmful material, require adult signatures for downloads to premium lines and provide mechanisms for monitoring and dealing with suspicious behaviour by children.

The German federal government has proposed a handful of draconian measures including limiting the distribution of pornography to a time slot between 11pm and 6am, making ISPs liable for internet content, and forcing larger content providers to employ control officers to ensure compliance with the law. But technology research company Forrester believes the global web will defy enforcement and say regulators should focus on educating parents and children and developing self-regulation bodies, such as the UK's Internet Watch Foundation. While there is a clear consensus that children should be barred and protected from porn, a British Social Attitudes survey last year found that most adults were happy for over 18s to access soft porn.

Comedian Jo Caulfield spends a lot of time looking at porn on the internet as a writer for Graham Norton's successful Channel 4 TV show, which features a range of bizarre websites. She believes the availability of porn has not made sex seem any less naughty or funny.

"It does fulfil a need even if it's just for people to laugh at," she says. "There is no end to what people are into. One man we featured got sexually excited by muddy shoes so he had lots of pictures of women standing in puddles. It's a British tradition that sex is funny, naughty and harmless."

There is a clear distinction between soft porn and hardcore material which many people find offensive. But despite stories of individuals setting up their own websites and chatrooms to make money for themselves, the soft porn industry still has victims and exploitation. This, and the fear of children stumbling across it, means there is a degree of hypocrisy about mainstream business dealings with porn groups. Ashe readily admits that companies are still wary of having overt link-ups with porn sites and the experience of Yahoo! last year can hardly have helped.

A public outcry greeted its announcement last April that it was to sell hardcore pornographic videos on its US site, and within days the company had dropped the plan. Though, of course, porn can still be accessed via its portal. Concerns about porn's pernicious influence means Ashe and her innovations may be helpful to other net businesses, but they present watchdogs with new worries too.