INTER@CTIVE WEEKMarch 3, 1997

Adult Web Sites: Virtual Sex, Real Profits

By Randy Barrett

Parents fear it. Politicians rail against it. Mainstream Webrepreneurs envy it. The truth is, the Internet pornography industry is arguably the most active and lucrative area of digital commerce in cyberspace. While most corporate home pages tabulate monthly hits in the thousands, top adult sites regularly garner more than 1 million hits per day. That puts them well ahead, in fact, of such corporate sites as General Electric Co. (www.ge.com) or Boeing Co. (www.boeing.com).

But there is one big difference -- porn-site visitors are more likely to spend money on the spot.

"I would bet that between 80 percent and 90 percent of all [e-commerce] on the Internet is conducted at adult sites," said Tony, the owner of a site called Planet Hornywood.com. He asked that his last name not be used.

There are no official market numbers on the industry from Internet research houses, such as International Data Corp. or Zona Research Inc. However, extensive interviews with adult site owners yield a picture of a highly charged market of approximately 10,000 sites generating about $1 billion in revenue per year, most through electronic credit card transactions.

What is clear is that some adult site owners have bigger plans. Many push the boundaries of image, video and transaction technologies, and a few hope to use their profits to establish mainstream high-tech companies. In the meantime, they're in a unique position to test their business plans in the heavily populated cybersex marketplace.

Tony's Miami-based shop is in many ways typical: a two-person operation with minimal overhead. He gets his content from stock photographers and CD-ROMs, runs on a Unix box with a Linux operating system and uses a T3 line to keep pictures flowing quickly. In this business, speed is everything.

"You're not going to get anyone to pay for a site with slow access," said Tony, whose home page gets 250,000 hits per day.

Fat Profits

Adult sites typically offer photographs, videos, real-time video sex or a combination of all three. Not all make money. An unknown percentage are hobby sites that break even at best. But for those that are established, site owners say profits are excellent, ranging between 60 percent and 80 percent of revenue.

Operators say adult sites that get 10,000 hits per day usually gross about $3,000 per month. Midsize sites attracting 50,000 hits daily bring in roughly $20,000 in revenue monthly. Large sites, with multimillion daily hits, can bring in more than $1 million per month.

But the market is getting more competitive by the minute in an industry that has evolved rapidly in the past 18 months. The field is split between pay sites (usually charging a $10 to $15 monthly membership fee) and free sites, supported by banner ads from the former.

"E-commerce in this area of the Web has changed rapidly," said Mario Carmona, president of XPics Publishing Inc. (www.xpics.com) in Los Angeles. "A year ago there were almost no economics in free sites."

That changed in early 1996, when Intertain Inc. and Amateur Hardcore -- two well-financed pay sites -- arrived, sold passwords and started promoting with banner ads on adult pages scattered around the Web. Suddenly, running a free sex site became lucrative.

XPics raised its banner ad rates from $1,500 per month to $4,500 in only three months. Carmona stopped flat-rate pricing and moved to the now ubiquitous two cents per click-through scheme. With 250,000 visits per day at his free sites, he said, the click-through pricing pays nicely. Playing both sides of the equation, XPics also runs a pay site that receives 100,000 individual visits per day.

Many free sites don't carry any lewd content at all. They are simply links to hundreds of other adult pages around the Net. But where eyeballs congregate, the pay-site banner ads follow for destinations like the San Francisco-based Hardcore Channel and SmutWeb. Persian Kitty (www.persiankitty.com) is a leading example, and many more, such as The Adult Top 1,000 (wss4.websidestory.com/wc/top10. adult.html), have followed suit. Link site owners say revenue of $1 million per year is not unheard of.

"I've had advertisers beating down my doors since March of 1996," said one link site owner. "I had no idea how much money there was out there."

The source, who wished not to be identified, is a stay-at-home mom. Her site has 24 advertisers, gets an average of 500,000 hits per day and runs on four Pentium 133 PCs and an equal number of T1 lines. Her overhead is about 20 percent of revenue.

The aversion to being publicly identified is widespread because of varying state laws. In 1994, Robert and Carleen Thomas of Milpitas, Calif., were arrested, indicted and convicted on 11 counts of transporting obscene material over interstate phone lines to Tennessee with their $99 a year bulletin board.

Last week, police in Fort Worth, Texas, arrested two men -- described as a former postal service manager and a construction worker -- who allegedly helped operate a site called Webb World NetPics that charged $11.95 a month for access to 150,000 pornographic images, some of children as young as 12. The men face charges of promotion of obscene material and possession of child pornography.

Yet, if adult site ownership conjures images of uncouth, depraved middle-aged men, think again. Many cyberporn shops are owned and operated by business-minded women. For example, Danni's Hard Drive (www.dani.com) in L.A. is a leading site operated by Danni Ashe -- a former magazine model-stripper -- and nine full-time staffers, mostly women. Her site receives 3 million hits per day and boasts 13,000 members who pay $9.95 per month. Including online video sales, Ashe expects her site to gross about $2 million this year.

While many women are involved, the content of most online porn palaces is marketed toward heterosexual males.

"Men are more visual than women," Ashe said.

They also appear to be consistent customers. Pay site owners across the board report that membership turnover is relatively low -- usually 10 to 20 percent per month.

For all the traffic -- and profits -- the adult site market boom is nearing its zenith, many in the industry said. The lure of easy money and low overhead has caused a surge in new sites.

"It's difficult at this point to break into the pay site market," said Carmona, who said free sites are easier to start and still lucrative.

Transaction Expertise

Sex has a natural ability to sell itself, and consequently adult site Webmasters have become expert at large-volume electronic transactions. Some process credit cards themselves, through secure (and sometimes nonsecure) servers. Often, credit card processing is outsourced to third parties, such as Valley Internet Services LLP in Sacramento, Calif. The company is not adult-oriented, but makes 80 percent of its income from the industry.

"It's growing like crazy. We get three to four thousand transactions a day from adult sites," said Valley Internet President Chris Ochs.

Ochs designed his service around the high demands of adult site merchants. The company has software written for recurrent billing and offers merchants a Web page by which they can delete and update their membership files online. Valley Internet also issues detailed transaction reports on dollar volume, transaction numbers and type of card used.

"They want to keep an eye on their business," said Ochs, who also markets many of the services to mainstream Net merchants.

The standard system uses a script to link a merchant's page directly to Valley Internet servers. The company funnels the processing to bank centers over dedicated leased lines and then back to the Web page. The dedicated line trims transaction time to four seconds from 10, Ochs said.

Like adult-site viewers, adult-site companies tend to be dependable customers. Valley Internet charges roughly $1 per transaction, and Ochs said the 25 adult sites he handles sell about $400,000 per month combined, with the top three carrying 95 percent of the volume.

Valley Internet also handles transaction processing for mainstream accounts, such as Amway Corp. and PGP Inc. However, "They just don't do the volume of the adult sites," Ochs said.

Spinning Off The Cutting Edge

Porn site Webmasters are on the cutting edge of Internet technology and proudly remind anyone who will listen that they have been the pioneers in every new media technology, from dial-in bulletin boards to VCRs to full-streaming video.

"We in the adult area get to try everything first," said Carmona, who argues that the adult industry has been responsible for building large chunks of the existing Internet infrastructure. "The adult Web has poured millions of dollars into it."

That money buys more than just T3 phone lines running at 45 megabits per second. XPics has its own research and development department and will soon field an advanced credit card transaction system of its own.

Video streaming is the newest hot technology at many sex sites, but slow modems at the user end reduce the impact to three or four frames per second.

"The reality is, it's not television," said Marcus Arm of NTL, a Massachusetts-based video sex service bureau that hires models, owns the machinery and resells its content through independent adult sites.

Video sex has been available on the Net for more than a year, but most sites still require the viewer to download special software to partake.

That's changing as a few leading sites now offer "no download" streaming video. The technology used is called "server push," a combination of advanced JPEG compression, stream management and multiplexing that allows up to 10 simultaneous viewers to see a model directly from their browsers.

Online Technologies, of East Setauket, N.Y., runs nearly 100 adult sites, including its flagship membership bulletin board called Lifestyle.com. The company developed its own OS/2-based software that allows Lifestyle.com to run on a single Pentium 150 PC with 126 ports open. It currently handles 500 simultaneous sessions using a combination of modem and telnet connections and has the capacity to scale up to 9,000 ports on a single PC.

"It's probably the most powerful piece of BBS software ever invented," said Online Technologies President Marc Kraft, who prefers using a pseudonym.

Current BBS software from industry leaders eSoft Inc. and Galacticomm Inc. can handle only 96 and 256 ports respectively.

Multimedia Direct LLC, a New York-based video sex company, is also looking to move software to the commercial market. The company has perfected credit card transaction code that makes in-depth daily statistics available to merchant customers on the Web. The company also has its own "microcash" system, which lets members pay once with a credit card and use the credit at any of the company's seven sites, including its flagship Decadence.com. Officials said they plan to spin the technology off this year.

XPics' Carmona has similar designs for his proprietary transaction software, which he chooses to say little about for competitive reasons.

"We plan to switch our focus to the mainstream Web as soon as it reaches critical mass," Carmona said. "There's only so much you can do in [the adult] segment."

Kraft has gone a step further and is trying to clean up and legitimize the Internet porn industry by establishing the Adult Chamber of Commerce (www. adultchamber.com), which requires members to adhere to a code of business ethics. First and foremost is keeping underage surfers out of adult sites.


X-Rated Sites, A-Rated Profits

Profit margins on free, advertising-supported Web sites providing erotic images have mushroomed in the past year. Here's a quick look at the typical economics of such a site:

YourSexsite.com


A Big Board For Hit Counts

Ever wonder whether your World Wide Web site is more popular than the competition's? Blaise Barrelet can tell you.

For the past two months, the president of Websidestory Corp. in San Diego has been perfecting his advanced counting technology on adult Web sites. The result is the Adult Top 1,000, a free counting service that now tracks 1,385 sites that attract an average of 7.5 million hits per day.

The goal, said Barrelet, was never to end up the ultimate arbiter of adult site sexiness. Rather, the heavily traveled adult Web has been the perfect testing ground for a much bigger idea: creating a Big Board for company site popularity.

"We're like a stock exchange," Barrelet said. "We like the technological challenge [of the adult Web]. We were counting 10 hits a day, now we're counting 7 million."

In only a few weeks, the concept has caught fire far beyond the flesh houses of the Net.

Websidestory is now running a free Top 1,000 World Sites page (wss5.websidestory.com/wc/ world2.html), carrying leading site statistics from the advertising, sports, entertainment and computer industries, just to name a few. Real Estate Online can be found here, as well as the home page for the rock band R.E.M.

The concept is deceptively simple. Websidestory offers its service to any site owner. The setup is quick and easy -- a brief HyperText Markup Language, or HTML, tag placed on a site that links into Websidestory's main computer.

From there, the company can track and display such minutia as number of hits per day, forecasts, unique visits and returns within one hour, all instantaneously.

Best of all, the service is free to both site owners and visitors. Barrelet plans to make his money through banner advertising on the specific industry lists. He's not guessing. He has already had offers from listed companies and currently runs Websidestory on sizable revenue from banners on the Top Adult 1,000 site.

"We're waiting for more traffic and will start to offer ads soon," Barrelet said.


Copyright (c) 1997 Interactive Enterprises, LLC. All rights reserved.Reproduction in whole or in part in any form or medium without expresswritten permission of Interactive Enterprises, LLC is prohibited. InteractiveWeek and the Interactive Week logo are trademarks of Interactive Enterprises,LLC.

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