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.
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.
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.
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.
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
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.
Click here to go back
INTER@CTIVE WEEK
March 3, 1997