There's a lot of buzz about Apple's entry into the frenetic cell phone universe. The new iTunes-compatible cell phone is precisely the type of proto-synergy that gets geek heart rates racing. The sleek phone, produced by Motorola, has a relatively large color screen, a comfortable form factor, and enough memory to store roughly 100 songs. It's a sneak preview of a not-too-distant future when consumers will be able to purchase a single device for telephone communication, useful data storage, and entertainment.
But the synergy in which tech companies are most interested, of course, occurs when a mobile device links to a user's wallet. For any retailer, online or off, anything that makes the purchase of goods and services easier is a positive step. Thanks in no small part to the online adult industry, electronic commerce (or "e-commerce") has become a well-established and lucrative segment of the economy. The use of mobile devices to conduct many of the same transactions is the next logical step.
In the decade or so since the public first discovered the World Wide Web, the amount of e-commerce has risen to staggering levels. In 2004, U.S. consumers alone spent $120 billion online, and in the second quarter of 2005 alone, online sales grew by 26 percent over the year before. The e-commerce growth in the United States is more than matched by online sales growth around the world. Total global online sales in 2004 topped $4.3 trillion and some of the world's major population centers (most notably China) have yet to fully come online.
Obviously, consumers are getting increasingly comfortable with purchasing goods and services online, and in turn, online merchants (including, of course, the adult industry) have encouraged e-commerce by offering consumers Internet-only specials, free shipping, and increased privacy when making online purchases.
Adding to the giddy economic forecasts for the mobile market are projections for consumer purchases using mobile devices, or "m-commerce." There are currently 2 billion people who carry and use a cell phone (just under one-in-three worldwide), and already, roughly half of them have used their phones to purchase something. M-commerce revenues in the United States last year were $6.8 billion, and current projections are that the sector will grow to more than $550 million per year by 2008.
The vast bulk of nonporn purchases in the United States so far have been tinny and often highly annoying clips of popular music. Even so, the idea of personalizing a cell phone's ring has proved so popular that nearly 25 percent of the U.S. population did so last year (and more than 50 percent, not surprisingly, were under 17). Also popular, particularly with younger phone users, are downloadable games, although other uses – short video clips, photo albums, etc. – are starting to catch on as phones get more sophisticated and more powerful. In particular, analysts point to the steady growth in packet-data networks for cell phones, the availability of enhanced data services, improved screen capabilities, and steadily improving content for mobile devices.
Not surprisingly, the adult industry has been at the forefront of content delivery to mobile devices. As early as 2000, enterprising website operators were configuring their sites to distribute textual material and incredibly blurry black-and-white images of the "Pixel of the Month" (which was about how long it took for the images to show up on an early cell phone). But with improvements in data transmission rates and display screens has come increased demand for sexually explicit materials by phone, ranging from much better quality pictures to video clips. At the end of 2004, the IT research group Visiongain estimated that m-porn will generate more than $4 billion in profits worldwide by 2006.
The prospects for the sale of salacious cell phone content are so good, in fact, that Maxim, the leading "lad mag", launched a mobile version of its magazine in 2003. It's now available in 20 different countries and 10 different languages and generated 1.5 million commercial transactions in 2004.
The legal issues surrounding the provision of sexually explicit content to cell phones are complex enough to merit another whole article. The focus here is on the equally important issue of payment—how it is, exactly, that a mobile caller can use his or her phone to make a purchase.
Most adult website operators' commercial interaction with a mobile consumer will not be significantly different from their interaction with a PC-bound consumer. The mobile consumer will be accessing a virtual site and will be interested in purchasing digital content. It will be just as easy for the mobile consumer to use his or her phone to transmit credit card information as it is for a PC user, so adult website operators will not see any significant difference in that regard. The chief challenges will be to configure the adult site to make it mobile-friendly.
Buying and celling
Things get a little trickier in the real world. For a glimpse of where the payment technologies of m-commerce are headed, it's useful to look at how other countries have been using the technology. There are two basic schemes in use for making payments by cell phone. The first concept, which has been around for a number of years, is to use the cell phone's own billing mechanism.
For instance, in countries from Australia to the European Union, vending machines have their own phone numbers (they're known in the trade as MoVMs, or "Mobile-operated Vending Machines"). Hungry or thirsty mobile phone users can dial the vending machine's number, punch in a code for their selection, and the charge for the snack or soda shows up on their phone bill.
This is an approach that might be of use to adult businesses that have a physical presence; for instance, the Hustler Hollywood stores could set up condom vending machines ("Press 1 for ribbed, 2 for jumbo," etc.), or Good Vibrations could do the same thing with sex toys. But anyone who's been in the adult industry for more than eight or 10 years will immediately see the problem: It requires the cooperation of the phone company to collect the charge from the phone user. When a similar system was in place for land lines (the phone sex industry's 900 numbers), the phone companies got so frustrated with consumer denials and complaints that they simply decided to discontinue the system. As a result, virtually all phone-sex operations today rely instead on credit card payments.
The other increasingly popular method for payment by cellular phone is to turn the phone itself into a wallet. In Japan, for instance, cell phone users can pay for mass transit rides or inexpensive items by simply waving their phone over a ticket or sales counter. Payment occurs when a chip inside the phone comes within a few centimeters of a point-of-sale terminal. The POS terminal sends an inquiry to the chip, which sends out a serial number and a single-use cryptogram. The POS terminal then sends the two pieces of data to its bank, which then forwards them on the user's bank for verification and approval. The user's cell phone chip can be linked to a credit card or any other type of account the user specifies. Assuming the user has adequate funds, the amount of the sale is deducted and the approval is forwarded to the POS terminal.
In the United States, there have been a number of trial programs for contactless payment systems, but the only one that's been implemented on a wide scale is the Exxon Mobil SpeedPass, which consists of a radio frequency ID (RFID) in a key fob that drivers wave next to the gas pump to quickly pay for purchases. Most analysts believe, however, that convenience will drive the rapid adoption of m-commerce. Ultimately, consumers will find it more convenient to have a payment chip in the one thing that they almost always have with them—their cellular phones.
Although m-commerce is still really in its infancy in the United States (in fact, RFID is slowly turning into a broader category known as "near field communication," a topic so new that it generates just four hits in Google), the online magazine InternetRetailer.com is warning Web merchants to begin preparing for mobile phone purchases for Christmas 2005 (and if not this year, then certainly Christmas 2006). Certainly, adult websites are less holiday-dependent than more mainstream businesses, but taking steps now to make sites more accessible to mobile users is certain to pay off when the volume of m-commerce in this country accelerates. Adult sites that are mobile-friendly are also likely to do better attracting and retaining foreign traffic, since so much of m-commerce occurs outside the United States.
The growth in m-commerce and the steadily increasing capabilities of mobile devices will trigger further debate about two adult payment-related issues: geographic location and age verification. Prognostication is (literally) a dicey business, but here are some possible scenarios to consider.
In 1998, the Federal Communications Commission ordered cellular phone companies to begin implementing a system called "Enhanced 911," which would enable emergency personnel to better respond to 911 calls made from cellular phones. Prior to the adoption of E911, a cellular call made in a rural area could originate anywhere within a 25-mile radius, an area encompassing roughly 2,000 square miles. Virtually all cell phones now, however, are equipped with a Global Positioning System (GPS) chip that can locate the phone to within a radius of a few dozen feet. When an emergency call is made, the GPS chip passes on the phone's location to emergency personnel.
Assuming that the "contemporary community standard" remains a valid part of U.S. obscenity law, it would not be particularly difficult to figure out a way to query the GPS information of a cell phone before permitting the user to purchase adult materials. Someone in Memphis, Tennessee, for instance, could be blocked from accessing material that might trigger a criminal prosecution. This would be even more effective than requiring customers to provide their zip codes, since zip codes often cover multiple towns.
Human bar codes
At first blush, the growing use of cell phones in commerce doesn't help solve the problem of underage access of adult materials. If anything, it makes it slightly worse, since so many teens today have their own cell phones. There's no doubt that the use of cell phones by teens to visit adult websites will be an increasingly popular issue with religious conservatives over the next few years. In the long run, however, the technology of m-commerce may solve the problem once and for all.
The idea of using radio-frequency identification to track things has been around for a while. Anyone who grew up watching Mutual of Omaha's Wild Animal Kingdom is familiar with the process of tagging wildlife so that it can be studied. The same technology has also been in use for decades in the cattle industry and by veterinarians, who urge families to get their pets tagged.
More recently, retail giant Wal-Mart has pushed the development and implementation of RFID tags for inventory control. The basic idea is that manufacturers will put an RFID-embedded label on each product, which will allow Wal-Mart to track each piece of inventory from the time it first enters a warehouse to the time it leaves the store with a consumer. The U.S. Department of Defense is putting similar pressure on its suppliers.
One of the first planned uses for RFID technology in humans was medical identification. In 2002, a family in Florida agreed to allow Applied Digital Solutions to implant small RFID devices in their arms. In the event of a medical emergency, EMTs could use a scanner to read each person's unique code and then access an online database of his or her medical information. The Food and Drug Administration initially resisted Applied Digital's request for approval of its medical application, but about 18 months ago, the FDA approved RFID technology for tracking prescription drugs and is currently considering Applied Digital's application to use RFID to link to online medical records.
Other possible uses were quickly suggested: That same month, a senator from Brazil asked to have a RFID chip implanted in his arm to help identify him in the event of that he fell victim to Brazil's pervasive gangs of kidnappers. A couple of years later, the Mexican Attorney General, Rafael Macedo de la Concha, announced that he and 160 of his top-level employees had been "tagged" to help limit access to high-security facilities. Only those employees with chips would be allowed access to certain areas in the attorney general's headquarters.
The Mexican employees may have been the first, but they will certainly not be the last employees asked to accept "being tagged" as a condition of employment. After all, it's difficult to lose a security tag that's embedded in your arm; the combination of a RFID tag and a photo ID would be a compellingly secure access control system.
A particularly interesting question is not so much whether but when implanted RFIDs will make their way into the general population. The primary vector will be workplace security concerns, but another popular motivation will be convenience. Some consumers might welcome the idea of carrying a link to their bank accounts or credit cards in their arms, where it could not easily be forgotten. The inclusion of payment chips in cell phones will undoubtedly slow down the consumer use of RFID tags, but it probably will not stop it altogether.
One important advantage that consumer RFID tags will have over cell phone payment systems is age verification. Given the frequency with which teens get cell phones and increasingly, credit cards, teens are just as likely to access adult sites via phones as they do with computers. It's not difficult to imagine a scenario, for instance, in which only an adult could link an embedded RFID tag to a credit card or bank account. By building the appropriate RFID sensor into a computer or even a mobile device, it would be possible to insure (to a pretty high degree of probability) that the individual using the device was over the age of 18.
Regardless of what the future may hold, the bottom line for adult webmasters is that the coming m-commerce revolution offers another tremendous opportunity to add a potentially lucrative revenue stream to their operations. Particularly over the next year to 18 months, it will be a worthwhile investment to explore what is needed to make sites more mobile-friendly and to learn what is necessary to increase the accessibility of foreign m-consumers.
As tempting as it may be, however, it's important for the adult industry to resist turning the clock back to its Wild West days. While the growing Internet capabilities of mobile devices means that adult webmasters are not dependent on phone companies for billing or other commercial support (as they were in the past), there is still a need for responsible business practices. The additional freedom offers tremendous economic potential, but also heightens the risk that increased access of adult materials by underage m-surfers will goad Congress into further reckless legislative efforts. As adult webmasters explore this emerging economic sector, they should do so in a way that minimizes the potential ammunition for the industry's persistent critics.
Frederick Lane is an expert witness, author of Obscene Profits (Routledge 2000) and The Naked Employee (Amacom 2003), and co-founder of Tech Law Seminars, an in-house training and seminar company focusing on legal and social developments sparked by new technology. For additional information, visit FrederickLane.com..
