To paraphrase Marx, a specter is haunting the world.
No, not the ghost of communism, but rather "Dot-comification," or the spirit of electronic commerce, which, like the World Wide Web itself, seems to be everywhere nowadays. The Internet is arguably the technological correlative to the globalization and free trade phenomenon currently sweeping the planet, much of which included an exponential explosion of E-commerce in 1999. On the Dec. 17 broadcast of MSNBC's Feedback, the National Retail Federation's Bruce Van Kleeck declared openly that E-commerce was "here to stay."
But what does this portend for e-porn? Is the mainstreaming of online transactions a threat, a competitor, or a wide-open window of opportunity for e-rotica? What are the likely results as more and more brick-and- mortar retail stores become click-and-order discount shops?
AVN Online spoke with several veterans of the adult Net in an attempt to gain some perspective on these and other questions. The answers we received were typically varied and sometimes contradictory - but always interesting, and often compelling.
Follow the Bouncing Dot-Com
Tune into any news or financial channel on television these days, and E-commerce is all the rage. In fact, on Dec. 10 of last year, CNN's Reliable Sources looked into whether the press was guilty of boosterism vis-a-vis the massive amount of recent coverage on the Net. Viewers were asked to offer their comments - via E-mail. When the media-watch program went to break, there was an advertisement for Barnesandnoble.com. As for allegations of "cheerleader" Net reportage, consider who co-owns MSNBC...
Indeed, "Dot-comification" and offline advertising for it have proliferated to the degree that a cartoon accompanying author Anthony B. Perkins' Nov. 29, 1999 editorial on the Wall Street Journal's op-ed page depicted a middle-aged man cringing before a TV set, as he is bombarded by "Dot-coms."
According to Perkins, Internet companies spent more than $750 million on offline ads during the six-month period from January to June 1999; billboard space sold out for those months in major media markets; $90 million was spent on radio spots and $400 million on TV commercials. During the December 1999-January 2000 holiday season, e-stores spent a reported $1 billion on "old media" advertising, with 20 Internet start-ups shelling out a cool $2 million each for coveted Super Bowl spots.
But E-commerce's sweep reaches far beyond Madison Avenue. In late 1999, the National Association of Purchasing Management and the Conference Board both estimated the economic expansion that began in March 1991 would continue through February 2000; thus far, the longest period of sustained economic growth in U.S. history. During 1999 alone, the Dow Jones industrial average skyrocketed past the astonishing 11,000 mark. As the closing bell of the New York Stock Exchange rang in late December, CNN Financial News reported live that the NASDAQ Stock Market closed at 4,000, yet another record high. Indeed, the NASDAQ rose a stunning 65 percent in 1999 - fuelled largely by tech stocks. Yahoo!, Inc., which joined the blue-chip Standard & Poor's 500 index on December 7, 1999, rocketed in value from $27.81 to $280.81 on the NASDAQ. Lycos, Inc. went from $2.50 to $65.50 on the NASDAQ, while AOL, Inc. rose from $2.63 to $81 on the NYSE. And the astronomical number of Initial Public Offerings has reached urban legend proportions. To no small degree, they propel a Wall Street boom stimulated greatly by Internet proliferation which, among other things, initiated online trading.
Jefferson's "Declaration of Independence" was inked on parchment with a quill and disseminated by way of horse, rider, and town crier, plus printing press; Lincoln's "Gettysburg Address" was reported via telegraph and wire service news agencies. Teddy Roosevelt was perhaps the first president to appear on motion picture film, while Franklin Roosevelt delivered "fireside chats" via radio. Kennedy announced the Cuban Missile Crisis on live TV, while Clinton held a cutting edge fireside chat online, and became the first president to Christmas shop via E-commerce, in late 1999.
Meanwhile, Texas governor George W. Bush became the first presidential candidate to post daily lists of his campaign contributors online. In addition to following the money, Web sites for candidates, charities, and other causes raise money, as well as awareness. The Democracy Online Project claims 2 percent of Americans get political information from the Web.
Meanwhile, according to the Nov. 8, 1999 Los Angeles Times, Congress is considering 60 bills designed to govern the Net. It should come as no surprise that, according to the Center for Responsive Politics, Internet companies donated $3.8 million to Congressional candidates and political parties from January to September 1999. On the grass roots end of politics, the Direct Action Network used the Net to organize the shutdown of the World Trade Organization during the "Battle of Seattle." And if there are any of you who still doubt the Internet is changing politics, here's two words: Matt Drudge.
Most significantly, business-to-business and business-to-consumer E-commerce is surging. According to the Nielsen/Net Ratings, in the week of November 22, 1999, Amazon.com had 4,461,816 unique visitors; eBay.com 3,950,182; eToys .com 1,847,988; Shopping.aol.com 1,484,912; Toysrus.com 1,464,887; and Store.yahoo.com 1,193,403. Niche markets are emerging online as well, from Fridgedoor.com (www.fridgedoor.com, hawking refrigerator door magnets) to kava (that South Seas brew from Fiji), just a click away at the Pacific Island Business Network (pidp.ewc.hawaii.edu/pibn).
E-commerce is riding the dramatic wave of exponential Internet growth. Michael Shyer, Public Relations Manager for Forrester Research (www.forrester.com), says this is due to "the sub-$1000 price tag for very inexpensive PCs in 1998. The Internet is the killer app for cheap PCs - the sole motivation behind that purpose is to go online." Compounding this process, Free-PC, Inc. even gave away Compaq personal computers for a time (although Free-PC was recently acquired by Emachines, Inc., which is reportedly putting an end to the freebies), while ISPs such as NetZero and AltaVista offer free Net access in exchange for advertising and tracking of surfers. And with the advent of Gospelcom.net, iBelieve.com, and crosswalk.com, can e-vangelizers be far behind?
The Big Picture
According to the International Data Corporation, worldwide, about 5 million people logged on to the Internet in 1995; compare that to the estimated 160 million who went online in 1999, and the 500 million IDC estimates will be surfing the Net by 2003. Likewise, holiday spending online showed a dramatic increase in 1999, up as much as 400 percent from the $3 billion consumers spent during the same period the year before; and while E-commerce was a $50 billion business in 1998, according to Forrester Research, a predicted $2 trillion will be spent in cyberspace in 2003.
According to Shyer, Forrester Research began looking at the role of PCs within businesses in 1983, and proprietary dial-up services, such as AOL, CompuServe, and Prodigy, as early as the late 1980s. It evolved into an E-commerce research firm that looks at trends from a technology perspective and what consumers are doing online, and then predicts where trends will lead. The company sells its information to 1,500 clients, including Fortune 1000 companies, helping them to set goals and devise three-year business plans.
Forrester's data shows it takes about 18 months before most new PC buyers and Web surfers buy anything over the Net, whereas experienced users are more confident and comfortable with computers and the concept of spending money through them.
"Smaller ticket items such as books, CDs, and software are the primary [online purchases] for new consumers," says Shyer. "From here, they transition to larger researched purchases, such as consumer electronics, computers, cameras, etcetera. Replenishment purchases like groceries, health and beauty aids, are being held back due to delivery problems." Cars are the second largest purchases most people ever make. Though Shyer says current online sales of autos are "practically zero," he predicts $400 million worth of cars (about 3 percent of the total car market) will be sold over the Net by 2003; more significantly for car marketers, he prognosticates that deals influenced by online services such as price/model comparisons, will account for half of all automobile deals that same year.
What Price E-Commerce?
Electronic commerce offers a number of advantages for buyers and sellers, and in some ways, resembles a high tech version of catalogue shopping. As with the old snail mail prospectuses, online shopping enables consumers to avoid the crowds, traffic, search for parking spaces, lines, et al, that often characterize the mall experience, especially during the holiday season. In addition to convenience and privacy, E-commerce also usually offers economic incentives.
When consumers log on to shop, price comparison is a click away. And prices do vary online. CEO Andrew Edmond of SexTracker (www.sextracker.com), a statistical and demographic service for adult Web masters, says, "The consumer has an amazing power, like never seen before, to find the cheapest price. Sometimes they find prices so cheap, they're not profitable for the businesses they're buying from."
Says Forrester's Shyer: "It's all across the board. Some places are a little bit more expensive, but you make up for it because you don't pay any tax. There are also price wars. It depends upon the product and market. The average E-commerce expenditure per household is about $600."
According to a Nov. 29, 1999 WSJ editorial, a consumer shopping at Lands' End's "Web site pays a sales tax only if he lives in one of five states. The number of states varies from company to company (and Web site to Web site) depending on the company's 'nexus,' or physical presence, in that state. Because Lands' End has no presence in Arizona, Arizona can't tax sales made to a customer in Phoenix."
To further entice consumers, many online shops offered free delivery during the 1999 Christmas season, although typically the consumer does pay for shipping
"Delivery is an almost impossibly open-ended question," says Shyer. "It varies from retailer to retailer - to someone like Amazon.com, which owns these big gigantic warehouses, and they fulfill the order themselves and ship it out - to somebody who uses an intermediary like Fingerhut, to actually package and ship the stuff you ordered. The majority probably outsource it. Return policies also vary."
"The U.S. Post Office, FedEx, and UPS did very well in late 1999," states Jeffrey Rogers, the Adult Chamber of Commerce's (www.adultchamber.com) Director of Sales & Marketing for Online Technologies. "UPS and FedEx stocks are on the rise, and right now, it's largely due to E-commerce."
In mid-December of last year, a UPS spokesman told CNN that the courier company was busier than usual during the holiday season, and while one out of every 15 packages UPS shipped in 1998 were from Dot-coms, one out of every six parcels they shipped in 1999 had been purchased online.
And although many Wall Street brokers resist online trading - most likely because it cuts out their lucrative role as middlemen - Forrester's figures show that the number of individual, online investors is growing, and that 3 million-plus households took part in E-trading in 1999. The research firm predicts this will grow to 9.7 million households in 2003. The number of accounts traded online is predicted to grow from 5.4 million at the end of 1999 to about 20 million in 2003. Accordingly, assets managed via those accounts should grow from $374 billion in 1996 to about $3 trillion in 2003.
Statistically Speaking
SexTracker claims to track 48 million unique hits on the adult Net daily, and tracks 13 million actual visitors into porn sites. The sextracking (done without user permission, although Edmond maintains no personal information, such as name or credit card number, is yielded), reveals info such as how often the consumer enters the adult Net, at what time of day, what screen size is being used, and what version of software is being run.
According to Edmond, E-commerce is divided into two distinct categories, business-to-business, when businesses trade services or goods or information that is financially related, or business-to-consumer, when money, usually via credit cards, is exchanged for products and services bought through the Net. "Business-to-business is the most profitable economic model, because it tends to be a little broader spectrum of sellability," he says. "You can get more of a niche than with consumers, which means you can set the price. Business-to-business transactions exceed business-to-consumer in terms of dollar value, by billions. This is where we'll see the real growth, while business-to-consumer is in a lot of jeopardy now, because of the price margin issue. Amazon.com is selling books at 40 percent off, and not making a profit, pumped with venture capital."
Edmond asserts that while the adult Net is also a business-to-business market (such as content provider-to-Web master), "it is the only place where business-to-consumer market is profitable - very profitable, roughly about $1 billion a year, although it could go as high as $1.8 billion, according to some studies."
Edmond points out business-to-business markets piggyback onto business-to-consumer transactions, as consumer dollars are circulated through an economic food chain. "The credit card company pays the pay site owner, around eighty-five to ninety-seven percent of the transaction. The middleman - the credit card company - came in, paid the pay site owner, who, business-to-business, pays content providers, plus the entity that originally sent the traffic. That's typically about fifty percent of what was remaining after the credit card companies took their cut. Afterwards, we have people who gave referrals, or who actually run the sponsorship programs, which then finally pay the person who developed and sought after the traffic itself, and sent it to the appropriate place to generate the dollar value. We've gone through five individual entities. The actual amount of business-to-business transactions that run on the adult Net are anywhere from $3 to $6 billion per year."
Edmond says free sites for enticing consumers are low on the food chain, while credit card companies are on top. He crunches the numbers to reveal who makes what on the adult Net, and contends, "The largest credit card company makes up to $35 million per month off of e-porn. On the other hand, the largest pay site makes $4-10 million monthly. Five percent of the traffic brokers and free siters who actually get the traffic - between 25,000 to 60,000 individuals (persons and/or companies) - make over $20,000 per month. Twenty percent make over $3,000 and under $10,000 a month. 75 percent make well under $3,000 a month."
He says 97 percent of online purchases are now via credit cards. VISA, MasterCard, and others, are not the only mainstream companies making huge sums off of the adult Net. "Seventy-five percent of adult traffic originates at a search engine, a major portal, such as Yahoo!, or Excite," he reveals. Thus, adult money makes its way through the complex food chain to so-called mainstream companies. Edmond adds 15 percent of adult users enter porn sites via bookmarks; five percent just type in a domain name; and five percent enter via E-mail.
"Adult is pushing the growth the Internet daily, in the size of routers, streaming video and more," asserts Edmond. SexTracker guestimates that globally, 1 million to 1.75 million unique users paid for porn in 1999. Ten to 20 percent of daily Web surfers visit adult sites at least once.
The Frontiersmen
Dennis Kaye, President of Sexxy Software, asserts: "We were here first!"; the Adult Chamber's Rogers says Net porn invented online commercial membership sites, such as the swingers' site www.lifestyleonline.com, and that www.adulttoystore.com beat Toys R Us to the Web. And according to SexTracker's Edmond, circa 1995-1996 - the "infancy" of E-commerce - the adult Net was responsible for 30 percent of all online financial transactions, an estimated $40 million in 1996. This grew to $200 million in 1997, $550-800 million in 1998, and $1-$1.8 billion in 1999. When adult started to mature on the Net in 1997 and 1998, Edmond says "the non-adult world started to get its feet wet" with E-commerce.
Writing about intellectual property attorney Greg Piccionelli and Adultdex in his syndicated column, Fox News commentator James Pinkerton acknowledged the Net's "dirty secret" vis-a-vis E-commerce: "Porn-preneurs spearheaded the innovations - including instantaneous credit card transactions and streaming video - that paved the I-way for the likes of AOL and Amazon.com."
So, as pioneers of E-commerce, adult Netizens curiously, even nervously, eye these mainstream Johnnie-Come-Latelies as they set-up shop online, and the masses of consumers who follow in the wake of the new Dot-coms of Sears, L.L. Bean, J.C. Penney, and others. As forerunners and discoverers of this new cyber-frontier, the adult Daniel Boones and Davey Crocketts are increasingly concerned with what, exactly, is their place on the Net as E-commerce goes mainstream.
"Adult content is definitely a big business, which the popular press has generally ignored," asserts Forrester's Shyler. "Others have estimated that the adult Net made as little as $150 million in 1998, but we estimated between $750 million and $1 billion in online adult revenues, with some of the bigger sites taking in more than $100 million."
Shyer doubts that adult's share of E-commerce is shrinking. "It's just going to charge ahead at its own pace. The industry as a whole, on and offline, is $10 billion a year - that's a big market. It's half of all business-to-consumer E-commerce combined in 1999. It will continue to grow at a healthy rate."
Rogers, of the Adult Chamber of Commerce says, "At this point on the Internet, we are just at the beginning of the technology curve, which will be the biggest, best numbers you'll ever see on the Net for E-commerce - it has not even begun to boom yet. The numbers from 1998 to 1999 tripled, as hardware prices declined significantly and technology improved. Quality of customer service, a return policy, will help online shopping peak," says Rogers, who thinks site owners should pay for delivery of bona fide returns, and that "chargebacks are going down, although they've always been a problem. If you properly provide customers with a level of support and service, chargebacks will go down more and more."
But Geoff Johnston, V.P. of Corporate Communications for WebSideStory, a mainstream firm which monitors e-visitors for Web masters at more than 100,000 sites, contends adult "continues to be a smaller percentage of E-commerce. Non-adult is growing; it's much larger than a year ago. Everyday, adult is a smaller and smaller percentage. We track a lot more non-adult Web sites."
SexTracker's Edmond, however, is bullish on the adult Net, and posits the notion that even though adult's overall percentage of revenue from E-commerce is declining, online pornography is making more money than ever. "Adult's slice of the pie is getting smaller," he says. "Just because we were there at the beginning and we held thirty or forty percent... it was unrealistic to feel that's what we'd always be doing. But our numbers are increasing against the coefficient of the growth of the Internet. The more users you put on the Net, the more money adult's going to make. The slice of the pie is getting smaller, but the pie itself is getting rapidly, unbelievably bigger."
Apocalypse Soon?
Lest we be accused of cheerleading, a sober analysis of E-commerce's prospects should not preclude the possibility that "The Internet Bubble" (as the title of Perkins' 1999 book calls it) may burst. And along with it, a stock market buoyed largely by the Net, communications and other tech investments.
Warning signs are on the horizon. The gap between techno-haves and have-nots grows; not only is most of the world's population not online, many people don't even have electricity. In the First World, E-commerce has already had casualties, from shopping malls to Wall Street brokers. And Congress' three-year moratorium on new Internet taxes, passed in 1998, lapses soon. The Internet Tax Freedom Act also established a Congressional advisory commission, which is currently studying a tax plan for E-commerce.
And in his late-1999 WSJ editorial, Perkins quotes Send.com CEO Michael Lannon: "Not every company is going to survive this Christmas." Perkins points out, "The aftermath of this holiday advertising spree will inevitably set off a Darwinian shakeout of the E-commerce market. Those companies that fail to sign up thousands of new customers will lose Wall Street's confidence and see their stock prices plummet." Perkins adds that companies like Amazon.com are learning that "as the price of the E-commerce market matures, the cost of acquiring new customers goes up, while the average revenue per customer goes down."
Could depression be the bi-polar dark side of what Federal Reserve Chairman Alan Greenspan calls Wall Street's "irrational exuberance"? Whether the new year means Armageddon or Utopia, those who ignore the boom and bust cycle of capitalism do so at their own risk.
Technology Unchained
So what does tomorrow hold?
Forrester's Shyer believes "the underlying trend everybody is looking at is how ubiquitous broadband access for large numbers of consumers will change the medium. It will almost look like interactive television, with smooth, near-real time streaming media, that won't be herky jerky." But there will be much more to future interactivity than just a quality picture, says Shyer. "For example, if you're looking at a snowboarder, and you're interested in his outfit, you can click to that and jump straight to the site of its manufacturer. Then, you can click for different color combinations, and jump from there to see the bio of the snowboarder, and jump to downloading MP3 clips. The implications for content providers and consumers are enormous."
SexTracker's Edmond expects business-to-business transactions over the Net to reach well over one trillion dollars in two years. He believes business-to-consumer E-commerce will plateau in the next two to three years at $200-300 billion on the mainstream Net - still far more than some nations' gross national product. "The adult Internet will probably be worth $5 to $7 billion per year by 2005," he predicts. "The businesses that will survive are those with sophisticated models based on profitability, high standards, great ethics, and high reputation. The dollar doesn't follow the thieves and wolves. In 1995, the adult Net was the wild, wild West, but now the sheriff has come to town."
Edmond also predicts the main technological development relevant to E-commerce might be a more sophisticated form of payment, enabling governments to regulate E-commerce globally. "A massive regulatory agency is one of the things that needs to happen, to police the Internet," he states.
"The Internet is changing day by day," says the Adult Chamber's Rogers. "Seven days is equivalent to a year on the Net. Technology is getting better, faster; interactive customer service is down the pike; and everything is upgradeable. The highway to success is always under construction - that's the beauty of the Internet."
