Many in the adult industry pride themselves on being the frontiersmen of cyberspace; computer technology trailblazers, if you will. But the forces that shape the way the world is doing business - mergers and acquisitions, vertical integration, globalization, synergy - are also affecting the business of cybersex. As competition increases almost exponentially on the supply side of the Net, more and more independent Web sites are being bought up, sold off, or disappearing altogether. One UK publication in March cautioned Brits looking to invest in Internet start-ups that nine out of every ten Web sites will ultimately fail.
Thus we ask, has a free market on the Web given way to unchecked capitalism, where the big fish eat the little fish, and mega sites force the independents and entrepreneurs out of business? Or is there still room on the Net for the Little Guy?
Then and Now
David Levine, president of Convergence, Inc., started up his first online adult store (www.sextoyfun.com) in 1995, seen by many in the industry as the pivotal year separating the "B.C." and "A.D." eras for the adult Net.
The veteran Web master, who has no employees and was among the first to offer an affiliate program, says that Net porn is becoming more competitive all the time. "Certain things that used to work in the past now don't work at all," he says. "In the beginning of 1995, all you had to do was set up a Web site with a fair amount of product and list it on Yahoo!, and you would definitely get sales and do well. I lucked out with my domain, and getting it out there early brought me a lot of sales that I didn't have to pay anybody for, or do any advertising.
"But by the end of the year," Levine notes, "everybody had a site."
According to Shantale Pipkins, President of five-year-old video-content provider Dreamzotic Communications (www.dreamzotic.com), the cost of doing business has risen dramatically. "The payout for unique visitors rose from two cents to 50 cents a click, and a lot of Web master programs pay $35 per signup. Traffic is more valuable nowadays - Web masters realize there's lots of revenue to be made off of each surfer. It costs a lot more today to buy traffic for a pay site."
Jonathan Silverstein is President of Cybererotica (www.cybererotica.com), a megalithic content provider with a paying membership in excess of 150,000. The company also publishes a newsletter with an advertised circulation of 3 million, and gainfully employs some 70 workers.
While Silverstein attributes most of his company's success to innovation and teamwork, he points out that there was far less competition when the Top 10 firm first went online four years ago. "There were very, very few adult pay sites... We were one of the first with click-through programs and banner advertising," says Silverstein. "Now you find [those things] everywhere."
Andrew Edmond, CEO of SexTracker (www.sextracker.com), a leading statistics service for adult Web masters, puts things in perspective: "In 1996, the total number of [adult] pay sites was about 120; probably 50 small, 50 medium, and 20 large pay sites - large pay sites meaning a lot of content and visitors, small pay sites meaning not much content and very few visitors. In 1997, there were about 230 total pay sites; 1998, about 650 pay sites; 1999, 875 pay sites. Today, there are about 1100 pay sites."
The SexTracker analyst says the monthly investment to operate a pay site, regardless of size, has skyrocketed from an average of $10,000 in 1996 to roughly $300,000 today. "And that is purely on content, bandwidth, technology, advertising, and Internet," says Edmond. "That does not include human resources."
As the cost for running a pay site shot up, the monthly cost of running a free site fluctuated, from an average of $100 in 1996, to a high of $500 in 1998, to roughly $350 today. Not surprisingly, the number of free sites - which typically make money by posting banner ads and re-routing traffic - has seen exponential growth. "There were about 5,050 free sites in 1996," says Edmond. "In 1997, [there were] 22,100 free sites; 1998, 43,200 free sites; 1999, 155,500 free sites. And in the year 2000, there are 280,300 free sites."
But a free site on its own seldom generates enough revenue to support a business. The result? Despite the explosive increase in the number of adult Web sites since 1995, the number of adult Web masters has dropped for the first time, and dramatically so, from a high of 50,000 last year to just 40,000 today. "A lot of people got into the market in 1999 due to a lot of media," explains Edmond. "People said, 'Ah, I can put a Web site for free on a free host. I'll put pictures up of my wife, and whatnot.' They never ended up making enough money, and I think they're all trading stocks now," he half-jokes.
Edmond says he believes these sights flopped because of "a lack of education, a lack of understanding of the multi-level marketing nature of the business... of technology, of what visitors are looking for."
In a word?
"Amateurism," he says.
David vs. Goliath
Edmond estimates the revenue share of the adult-Net industry's Top 10 companies to be roughly 60 percent - leaving the thousands of other, smaller companies to battle it out for the remaining 40 percent.
"I think you're starting to see a kind of polarization, where the rich are getting much, much richer, and newbies are really struggling to keep up," says Dakota Kelly, an adult model/ actress who has parlayed her celebrity into a pay site (www.thedoublejranch.com). "It's more of a challenge now to start an adult Internet business than it was two years ago because the market is so much more crowded, the big guys are so much bigger."
Dreamzotic's Pipkins says well-capitalized mega sites have an advantage because they can regularly buy lots of content, which small entrepreneurs can't afford; and Mark Tiarra, Executive Director of The Global Internet Alliance (GIA), believes it's harder for newbies to compete for banner ads against the veteran players who have established long-term relationships with each other.
But not everyone agrees that the larger companies have an unfair advantage. "I don't really think it's necessarily too difficult for the Little Guy, or too easy for the Big Guy," says Convergence's Levine. He points out that Indies are more flexible than businesses with a cumbersome infrastructure: "The little guy has nothing holding him back from just jumping to the next big thing, before the big guy can get there." On the other hand, he says, larger sites "have more resources, capital, and a bigger existing customer base."
However, Mistress X, Vice President and featured performer for Millennium Multimedia (www.fetishvault.com, www.fetishplayground.com), believes that smaller sites have a distinct marketing advantage over larger sites: "Small sites are more personalized, and the surfer can tell that," she says. "Web masters are forced to focus a lot more on customer service than they used to. I spend a lot of my time personally corresponding with members."
Rene, Director of Business Development and Marketing for Zenon (www.largecash.com), a multimedia consulting firm, says the Davids and Goliaths symbiotically need each other. "Big sites prefer to work with the little guy, who has access to the average, everyday person," he says. "I don't think there's war between Web sites. There's so much money going around, nobody can take it all. It's up to you to succeed or fail on the Web."
Mergers, Monopolies, and Acquisitions
There is debate within the industry as to what degree - or even if - the adult Net is moving towards the "Merger Mania" that so pervades big business today.
"I would definitely say so," states Cybererotica's Silverstein. "We've grown our market share by merging or acquiring adult businesses."
But SexTracker's Edmond says, "There have been a couple of mergers that have happened over the last year that were sizable in nature, but I wouldn't say it's a trend. I don't think the market, or profit margins, have eroded enough to really inspire massive sales. In addition, I don't see a lot of sizable companies out there having a big enough summit to swallow their peers. Until companies start falling, failing, and bleeding - that's when I think you're going to see other firms coming in, and merging, or outright buying other companies.
"This industry can support hundreds of thousands of adult Web masters," continues Edmond. "They wouldn't be making as much money; they'd certainly be making money for their time, in the range of $20 to $40 an hour. It's the big pay sites that are competing so heavily with each other, that profit margins are starting to disappear at the larger sites. [When that becomes more prevalent] we're going to see mergers and acquisitions - not the smaller sites, but the bigger sites."
The Ground Floor
So how does the Little Guy get started, and what can he do to become a success?
Dakota Kelly's Double J Ranch features numerous softcore shots of the busty 26-year-old; but, she says, "It's in the best interests of the new Web master to go hardcore. I've got lots of hardcore videos from Dreamzotic; a huge porn star collection."
The Double J has roughly 500 members, which Kelly says she's worked very hard to get. "I was a long time getting online," she reveals. "I really resisted it, because I knew how much work was involved. Anyone who gets into this business and thinks he's going to make a quick buck and not have to work hard is out of his mind."
Case in point: After several months online, Kelly says she's finding it extremely difficult to get her site listed on more than a handful of search engines. "Search engines are flooded with requests to post adult sites," she says. "We're not necessarily welcome. [There are] prejudices you face as an adult Web master... something you don't discuss in polite society." Her frustration extends to adult search engines as well, many of which give the best listings to the highest bidder - a game Kelly cannot afford to play.
"There's a lot of people out there now spending a lot of time and effort playing the search engines," says Mistress X. "It's just the competition. As soon as you get listed, somebody else will knock you down. It's a constant battle."
SexTracker's Edmond says the sheer profusion of sites on the Net has made it difficult to get listed. "Web masters have gone from operating one to two sites to between seven to ten sites," he says. "They're trying to build bigger nets, and those who build bigger and better nets are going to catch more fish.
"Doing that can be a difficult and time-consuming process," he notes. "You've got to go to college for a little while and figure out how all this works. If you don't understand how to build a net right away, you're going to waste a lot of money. And because the cost is going up for operating on the Web, the longer that you go incurring those costs without some sort of revenue stream - [it] tends to put people out of business before they really understood that they were in business in the first place."
Free Sites and More
Mistress X laments that Millennium, which now has eight Web sites (two pay and six free), started up with a pay site. "We put it up, and for the first month, nobody came," she says. "We figured, 'Hey, post it, and they'll come, right?' No, not the case. We had live girls there every night and nobody online." A free site, she says, offers initiates a far less-expensive learning curve.
"Almost before you have a pay site, you have to build traffic," says SexTracker's Edmond. "Then you have to understand what that traffic's looking for. Often people build a site, direct traffic there, and it turns out the traffic actually wants something different. Once you understand what your traffic is looking for - when you get all your links, you've been in the search engines for a while, you've done your traffic trades with your free site - then you turn your free site into a pay site that's going to sell to the consumer who's been coming there in the first place.
"People kind of put the pay site before the traffic, and that's prob- ably not the most appropriate way to do things," says Edmond.
The Double J's Kelly believes a large, varied amount of content is crucial to the success of a small pay site. "From a psychological perspective, porn loses its edge very quickly," she points out. "A picture that arouses and titillates a member one week has less and less of an effect with repeat viewing. It's necessary to constantly have a stream of pictures going through your site that raise seratonin levels."
The Double J includes numerous photo and video galleries, exclusive articles, erotic fiction, links to other sites, and advice columns; Kelly cites Danni Ashe's "What's New?" section (www.dannisharddrive.com) as a good example of a site "bringing fresh, new content to members all the time." She also observes that newer content has generally become more explicit than in the past. "Three years ago, it would have been very hard to find fisting photos online," she says. "Now you can find them just about everywhere."
Partnerships with larger sites and niche-marketing can also help a smaller pay site to increase its flow of traffic. Mistress X is bullish on Millennium's strategic partnership with Fetish Cinema (www.fetishcinema.com). "Larger fetish sites [like Fetish
Cinema] know how to drive traffic, and we know how to provide content. It's the perfect marriage," she says, adding, "Many Web masters find it's more profitable to operate in certain niche markets. You can focus on specifics. It's easier to convert [surfers], because you know exactly what they're looking for."
GIA's Tiarra stresses the importance of advertising. "You've got to get people to fly your banners," he says. He also recommends that everyone, newbies in particular, should try to work with established companies.
Zenon's Rene encourages innovation and awareness. "See what's on the horizon," he says. "Someone who learns what works and what doesn't, who is looking for what's coming... can prepare himself and maybe even create that new thing."
Most of all, Kelly says, a Web master has to be willing to work hard to achieve success. "Those who get in and don't spend the amount of time necessary to make their site fresh are going to fail," she warns. "It can't be just a hobby, you've got to commit to it fully, for years, before you see a tremendous return." And, she adds, "You have to be service-oriented. Your first priority better be making members happy."
The Next Twelve Months
Edmond says that novices today have a four-month "make or break" period on the Net. "It's become more competitive [and] there's a limited number of surfers you can gain to your site everyday. At the same time, the learning curve is steeper, and the market is not as forgiving for those who make mistakes."
So how much longer can newbies and independents reasonably expect to make a successful grab for the adult Net's Brass Ring? "I think forever you'll be able to come up with a site on the Internet and maybe make a little bit of money," Edmond states. "But this is the last year to make your move into the business, if you want to stay in it for the long term."
Though all is not doom and gloom. Like David Levine, Edmond believes the inflexible nature of large corporations, and big business in general, will help keep the door open for the Little Guy. "A lot of the bigger firms aren't keeping up with change, and that's one of their problems, why their markets are shifting," he relates. "To hold onto their market share, they can't move. To gain market share, they can't move. It's a risk, and I don't think they're willing to double-or-nothing their companies to change their business model. So, the smaller guy is coming up with a better market share because of the new things he's doing, and his willingness to give out a lot of his profit to anybody who sends him traffic. And that's where you're getting the market erosion principles. The Top-10 sites, making maybe a 20 percent profit margin, have to compete with the small guys with similar services who are willing to make only 10 percent. Therefore, more people are sending stuff to the smaller guy.
"What's going to happen in the end is everybody's going to make a very, very similar profit margin of around five to 10 percent," Edmond predicts. "That's when you're going to see the mergers and acquisitions happen. So, there's still room to compete."
Or, as an upbeat David Levine says, "That doesn't mean you still can't make money. The Little Guy always has opportunity, if you understand what the market is."
To those fearing cybersex has become, or is fast becoming, an over-saturated market, Cybererotica's Silverstein points out: "I can't predict how far into the future it'll take for the world [at large] to be online. But I know we're very far away from that. Usership is going to continue to grow indefinitely."
Zenon's Rene gushes: "There's so much to go around, so much money, so many people on the Internet. It's not even competition - it's like putting your hand into a jar and grabbing as many jellybeans as you can. There is no limit!"
Indeed, as we enter the 21st century, one-third of the world's population - two billion people - have never made a phone call, let alone logged on to the Net. And of those who do use phones, only a small minority is online; the bridging of the Digital Divide by developing nations represents a great opportunity for what is, after all, known as the World Wide Web - not the First World Web.
Who knows? Maybe one day women in Afghanistan will be stripping away their veils to give full frontal face on the Taliban adult Net...
