Lessons From the Online Sex Sites

By: Steve Outing

Online news and content publishers are getting increasingly
desperate. We’re seeing lots of new revenue techniques being
tried – from mega-size Flash banner ads
and pop-up ads, to ad-free paid subscription services.
The mantra, of course, is “Make More Money, Fast.”

It’s no secret that sex and pornography is online content that is
successful at bringing in money. Adult sites employ lots of
techniques that mainstream content and news site have avoided,
and the sex industry has been successful online where mainstream
publishing has mostly failed – in charging for content. (The
common wisdom about the online porn industry is that it’s a
couple of years ahead of mainstream online content in terms of
technology used and business models – as was suggested in a
recent Gartner Group research report, “Referral Revenue Models
Perfected by Adult Web Sites.”)

During this depressed period for online news/content, it’s worth
looking at what the sex industry is doing online. (Indeed, we’re
now starting to see adult industry executives being invited to
mainstream media conferences. The CEO of softcore sex site
Danni’s Hard Drive, former stripper Danni Ashe, is on the
speaker line-up for the Internet Content West
conference in June, for example.)

So, wipe that blush off your face and look to see what the cyber
sex folks can teach you.

Money for content – really!

The biggest difference between adult and mainstream Web sites is
that in the online adult business, the audience is much more
willing to pay. And the reason is that adult Web sites offer
something that is clearly of higher value over what sex
consumers can get elsewhere.

So says Frederick
Lane III, an attorney and sex industry expert and
business consultant who last year wrote the book, “Obscene
Profits: The Entrepreneurs of Pornography in the Cyber Age”
(Routledge, 2000). Lane says that adult sites have succeeded in
selling content because they’ve got the value thing down.

There’s a lot of competition among adult paid Web sites, and
monthly subscription prices (the most common model) have been
going down as a result. The typical monthly rate for a niche sex
site is $9.95 to $14.95. (Broader-content sites tend to charge
more; Danni’s Hard Drive charges $24.95 a month for its “HotBOX”
membership, and CyberErotica charges $39.95 a month for access to
several hundred thousand images and videos.) But what the
consumer gets for that significant amount of money, Lane points
out, are access to thousands of photos and videos (and other
“goodies” like live Webcams and interactive chats). By contrast,
the consumer can buy a copy of a magazine like Penthouse
for $5 on a newsstand, but only get a couple of dozen photos
– and no video.

There’s also value in the privacy that adult Web sites offer. You
can subscribe for access to all that randy content without the
embarrassment of buying an erotica magazine or an X-rated video
from a sales clerk. With that kind of advantage over adult
content available in traditional media forms, it’s no wonder that
paid content is the dominant source of revenue for the online
adult industry.

Lessons for the mainstream

Lane says that mainstream Web publishers need to better define
the value that consumers get if they are to pay for content. If a
news site tries to sell monthly Web subscriptions, is the value
of the offering really that much better than what consumers can
get from traditional media (or elsewhere online for free)? Lane
says too often there’s not enough value to make the sale
appealing.

An example of a mainstream site that does give good extra value
is ConsumerReports.org, which offers a $24-a-year online
subscription (or there’s a $3.95 per month option –
significantly less than the paid sex sites are able to
successfully charge). The value is in access to Consumer
Reports’ database of product reviews. It’s much more
convenient to pay the price for access to the searchable database
than to comb through back issues of the print magazine.

Lane’s advice to mainstream sites is simple, if difficult to
implement: “Focus on figuring out what content is compelling to
the consumer, what sets (your site) apart,” and charge for that.

Make money from your competitors

One of the more interesting techniques used by pornography sites
(and eschewed by mainstream sites) is paid referrals to other
content sites. It’s common to visit a sex site and see lots of
banners and promotions for other sites. On free sites you
typically see these before getting to the free content; paid
sites often refer you to other sites when you leave their site.
The referring site gets a commission or bounty for customers it
sends to other sites who then spend money on those sites.

As Lane points out, referring your customers to a competitor is
acceptable practice in the online sex industry because its member
businesses tend to have an “us against the world” view. (Their
thinking: “Since much of the world views us as ‘bad,’ we have to
band together even though we’re competitors. And there’s enough
money to go around for everyone.”) Except for the occasional
small network of content sites, this attitude just doesn’t fly in
mainstream Web publishing.

This referral revenue stream is especially important to free-
content sex sites, making up the majority of their revenue.
Here’s a typical technique: User goes to the site’s main page,
where he is greeted by several banners for other sites, plus an
“Enter” button or link. On the next page (after user clicks
“Enter”) will be a large, full-screen ad (what we might call an
“interstitial”), with a “No thanks, let me see the free stuff”
link at the bottom. The free site either gets referral fees when
one of its users clicks through to the advertiser’s site and pays
for a content subscription, or perhaps collects money directly
for placing the ad.

The basic idea of the referral system is that if a site doesn’t
meet the needs of or appeal to a current Web visitor, there’s
still money to be made by referring him (or her) to another site.
(Don’t just let him go.) So pornography sites try to be
sophisticated in what they present in the way of referral links.
If a site doesn’t appeal to a Web visitor, it will offer links to
related niche sites (for example, bondage sites offer links to
each other). And the referring site picks up a bounty for each
referral.

Lane is not optimistic that the sex industry’s online referral
system can be big in the mainstream content world. But in some
niche areas it does make sense. For instance, for a Web site that
covers the world of pottery and sells it, it’s wise to join with
other pottery sites and trade referrals and commissions on sales
facilitated by competitors. Within certain news industry niche
Web services, the concept is worth investigating.

It’s important to note, however, that referral models are on the
decline. Lane, who runs seminars for the sex industry about
online business models and legal issues, says referral fees are
lessening, terms are being tightened, and the referral or
“affiliate” programs are “eating themselves.”

Interact is where it’s at

An area where sex sites excel is interactivity and community,
Lane says. The paid sites, especially, long ago learned the
importance of interacting with their customers in order to retain
customers and keep churn low. Just as the “stars” of the paid sex
sites will interact with their customers, mainstream news sites
need to facilitate direct user-journalist and user-celebrity
interaction (e.g., live chats with a coach or athlete), as well,
Lane suggests.

And just as video is an enormous attraction for adult sites, so
too is adding valuable video content to mainstream news sites to
make the sites stronger as multimedia enterprises, he says.

Pornography sites these days also are more niche oriented than
earlier in their history. Mega-sex sites, that featured content
from all forms of sexual preference, have been whittled down to
fewer than 10 major players. (The adult Web industry has
experienced the same dot-com shakeout that hit mainstream sites.)
The leading remaining mega-site example is CyberErotica, which
has several hundred thousand paying subscribers.

Plentiful are smaller niche pay sites, which typically have a few
hundred paying subscribers interested in particular types of
pornography. These niches are where the money is. Small sites
typically generate about $30,000 to $40,000 in revenue per year
(these are often run by individuals), while medium-sized sites
can generate several hundred thousand dollars a year. The biggest
sites, estimates Lane, can generate millions per month. Danni’s
Hard Drive is estimated to be bringing in well over $10 million
annually.

Just like the mainstream online content and news industries,
adult Web sites are experiencing an ad crunch. “Those that
continue to do well are those that created subscription models,”
says Lane.

That’s possibly a lesson for mainstream Web publishers.

Other recent columns

In case you missed recent Stop The Presses!, here are
links to the last few columns:

o Mining Your Site For Multiple Revenue Streams, Wednesday, April 4
o In Island Monopoly Media Market, Net Provides an Alternative, Wednesday, March 28
o The Word of Mouth Web Concept, Times 2, Wednesday, March 21
o Archive of columns


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Got a tip? Let me know about it If you have a newsworthy item
about the online news/interactive news media business, please send me a
note.



This column is written by Steve
Outing for Editor & Publisher Online. Tips, letters and feedback
can be sent to Steve at steve@planetarynews.com


Copyright 2001, Editor & Publisher.

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