Online players can learn a lot about marketing and revenue-generating techniques from the porn industry. Most companies are about three years behind it, as Maria Nguyen reports.
WHILE the words "adult industry" and "online" used together conjure up stereotypical and often negative images of seedy pornography downloads, the startling fact remains that this is now
one of the most advanced industries in its use of the Internet, relying on alternative uses of technology and clever traffic management strategies to make their mark.
These strategies and uses of technology are almost unknown outside this sector and yet they are valuable to any service or content-driven Web site. More than that, it is a real possibility the survival of B2C e-commerce could depend on integrating the lessons and strategies of the online adult industry.
However, at the heart of traffic management is a principle that many in the online world have come to acknowledge-that successful e-business depends on specialisation and offering niche products. Put simply, these strategies facilitate the online adult industry's ability to offer niche products, and niche offerings are where many believe the future of B2C lies.
More than just 'sex sells'
As other dot coms crash and burn, this controversial online community-which includes, but is by no means limited to, pure porn sites-is adopting and perfecting traffic management strategies that generate significant amounts of revenue and profit that they could be the envy of other online operators.
Sex sells, but supply needs to cost-effectively meet demand, and when there is as much competition on the supply side as there is in the adult business, profitability depends on more than just the promise and supply of the desired 'adult' products-especially now that increased supply/competition has reduced online adult products to "commodity" status.
Success, as the porn industry has shown, lies in specialisation and employing niche and collaborative marketing strategies that optimise profitability-the core of which is in the management of online site traffic.
Pioneers of profitable e-business
Such is the phenomenon of the online porn industry, that it has been researched and documented by leading analysts including Jupiter Media Metrix Australia CEO David Stewart-Hunter, and Gartner research director Joe Sweeney.
According to Sweeney, pornography is one of the most adaptive and innovative industries, with online pornography doubly so. He believes the adult industry is up to three years ahead of other industries in terms of business marketing models on the Internet.
"The dot com crash has left many people confused and wondering, 'What did we do wrong, where did our brave new economy go?' Sweeney says.
"The good news is that there is a group of people that can show you what the future of B2C Web sites will be. Unfortunately, they are the pornographers.
"But they are the pioneers of profitable e-business because the industry is highly competitive and fragmented."
The adult industry is not just about downloading pornography pictures-which are so common they're no longer profitable.
Sweeney believes the online adult entertainment industry is moving away from providing a commodity (sex) towards specialisation. Hence marketing costs are lower because it is more focused and niche.
"The online porn sector of the adult industry is using referral revenue models and other traffic management programs because its sites are niche and specialised," Sweeney says. "Consumers don't want sex - they want their own particular sex (for example, they do not just want nude women, they want nude women dancing) so specialisation and fragmentation has become important for the industry," Sweeney says.
Online porn strategies
While the adult category encompasses more than just porn - adult e-tailers such as Adultshop.com sell sex goods and services without offering pornographic material -much of the success of the adult industry rests with the e-marketing strategies employed and perfected by the online pornography sites.
The porn industry's renewed success amid current dot com failures in other sectors lies in its use of traffic management programs. These necessitate the effective adoption of innovative technology-something for which the online adult industry is renowned.
In his article, "Traffic - Map Your Way to Success" posted on online adult industry resource centre Ynotmasters.com Web master Jim Nesbitt says traffic is the heart and soul of the online adult industry and porn is not about porn.
"It is about traffic and the sooner you realise this, the better off you will be," he says.
As Sweeney says, "Porn Web masters are masters of Internet traffic and partnerships. Every leading porn Web site will admit that detailed traffic management programs are the secret to their success".
Referral revenue models
One phenomenon of online pornography is the pay site.
Pay sites such as Adultrevenueservice.com, Cencash.com and Truecash.com produce a multitude of different pornography sites but also act like agents in that they develop referral revenue programs that pay smaller, amateur sites for referring consumers to their network of porn sites. The smaller sites pay a sign-up fee to join a particular referral program and the commission that the smaller site earns for referred traffic is usually a percentage of the sign-up fee.
Pay sites pay a commission for referred traffic and pay again when that traffic is converted to membership.
If a referred consumer joins as a member of the pay site, the commission ranges from 70% to 100% per month. In addition, the commission is ongoing so the referring site is paid for each month the member stays a member.
A Web site refers or sends traffic to a pay site by using text links, buttons, banners or pop-up forms as the consumer is attempting to leave (exit traffic).
Many porn Web masters, such as Joe Crigger, proprietor of Dirtytricks.net, make most or all their profit from referral programs.
"I make all my money from referring other Web sites and I think the overall reason the industry is so successful is because we are willing to pay other Web masters for traffic," Crigger says.
The adult Web master business is another successful part of the online porn industry. In addition to referring consumers and potential subscribers, Web masters also make money by referring other Web masters or, as Crigger calls them, "newbies" to pay sites.
"Pay sites will pay us about 5% commission on anything the newbie makes. Say I send a new Web master to a pay site and he signs up for one of its referral programs. Based on the referral program, say the newbie receives $500 commission from the pay site each month, this means I get 5% of the $500 each month from the pay site," Crigger says.
Therefore, referral revenue models by their nature are based on working with competitors and what Sweeney calls "making alliances with enemies that can be trusted".
"It's so competitive and you can decide to work with the competition or spend money trying to beat them. But it's such a huge area, you'd be spending a fortune. So instead you earn commission for allowing the competitor's window to pop up as soon as yours closes," Sweeney reasons.
Revenue tools
One tool used by many leading pay sites is a processor - a third party billing system such as iBill.com. In the newbie example just mentioned, iBill.com keeps track of the referred traffic, hits, and the profit a pay site achieves. It even sends out pay cheques on behalf of the pay site. It sends the newbie the commission cheque of $500, it sends the referring Web master 5% of what the newbie made, it pays itself a small fee and the remainder goes to the pay site.
Another tool used by porn sites, an Adult Verification System, is a network of sites that verifies a user's age based on the credit card details given. Once the user's legality is confirmed, they become a member of that AVS and are given a password that can then be used to access all the sites in that AVS network.
So, in effect, an AVS, such as Adult Check, Cyberage or Sexkey, is a traffic management solution disguised as a billing and age verification system.
Not only does it verify age and billing details, it is a network that manages and directs subscriber traffic to the sites within that network.
An AVS will pay Web masters for every subscriber they send the AVS. For newbies, this is where the money is because they can set up a small site without a major investment. As part of the network, the AVS will send the newbie traffic which they can then upsell to other pay sites that will pay a commission for that traffic.
According to Crigger, a smart Web master will also upsell that traffic to sites that sell erotic toys, videotapes, live video feeds, and even other AVSs.
"This way, you earn extra commission- although it's much smaller at generally 15%-20%, it's still profit, like icing on the cake," Crigger says.
A good example of niche marketing in the online porn industry utilising an AVS is Jadecool.com, which attracts 3000 visitors per day. The site is set up to resemble a virtual Asian go-go bar featuring live video streams of dancing Asian girls, and live and private one-on-one video chats utilising the latest two-way video technology. Members can even buy drinks for the girls.
However, if a member types in "Swedish go-go dancers" and the site does not offer Swedish go-go dancers, it will refer the user to another site within the AVS, in the process earning commission for itself.
Multiple mini-sites
Multiple mini-sites are free, low-maintenance sites that are highly specialised and limited in content (for example, blonde bisexuals). Mini-sites supplement the core porn site and are widely indexed with search engines and link-exchange programs. The aim of a mini-site is to gauge the specific interests of the consumer before referring them back to relevant pages within the core subscription site to secure sign up.
For example, Karasxxx.com, a popular porn pay site, has a never-ending maze of free mini-sites and referrals, each dedicated to almost every fetish and specification known.
According to Sweeney, this approach is so successful that some online porn sites process up to 300 free mini-sites, all gathering specific consumer interests prior to passing consumers into the core site.
Lessons for the B2C sector
The online adult category centres on the business of directing and managing traffic to maximise revenue and profits.
As Web master Joe Crigger puts it, "It's all a numbers game. It's about traffic, and the people with the most traffic will send it to where they can make the most money."
Sweeney believes that in three years' time, the B2C market will head the way of the online porn industry: that is, it will offer niche, specialised products and utilise collaborative traffic management programs to maximise profits.
"The online consumer industry will head this way. The adult industry is two to three years ahead in terms of technology adoption and customer service. But we are going through a very conservative era of the market, so it will be about three years before the average online consumer company will use these strategies," Sweeney admits.
He believes Amazon and other consumer sites still have many lessons to learn and are not yet optimising traffic as do the traffic management programs perfected by the online porn industry.
According to Sweeney, there are two other important lessons that the adult industry can teach the B2C operators.
The first is business innovation: the adult entertainment industry has continually adopted existing technology (that has been invested elsewhere and often used for other purposes) to constantly improve customer service or make its business models more flexible.
The second lesson is that community is king. In the early days of the Internet, the mantra was "content is king". However, Sweeney says it is not content, but community, that drives value online. The birth of niche sites that encourage users and staff to form communities overtook content-oriented adult sites. (A prime example is Hotbox.com, developed by a Web savvy model).
Leading dot coms outside of the adult entertainment world have already discovered this-Yahoo and Amazon being the most high profile.
However, there is a new lesson to learn: the greater the community and connection with the people behind a Web site, the greater the profit margins.
"Traditional Web sites should look at how they currently offer customer service and take note of the increased margins closer interaction brings," Sweeney advises.
While adult e-tailer Adultshop.com does not offer pornographic material on its Web site, and is not part of the "online porn" industry, it is successfully borrowing this sector's revenue referral models.
Not wanting to give too much of the company's secret formula away, Adultshop.com's head of marketing Marc Loveridge says the company's most innovative e-marketing strategies are its traffic management techniques, which include affiliate partnerships.
"We continually look at traditional offline sales and marketing techniques and try to apply them to our shop," Loveridge says.
Loveridge says purchasing and selling exit traffic is not new to the Internet and acknowledges that porn Web masters have been doing this for years. He also agrees that these techniques are yet to be adopted by most Australian mainstream e-tailers.
"At its worst, purchasing exit traffic will present a nauseating pop-up to a non-qualified browser. At its best you will show an online shopper (wallet open) the exact product they were after.
"The key to this strategy is test and test again. In order to find exit traffic that works for us, we test a large number of sites over a period of time with different supply to identify the optimal mix of traffic and offer. The result will often be a complex referral model acting as a filter where users are channelled through a series of sites both external and company-owned with the ultimate goal of attracting a transaction.
"With the curve on Australian Internet usage graphs leveling off and marketing dollars never more important, it would not surprise me if we start seeing other top Australian e-tailers donating more time to perfecting their traffic strategies," Loveridge says.
