Introduction

Sex shaped the Internet as it exists today.

Whether you call it “adult content,” “smut,” “erotica” or “pornography;”

whether you consider it disgusting or titillating, the facts are

clear that without business and technical pioneers in the online sex

business, the World Wide Web would never have grown so big so

quickly.

Without consumer demand for big, bandwidth-hogging sex pictures

and streaming video, Cisco would never have sold so many

routers and Sun Microsystems so many servers. Without programming

pioneers trying to perfect video streaming software that would deliver

images of copulation and procreation to paying customers hooked up

with a 28.8 kbps dial-up modem, it is unlikely that CNN would be

effectively delivering news clips of global breaking news. Without sex-oriented

chat and forums to sustain its early years, America Online

might never have survived. The e-commerce payment systems that are

so common today would be in a far more primitive stage of development,

security and usability. Indeed, without advertising from sex sites,

Yahoo! would be just another Web company with a bloody red bottom

line.

At the foundation of any market niche is its customer base, one

which is broad, deep and global for online porn.

Research firm Jupiter Media Metrix says that, of all the Internet

users in the entire world in July 2001 (roughly half of whom are

American), 31 million of them logged on to an Internet sex site. Those

users averaged 85.5 minutes per month with the time split among five

sessions. This represents almost 35 percent of the world’s Internet

users, a number that has held fairly steady since 1998. Significantly, the

research firm says that access to porn sites is almost evenly split

between home (52 percent) and work (48 percent).

In looking at all numbers, whether they are from a research firm,

company or self-interested industry organization, it’s important to conduct

a “smell test:” look around and see if there are other numbers or

indications that make particular statistics smell like a rose…or compost.

Having similar numbers from different sources using different

methodologies helps the smell as does having relatively close numbers

from geographically divergent areas.

Significantly, competitive research firm Nielsen/NetRatings arrives

at pretty much the same numbers using slightly different methodology

as does European-based NetValue which indicates that these high

numbers are not statistical flukes or passing e-consumer fancies.

NetValue’s traffic analysis shows that about one-third of all

American Web surfers visit adult sites at least once per month. In

Spain, NetValue says that 40 percent of surfers spend an average of 67

minutes per month logged on to porn sites while 33 percent of

Germans set the record for European duration with an average of 70

minutes per month. The French, famous for liaisons and mistresses,

access online sex the least with 28 percent of them spending just 46

minutes per month at sex sites.

A closer look at the numbers show some equally revealing details.

NetValue said that while people 50 to 64 years old are not the most

frequent users, they spent the most time at adult sites.

British women are the most likely European women to spend time

at porn sites with 28 percent of them connecting versus the European

average of 20 percent. Media Metrix says that about 25 percent of

American women are regular visitors to online sex sites.

Micah Jericho, a former psychotherapist who now runs Passion

Productions, a network of adult sites including Kinky Cards

(www.kinkycards.com) and the Fetish Network, said that women are

enthusiastic customers when they are given sexual content that is more

emotionally and mentally stimulating than the simple display of

graphic sexual images that appeal to men and that so far dominates

online sexual content. Jericho said that 60-80 percent of the customers

at his sexual paraphernalia site, the Adult Toy Chest

(www.adulttoychest.com), are women. Jericho’s experience is backed

up by an internal study conducted by the Marriott Hotels in the mid-

1990s which found that more than 60 percent of the adult in-room

movies were rented by women.

Jane Duvall, owner of adult portal Jane’s Guide

(www.janesguide.com), told a San Francisco panel on adult content

that the reason so few women are sex site customers is because there is

so little that appeals to them. Women, she said, are drawn by a sense of

intimacy and turned on more by erotic text than by images.

As more sites cater to women’s erotic desires, women will undoubtedly

become a larger percentage of sex surfers, reflecting the gradual

equalization seen in the Web as a whole. As recently as 1995, women

comprised less than 25 percent of Web traffic. Indeed, according to

Net traffic researcher Media Metrix, the number of American women

on the Web did not equal the male online population until the beginning

of 2000. As more women log on to the Internet and as more adult

Webmasters create online sexual experiences geared toward women,

everyone I spoke with anticipates that the percentage of women accessing

cybersex will increase.

Servicing all these millions of cybersex surfers, many of whom are

seeking very specific niches and fetishes, requires a galaxy of sites.

Research from Datamonitor and Forrester Research put the total number

of Internet porn sites at 50,000 to 60,000 while AdultCheck, an

age verification service for sex sites, says it has more than 80,000 participating

sites. And while the largest of its sort, AdultCheck is one of

about a dozen age verification services.

All of this indicates that—on the Web as with all the technologies

before it—people have always been willing to pay for sex. Always.

Companies that ignore this biological imperative do so at their own

risk, something that electronics giant Sony knows all too well. At the

Introduction 3

1998 Consumer Electronics Show in Las Vegas, Sony executives admitted

that the key reason its technically superior Betamax technology

succumbed to VHS was the company’s refusal to cooperate with the

migration of porn flicks to home video. Having learned that lesson,

Sony says they—and all their competitors, including arch-rival

Pioneer—are cooperating to ensure the availability of adult content on

DVD. Indeed, while DVD technology allows video producers to provide

viewers with multiple camera angles, with very few exceptions,

only adult video producers are actually delivering products that take

advantage of this technical feature.

The compelling and demonstrable demand for online sex has provided

profits for sex sites that have eluded all but a very small handful

of other Internet businesses. The dotcom meltdown that started in the

spring of 2000 saw numerous high-profile failures (Pets.com,

garden.com, mothernature.com) and stock valuation disasters

(TheStreet.Com, WebVan.com, eBay.com).

Venture capitalists bear much—probably a vast majority—of the

responsibility for the DotCom crash of 2000 because they foolishly

threw away billions of dollars to fund ventures that had no clear path

to profitability. Flaky ideas grew fat and flashy and then cratered spectacularly

when the money tap got turned off. But a healthy, growing,

profitable Internet market sector—sex—was ignored.

This complete neglect for profitability lasted until the spring of

2000 when investors (and a few months later, venture capitalists)

decided that the business of Internet business ought to be making

money. This quickly caught the financial attention of every major

search engine from Yahoo! to Excite and AltaVista, which all make big

money from sex-related advertising, selling to an adult content advertiser

the right to have its banner advertisement appear when a searcher

types in “sex” as an inquiry. In fact, search engine pioneer AltaVista,

desperate for profitability following the DotCom Millennium meltdown,

turned a covetous eye to the very profitable traffic-for-cash

arrangements developed by adult webmasters. These deals provide for a

cut of any revenues generated by surfers who spend money at a site

after having been referred there by a banner ad on another website. In

November 2000, AltaVista signed a deal with international sex conglomerate,

Private Media Group Inc. (Nasdaq: PRVT), to post a banner

for one of Private’s properties at the top of the search results pages

on all sex-related searches. Private CEO Berth Milton said that half of

all searches on AltaVista are sex-related.

Sex has been the only consistently profitable online sector because it

started out with a product for which consumers are willing to pay.

There are rare profitable bright spots from place to place on the

Internet. eBay, one well-known example, has made profits in the online

auction field. Yahoo! has had profitable quarters in the search engine

sector, but its own auctions that compete with eBay have not. And

while Consumer Reports makes a profit on the Web by re-posting the

data from its paper version, the field of online content is paved with

the decomposing bodies of those that are long and DotGone. The

online sex sector, too, had some poorly run sites that didn’t make it. An

anemic crosswind of the tech downturn reached the adult sector with a

mild slowdown in mid-2001. While this sorted out a number of poorly

run, smaller sites and forced some big players to lower affiliate payments

by as much as 10 percent, the sector as a whole remained healthy

and profitable, something which is impossible to say about any other

online market niche as a whole.

Adult site owners also figured out that the Internet could solve some

compelling problems for consumers: access and anonymity. Further,

sex and sexual desires represent a perfect subject for a medium where

only a small market segment (let’s say less than 1 percent who might

want sexually-oriented cartoons like XXX-rated Japanese anime’) is

actually a very large number of customers (when measured globally)

who can be reached and served online.

Besides meeting a compelling need, a primary reason for the profitability

of so many online sites is the lack of available outside investment

capital. There are no venture capital firms with deep pockets

Introduction 5

behind adult sites. Most are bootstrapped by small entrepreneurs or

built as an extension of an existing print or video porn business. As

such, profitability, cost cutting, and serving the customer’s desires have

always come first for adult site webmasters. While many venturefunded

companies operated in a fantasy land detached from the real

needs of their customers, reality and necessity pushed adult sites into

cost-effective innovations that cut a short path to a black bottom line.

This drove the development of easy-to-use payment systems, video

streams that did not require a browser plug-in and worked on slower

dial-up lines, real-time chat that actually worked, live Web cams, and

business model innovations such as affiliate networks, performancebased

advertising, traffic sharing, and even those pop-up console advertising

windows that are annoying but highly effective.

The adult sites have also learned to use the minimum amount of

technology to deliver their product. Many of the websites that tanked

in 2000 truly deserved to tank. Take Boo.com: everything about the

site was about using the latest, greatest, cutting edge technology. The

result was a pathetic disregard for users, most of whose browsers did

not support the site’s engineering or the need for the sort of high-speed

broadband connections found in less than 20 percent of American

homes. Arrogant Web designers and engineers expected consumers to

spend their valuable time downloading and installing additional plugin

software in order to have the privilege of slowly accessing their site.

In the wake of investor demands for well-run, reality-based Web

operations in 2000, the profitability of adult websites started to produce

respect and an unaccustomed degree of respectability for those in

the digital sex trade. As described in more detail in Chapter Two, that

mainstream acceptability is expected to grow as larger companies such

as AT&T, Akamai, DirectTV, America Online and others get more

involved in highly profitable pornography by shaping sexual offerings

for their paying markets despite protests and threatened boycotts by

stockholder groups. While most of these companies have previously

been content to profit from the sexual use of the communication

pipelines they provide to their subscribers, they have begun to cut revenue

deals with porn vendors. Much of this is driven by the belated

realization that just as sex drove the acceptance of the VCR (and gave

dominance to the VHS format), it is driving acceptance of DSL, cable

modems and other broadband connections, video on demand, DVD

production innovations, continued technological innovation, and

above all, profits.

“Pornography has become a lucrative online business with many

[mainstream] companies now recognizing it as a valuable additional

revenue stream,” said NetValue executive Alki Manias. “And this

would seem to be a stable business area—the popularity of online

pornography continues unchecked.”