educational

Grow in a Maturing Market

Greg Evans
A quick review of the panelist biographies from last month's Internext seminars in Las Vegas reveal an increasing number of former bankers, marketing experts, Fortune 500 corporate executives and more than a few mainstream Internet industry veterans moving into the adult online content market. This alone should be a warning sign to the average adult webmaster that the online adult content market is maturing and evolving into a more competitive business environment.

But even more compelling evidence of this maturing market can be seen in the consolidation of businesses in this sector. While the majority of adult content site owners are still small-to-medium businesses with anywhere from one to a dozen websites, there has been a steady trend toward market consolidation as larger companies with available advertising and promotional dollars launch new sites in established niches that quickly draw surfers away from smaller sites that can't compete with marketing budgets.

"Though the adult industry is not as consolidated as mainstream, currently about 100 global companies run 90 percent of the industry," Mitch Platt of NoCreditCard.com told XBiz.

Why mainstream business professionals and established companies are moving so strongly into the adult online market is fairly obvious. It is a large and growing international market for content and services that, by some estimates, will exceed $1 billion by 2006. Jupiter Research analyst David Card estimates the market size for paid content downloads in the U.S. alone hit $249 million dollars last year and will increase to $269 million in 2006. This doesn't include a large and growing international market or the value of services, supplies and content that support the market as a whole. Consequently, in the past 10 years, the number of new adult content sites has grown exponentially, with everyone from established adult industry icons like Hustler starting new exclusive content sites, to part-time webmasters with splash pages trying to make some quick cash.

The end result of this odd mix of consolidation and proliferation of sites is that the online adult content market has reached a level of saturation where new and smaller companies must develop solid business plans and seek new niche markets to stay afloat. But even then, the competition for revenue will be fierce.

"The old 'throw up a bunch of pictures and movies and they will come' model just does not work anymore," Colin Rowntree, CEO of Wasteland. com, said. "Companies need compelling original content and trendy slick presentations to be successful and must implement as many billing and revenue solutions as possible to monetize it."

Compounding this increased competition and tighter business market has been the added difficulty of establishing merchant accounts and developing billing systems. "It is my understanding that there are only three U.S. banks that still process adult transactions," said Allison Vivas, vice president of operations for TopBucks.com.

The result, according to Rowntree, is that, "it leaves us with the state of affairs we have today: limited billing options, sluggish conversion ratios and a fairly difficult market for new players to enter profitably without a fairly robust paid advertising and promotion war chest."

Drawing Surfers
Designing a trendy site, developing slick content and even solving the billing issues still represent only half of the challenge for new and small content providers. Companies still have to draw surfers to their websites, and that has become increasingly difficult with both the number of sites available to the average surfer and new changes in how search engines rank those sites.

"Google, Yahoo and MSN are diligently making it tougher to get proper rankings that help the industry and small business," said Wayne Cowan, director of Incubator Interactive. "They are adjusting themselves through algorithms to detect duplicate content and mirror sites. Just throwing up a splash page today will get you nowhere."

What all this means for the majority of small-to-medium-sized adult content providers is that over the next two to three years, anyone making a living through online adult content who does not have a strong understanding of industry business practices is going to find themselves struggling to stay online.

But even in this market, there are opportunities for small companies to enter, grow and succeed if they have those business skills and are willing to do the leg work to make their site successful. "Like all industries, customers expect more now, specifically in terms of quality and product depth," said Scott Rabinowitz, president of TrafficDude.com. "Small companies need to be more creative and faster on their feet than ever before, yet there is plenty of room for one-two-person shops to succeed and profit."

"To make money as a webmaster you need a great deal of traffic and it is very difficult to get today," Platt said. "I have watched the top 100 sites over the last 12 months and there are fewer than 10 sites that broke into this list during 2004, and none of those were new sites."

Strategic Practices
So how does an adult content provider succeed in today's marketplace? It all comes down to strategic business practices that one would need to be successful in any industry. "Detailed cost accounting practices, return on investment measurement for marketing and capital expenses and overall asset management are vital to everyday operating stability and long term capitalization of adult web businesses," Rabinowitz said.

"Quality service is also a practice that will never go out of style," Vivas said. "It can be the No. 1 factor in whether a company makes money or not."

One area for potential growth that avoids some of the traps of building a new content site lies in the creation of "free" content sites. These are web portals and information sites that forward surfers on to other paysites and receive compensation for converting the traffic.

Another potential growth opportunity for webmasters lies in the international market. While this requires some additional offline work developing financial relationships with third-party billing companies to handle the foreign exchange, it is still the fastest growing segment of the adult online market.

"The growth opportunities are definitely international," Platt said. "Most new and expanding webmasters overlook the fact that they are under-converting their foreign traffic by not providing translated, local billing solutions. It is by far the easiest way to grow quickly."

While the challenges for new and small adult content companies are increasing every year, it is still possible to find success for those who are willing to implement good business practices and put in the hours and research to develop a successful site.

"It's just a matter of being careful to stay tightly focused on your target consumer and carefully develop marketing strategies to reach these customers," Rowntree said.

"Whether it's a paysite owner or free content program, small companies are still able to tap into different markets and more exclusive content," Vivas said. "As long as that content isn't too much of a micro niche, the company can find itself with very little competition and a decent membership or client base."

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