The State Of The Industry: May, 2004
Helping to shed some light on the current situation was a distinguished group of industry luminaries, including Epoch's Chris Mallick, Tony from National Net, CCBill's Ron Cadwell, Legendary Lars, and Andreas from Naughty America (formerly SoCal Cash). Lensman from adult.com was on hand to help moderate and participate in the discussion.
One of the first topics for consideration was the ongoing situation with VISA, their site registration and approval process, and their 1% chargeback rate cap. Addressing concerns over the length of time it takes to have a new URL approved for VISA processing, Chris Mallick cited his company's stringent Web site examination process, and the similar process that VISA performs. While some folks have criticized the process as taking an overly long time, Mallick pointed out that Epoch performed their tasks as quickly as possible while still being thorough and ensuring VISA compliance, stating "We don't make money until you're making money."
On the subject of chargebacks, and the amount of time a site could exceed a 1% chargeback ratio and still be allowed to process VISA, Ron Cadwell stated that "If a program is on the breakout list [turning over 1% of sales into chargebacks] for over 3 months, then they're terminated." The discussion continued to reveal that while most careful operators will not have any problems maintaining a sub-1% chargeback level, others would have difficulty, at which point Cadwell added that "Deceptive marketing and hiding your cancel links leads to chargebacks."
Moving on to the topic of "What's Hot?" Andreas commented that "A lot of companies are giving less and less away on the outside, and using edited tours." The degree of censorship on tour pages is often debated with every approach from full on explicit hardcore to 'PG rated' fare being offered. According to Andreas, "If you're a good company with quality, unique content, you don't have to give it all away."
Lensman, who's sites are noted for their relatively tame tours, opined that "The hardest thing to do is to produce a converting tour without using explicit content" -- especially when your competition is using a more 'hardcore' tour.
Andreas went on to comment that sponsors are moving away from simply trying to attract new affiliates, and focusing more on developing existing ones, similar to the way in which pay site's are now much more heavily concerned with retention than acquisition, stating that "Sponsors are looking to re-establish old, solid connections rather than seek new, 'newbie' affiliates."
The discussion moved onto the subject of pay site price points, with Lensman discussing his company's innovative "$10 sites," and Legendary Lars saying that "I still see the end game as being prices dropping and exclusive content... Instead of $40 a month sites, you'll charge $5 a month -- but you'll have a one to two year retention."
Chris agreed; "We hardly see $39.95 memberships anymore -- the average price is around $24.95 which has a lower chargeback ratio -- but the trend is going even lower."
Tony from National Net looked at the current metrics surrounding the hosting business, and offered some insight into the current adult marketplace for the few newbies in the room: "Getting into this business is a lot harder now than it once was... It's not as easy as buying a digital camera at CompUSA, putting up a few pictures, and calling it a Website." Addressing the issue of customer expectation, Tony continued, "Higher speed access into people's homes let's them see more than just pictures" -- and it's "more than just pictures" that they've come to expect. Tony summed it up nicely by finishing with this telling comment: "While we're working twice as hard and making half as much money, that half is still pretty good..."
Ron Cadwell echoed the sentiment, "It's now a mature industry -- how can a newbie on a shoestring budget come in and compete with a corporation employing 25 people?" Chris Mallick agreed, then added that "It's a year-by-year, not a decade-long evolving industry... give them something innovative, but don't give it away on the front end."
Legendary Lars pointed out that "We're coming into an age of consolidation in this industry," referring to the acquisition of companies and mergers being seen and predicted.
CCBill's Ron Cadwell suggested that it was time to end the building craze; saying "Don't focus on building new sites -- think of every URL as a new business -- you're better off figuring out how to better serve your existing customer..." Andreas agreed, offering a parting bit of wisdom: "Focus on building solid relationships with your hosts, sponsors, and affiliates."