Naked innovation online

Tech in the adult industry: Companies providing pornographic content are rarely seen as case study material by IT vendors, but maybe they should be

Although few at the top of the IT industry would like to publicly admit it, adult entertainment companies have been first to market with many of the technologies which are now seen as cutting edge by mainstream businesses.

While the likes of Amazon were struggling to generate even modest revenues during the dot-com boom, adult sites were turning over billions of dollars and even generating profits. Because much of the adult industry operates free of the scrutiny to which other industries are subject, there is more freedom to exploit new technologies and use them in groundbreaking ways.

"While you might not call it innovation, the online adult industry was the first to turn a profit on the Internet. This focus on making money, which was sorely lacking elsewhere during the late 1990s, led the industry to pioneer billing solutions," says Mark Pace, president and co-founder of Bondage.com. "The billing gateway, something that lets many small businesses conduct online transactions, was designed for adult sites, for example".

Bondage.com
Other advances included software to enable customers to use multiple billing providers so that transactions would continue to be processed even if one or more of the operators were having issues. "The industry's biggest problems hang around actually getting paid. Making it easy for someone to pay you seems like a no-brainer, but that simple, small transaction of money really consumes a lot of time for every company. Having a transaction take even a few seconds longer than normal can take a cut off the top quickly," says Pace.

But billing is not the only area in which adult entertainment has led the field and, in fact, the sector has nigh-on created markets for new technologies, such as streaming video and digital rights management. "While problematic, digital rights management is widely used in the industry and has saved huge sums of money by preventing the pirating of content. The adult entertainment business is particularly cost-sensitive and, therefore, there is a willingness to adapt and push new technologies to cut costs," says Gary Thoulouis, brand manager at Private Media Group.

Digital rights management
But this alone does not explain why the sector has been at the forefront of technical innovation for so long. Paul Jackson, principal analyst at Forrester Research, believes that there is a combination of factors behind porn providers' pioneering spirit.

Firstly, there is a naturally high demand for adult content online, which made it relatively easy to translate into hard cash — at least, easier than pet food or toys. This ready-made market enabled adult-related...

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...organisations to come up with a business case for exploiting new distribution channels, far more so than in other industries.

"For an adult movie producer, for example, the Internet opened up markets to a global audience rather than limiting sales to, say, sex-shops in the US. They could spend £200,000 on server farms to provide streaming video and chat and probably pay it off in a couple of months," says Forrester's Jackson.

Another related driver, however, was the need to find "better ways of satisfying demand ahead of legislation". "Cultural and legislative barriers have always driven innovation because people spend time working out what's illegal and what's not and invent a technology solution to get round the problem. Videos resulted from that impetus because they were originally unclassified and the age rating didn't apply to them — only to films played in cinemas," Jackson explains

Ratings don't apply
Recently, another factor that has influenced the market is simply the plethora of adult Web sites now available. "The industry reaped the benefits of a low cost-of-entry in 2000, but it's so low that anyone can set up a server with videos and pictures and start charging. This has led the industry to commoditise to a degree," says Jackson.

Pace agrees, but believes that this, in turn, has spawned more innovative approaches to presentation. "Finding a way to differentiate your site from others is the key. For the most part, the content you have on one site can be found on another, so the only way to keep your customers is to find a way to present that content to them in a format that is somehow better than your competitors," he says.

This has led to the adoption of technologies such as searchable databases and instant access, which "came straight out of the desire to get adult content as fast as possible". Other techniques include services such as geolocation. This enables web sites to determine users' geographic latitude and longitude and work out in which city or region users are located by comparing their IP address with the known locations of local servers and routers. "By using geolocation, sites can figure out who to pair their users with, what they may be interested in because of their area and so on" says Pace.

Porn in your pocket
But the fact that "content delivery is what the adult industry is all about" has also led to the exploration of new channels to market. Porn in your pocket in the shape of devices such as mobile phones and PDAs is an attractive proposition to the adult industry.

Although revenue predictions for adult content on mobile devices vary from analyst to analyst, the consensus is that it it's going to be lucrative. Juniper Research, for example, estimates...

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... that in 2004, the global adult entertainment industry was worth between $31bn and $75bn (£18bn and £44bn) in total, of which content delivery via mobile devices accounted for $664.1m, the equivalent of between one and two percent of sales.

About $256.6m of these sales came from text-based content and the remaining $407.5m from rich media, but the total equated to about 6.4 percent of the total mobile entertainment market. By 2005, however, revenues are expected to pass the $1bn mark and hit $2.1bn by 2009.

Strategy Analytics, meanwhile, is more bullish. It upgraded its growth forecast in March this year to predict that the market would rise in value from $400m in 2004 to $5bn in 2010. In its original calculation, it had valued the sector at $1bn by the end of 2008, but indicated that usage levels over the last 24 months were higher than expected.

Thin film transistor
Industry analyst Nitesh Patel, attributes this growth to four factors. The first is the increasing use of multimedia-capable handsets with high-quality Thin Film Transistor displays. Such devices are expected to account for 82 percent of all sales in 2010 compared with 55 percent in 2004 and this is "dramatically improving the credibility of content offered over mobile".

The second issue is the fact that a growing number of established adult entertainment players such as Playboy, Private Media and New Frontier Media are starting to deliver their content to mobiles. Private, for example, is working with a raft of content aggregators to sell and update adult content on a range of mobile operators' sites or via their network portals, which provide links for customers to access content provided by third party providers.

Negative sentiment
The fact that network operators are able "to benefit from adult services sold by third parties, while shielding their own brand from any negative sentiment towards adult services" has acted as yet another driver for growth, according to Patel.

Private Media has ambitious plans for mobile and is planning to launch its own web portal at wap.private.com to enable customers to purchase games, images and other content by credit card. A new service in January next year will see Private "acting as the Jamster of the adult business" according to Tim Clausen, the company's director of wireless technologies, who joined the organisation from T-Mobile in May. Rather than providing downloadable ringtones to mobile phones, the organisation will offer customers access to Java games, animation and SMS chat via its three web sites — privateclips.com, privatespeed.com and private.com.

Another factor pushing the growth of mobile content delivery, relates to growing legislative demands for content classification and age verification schemes. "I was at T-Mobile when this was introduced and I thought it would be a real barrier, but age verification in the UK is great for us. Our revenues have exploded because it means that we can now show more explicit stuff rather than just page three level content," says Clausen.

Reputation for innovation
Much of the current innovation coming out of the sector is not so much sector- as vendor-led, he says. "Maybe it seems like the adult industry is driving innovation, but it's the vendors that drive it because adult is a category that's in high demand. So when people have a new product such as video or SMS chat, they offer it to the adult world because they know they can make money from it."

According to Clausen, the adult industry's reputation for innovation has been derived less from developing new technologies itself, but more from "using products in a clever way and making them available".

And, as with many things, the easy things are often the best, says Clausen. "The most money is always made with easy products because people use them. They're not saying where is the next innovation going to come from? They just want some excitement because they're bored or whatever, so they'll use SMS chat or video because it's easy."

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