“Adult e-commerce,” aka online pornography, is a big but nasty business that suffers from an overwhelming amount of competition and many Ponzi-like revenue schemes (not to mention an obnoxious lack of subtlety).
Still, depending on which stats you look at, online porn lures in $175 million to $1 billion a year. And, feeding off of the zillions of free porn sites (which get kickbacks for referrals to pay sites), some of the biggest porn portals are allegedly quite profitable. One of these is Seattle-based SexTracker.com, operated by Flying Crocodile.
Co-founded in 1997 by two former RealNetworks workers, Flying Croc does not create porn (unlike the local Internet Entertainment Group run by Seth Warshavsky). Instead, Flying Crocodile hosts more than 100,000 porn sites and tracks their traffic via SexTracker.com, a sort of TV Guide (albeit biased) for e-porn. Below, we asked co-founder and CEO Andrew Edmond how the Croc makes money, and other revealing questions.–SJ
Seattle24x7: Andy, how does a 27-year-old botanist like you end up running a porn empire?
Edmond: While at RealNetworks, I realized that the future of the Internet would have to be incubated in a profit center, a business that had heavy demand for application and content, with thousands of users per second globally. And that business is adult e-commerce.
Look, I got into it for the technology, for the scalability issues. I knew the trends would be set by the adult Internet: traffic management, payment processing, massive bandwidth, content authentication, etc. Why? Almost every single area that the Internet focuses on now, the adult segment has been focusing on for many more years. We’ve had to deal with problems like fraud and credit-card chargebacks well ahead of other businesses. Actually, a lot of non-adult companies interview us to understand what we do, so they can gain an edge on their competition.
Seattle24x7: OK, so what’s your infrastructure like?
Edmond: We have the 13th largest network connection in the world. Right now, our network is capable of pushing 2.2 gigabits worth of data per second, and I think Yahoo can do 200 megabits per second. So our network is 10 times the size of Yahoo’s.
Seattle24x7: Just how does Flying Crocodile, aka SexTracker.com, make money?
Edmond: We serve out well over 500 million banner ads daily, and we get about 29 million eyeballs [page views] daily. We have three major sources of revenue. The bulk of our revenue (about 55%) comes from advertising.
Here’s how it works. We provide free web-hosting and visitor-tracking services to about 100,000 adult sites, which contain 3 million pages. In exchange, we get free ad space on all those sites. We then resell that space to advertisers, mostly pay-per-view adult sites, as well as use it to promote our site, SexTracker.com. In addition, we sell some ads to mainstream advertisers, like Goto.com, credit-card companies and free email companies. We can offload a lot of viewers to advertisers that need to build up their user base.
Yahoo gets about 1 million visitors daily they can direct wherever they want, and we [SexTracker properties] get 2.5 million.
Plus, we host another 5,500 adult websites for a fee, and we run an affiliate-based sponsorship program. Our revenue for 2000 should be in the high end of eight figures. In 1999, we were in the mid eight figures, and in 1998 we were only in the high seven figures.
Seattle24x7: How profitable are you?
Edmond: As you can imagine, it costs a lot of money to run our operation; we now have 100 employees. Our net profit margin is 10% to 15%, and everything we make goes back into the company. We’re spending a lot of money to ensure that we’ll grow as fast as the Internet. We don’t intend to seek outside funding or do an IPO.
Seattle24x7: Nielsen/Net Ratings has consistently ranked SexTracker as one of the Internet’s largest advertisers, and this info is touted in your press kit. How do you explain that ranking?
Edmond: Actually, we don’t think their tracking system accurately reflects our business. We’re placing ads for free on the thousands of websites that we serve. And we use those ads to drive traffic to our advertisers.
Seattle24x7: Are you aiming to be the Hugh Hefner of online porn?
Edmond: Oh, no. I want to be the Steve Case. Flying Crocodile wants to become the America Online of the adult Internet. Does that mean that some day we’ll try to also control content? Absolutely. In content, where we don’t currently compete, the biggest companies are about two-thirds our size. And right now, they’re going through major mergers to improve their profitability.
Eventually, we’ll probably acquire some of the surviving content companies and use our distribution engine to manage the content more effectively. The content people are not good at distribution, and the truth is, they couldn’t buy us if they tried.
Seattle24x7: What about government regulation of the online porn industry?
Edmond: There is very, very little regulation now. But that will probably change. So we’re very involved in working with government panels to effectively deal with the same issues: keeping kids off of adult sites, keeping child porn off the web, coming up with some sort of filter for employers and libraries, etc. On that front, we recently assumed control of the YNOT Network, whose members are the webmasters that create adult sites. YNOT is the adult Internet watchdog.
Seattle24x7: On your corporate website, flyingcrocodile.com, there is no mention anywhere that you’re involved with online porn. And your job ads also fail to mention that fact. Why aren’t you up front?
Edmond: I consider it tact, politeness. We tried advertising in The Stranger and the Seattle Weekly under an adult guise. But we didn’t get the right response. We’re a professional Internet company; we don’t have naked girls running around.
If people respond to one of our current ads, we first screen them on the phone, and that’s when we tell them we’re an Internet company that focuses on the infrastructure, the products and the services that allow the adult Internet to run. The majority of applicants (90%) come in for an interview. We pay about 10% more than market-survey salaries and offer 100% medical, dental and vision coverage. And we have a stock-appreciation program.
Seattle24x7: Which Seattle Internet companies are you most impressed with?
Edmond: We respect Microsoft, and to a lesser degree Amazon. The company we have trouble respecting is RealNetworks, for not diversifying its product and service line.
Soula Jones is Content Chief at Seattle24x7.com
Pass the E-Porn!
Total number of online porn sites: “All we can tell you is there are 70,000 creators of adult sites. They each may have 10 to 1,000 sites.”
% foreign viewers (outside North America): 52%
% women: 14% in 1999 (up from 5% in 1996)
Most popular e-porn surf times: 9 am to 5 pm
Heaviest traffic: November to February
The Credit-Card Crackdown
The lifeblood of online porn–viewers paying with credit cards–is being threatened. Due to porn sites that bill users unwittingly, and users who refuse to pay for their guilty pleasures, there are lots of credit-card disputes. So in late May 2000, American Express said it would stop credit-card processing for all online porn accounts. In addition, Visa and Mastercard are levying heavy fines on online porn companies whenever it’s determined that they’ve wrongly billed customers (who then get a credit-card charge back).
Says Flying Crocodile’s Andrew Edmond: “The future will be determined by the actions we take in the next few months.” To mobilize the troops, the Flying Croc has created Credit Card Watch (www.CCWatch.net), a lobbying/watchdog group of online porn leaders that will negotiate with the credit-card companies.