Sex Sells

Name one pure-play dotcom that's turning a profit by hawking content today. I can name two dozen -- and they're all banned by your corporate Web policy.

Porn is hot. The domain name sex.com just garnered $65 million. Two weeks ago, Yahoo! grudgingly yanked profitable adult-related products from its site after prudish users protested. And if my inbox is an indication of corporate virility, those hot college sluts are jiggling all the way to the bank.

Yes, they have a rabid user base, but sex sites face the same pedestrian challenges -- fickle users, spotty advertising -- that have capsized so many consumer Web sites. So are sex sites really making big money? Are they hiding some profit-generating secret? And if they are hiding something, why aren't they sharing it with the rest of the B2C folks?

David Card, vice president and senior analyst at Jupiter Media Metrix, doubts whether porn can offer any winning formulas that may benefit standard e-commerce sites. In a Jupiter report published in August 1999, Card pointed out that consumers of online pornography tolerate advertising disruptions, poor quality, and "a generally unpleasant online experience" that no CDNow customer would ever willingly endure.

"The idea that online porn can teach valuable lessons in community- and brand-building, and in paid content in general ... is absurd," Card writes. The only thing worth studying, he says, is adult entertainment's effective syndication of content and promotion networks.

Gerard Van der Leun begs to differ. Vice president of Internet ventures at Penthouse, Van der Leun believes that his scrappy site has hit upon several attractive, albeit elementary, principles for generating revenue online.

Second only to Playboy bunnies, Penthouse pets no longer only live beneath adolescents' mattresses and behind gas-station toilets. In fact, Penthouse models have frolicked on millions of Web browsers around the world since 1988, when Kathy Keeton, the late wife of Penthouse publisher Bob Guccione, encouraged her husband to develop an online presence for his X-rated magazine. A rabid technology consumer and early adopter of electronic publishing, Keeton first made Penthouse articles available on the Net, but quickly learned that text was not a turn-on. Photos followed shortly after.

In 1995, Penthouse officially launched Penthouse.com. Today, the site generates approximately 30 million page views and claims about 2.5 million unique visitors each month. (By contrast, Amazon.com had about 18 million unique users in February 2001.) Van de Leun says that his profit margins are "above 50% and below 200%." Not bad for a B2C in 2001.

Fast Company spoke with Van der Leun about Penthouse.com's online strategy and the ways traditional dotcoms can profit from learning how adult-entertainment sites make money from loyal users.

Don't Give It Away

"Penthouse.com learned very quickly not to rely on ads to pay the bills," Van der Leun says. "We're more than happy to take advertisers' money, but we won't live and die by their whims."

Rather than courting potential advertisers, the Penthouse.com staff devoted its early days to developing an e-commerce model that would generate immediate revenue and satisfy demanding users. While other publications introduced Web sites with free content and services, Penthouse.com demanded payment for every peek.

U.S. federal laws require Web sites containing obscenity to block that content from minors. The Federal Telecommunications Act of 1996 states that no one under the age of 18 may view obscene or pornographic material online. To guard its site against underage users, Penthouse.com requires users to submit credit-card information before entering its online galleries and merchandise areas. (A credit-card account represents a binding contract; minors are forbidden by federal law to enter into binding contracts without the consent of an adult.)

Some adult-entertainment sites collect credit-card information only to verify a user's age; they don't actually charge the card for content and services found online. Penthouse.com, however, charges a premium for the majority of its content -- without apologies. Satisfy your users' basic needs and desires, Van de Leun says, and they will pay top dollar.

"Penthouse.com was in the red for about two and a half hours on the day it launched," he says. "We've been in the black ever since."