COLUMN: Naughty and nice

:img:/images/DelaQuist.gifThere is a widespread belief in the marketing community that the adult entertainment industry is very good at exploiting new technologies. It is not surprising therefore that porn companies are considered to be important pioneers in the online world. Mainstream companies can and have benefited by learning from the experiences adult entertainment companies have had in terms of implementing technologies like streaming video and more importantly generating e-commerce revenues.

It is also generally believed that porn sites are very profitable and that the success is due to their ability to drive traffic to their websites. This is despite the fact that they aggressively use every technique known to man to achieve this and do not care how many people they annoy along the way.

Recent SEC filings for adult entertainment companies quoted on NASDAQ appear to indicate that this is no longer the case. Some of the largest companies in the adult market are reporting sharp declines in internet revenues. The reasons for these declines are all related to falling revenues and rising costs in their online activities and could have very important implications for the rest of us.

Ricks Cabaret International, for example, reported consolidated total revenues for the nine months ending June 30th 2002 as falling by 23% compared with the previous year. The entire decline is attributed to a drop in revenues from its internet activities.

Another company New Frontier Media reported a 32% fall in net revenue for the year ended March 31st 2002. Softness in its internet business is given as the reason for the decline. According to its filing, the number one reason is related to the cost of webmaster-sourced traffic rising to a level that resulted in a negative gross margin.

New Frontier also identifies the following as the way forward: "Internet Group management is focused on developing revenue strategies that are: 1) profitable; 2) sustainable; 3) consumer-focused (content and pricing); 4) not solely dependent on third-party Webmaster traffic purchases; and 5) economically viable from the first day of implementation."

According to Bjorn Skarlen, business development director of Electronic Group Interactive - one of the world's largest providers of phone-based billing technology - some of his largest clients in the adult market have been forced to become very customer-focused because users can only be tricked into visiting you once! Its technology is used by a number of very significant players in the adult market and is well placed to evaluate the impact of a more customer-friendly approach on revenues. According to Bjorn, his clients in the adult sector are beginning to talk about attracting customers to their website, rather than 'driving' traffic. The more successful of these clients have gone one step further and are looking at the long-term value of each customer. They are more interested in creating the right environment for repeat transactions to take place and developing long-term relationships with people they already know via email. New visitors to their sites are also being treated with much greater consideration.

One of the things that never ceases to amaze me as a professional and irritate me as a consumer is the number of mainstream companies that try to drive traffic (people) to their website. In many cases driving traffic is still being stated as the number one goal for their online marketing activity. As porn companies are beginning to find out, driving people to your site should only ever be a tactic and never a goal for one simple reason; it can have the effect of making you lose sight of what really matters - the needs of your customers!

This happens because driving traffic to a website only works cost effectively for a very short time. It is hard not to be successful if you are just starting out and this lulls people into a false sense of security. Over time click-through rates begin to fall off, as you run out of 'low hanging fruit'. This reduces the number of people visiting the site and consequently sales. When this happens the natural reaction unfortunately is to focus on the click rate and put more and more effort into getting people to click through, by using rich media banners, pop-ups, competitions and clever subject lines in emails, just like the worst porn merchants and spammers. More recently, companies are forcing media owners to do all the dirty work by switching to paying on a cost per click basis. All this does is shift the blame on to the media owner. Either way the cost of acquiring visitors rises to the point where it becomes uneconomic because the price per click is very rapidly bid sky high by desperate marketers. Worse still, these techniques actually alienate the very people that are being targeted. Almost every survey of consumers lists these techniques as being very irritating, yet pop-ups etc continue to proliferate.

If porn companies are coming to their senses and moving away from driving traffic to their site and reducing their reliance on purchasing traffic from third parties because it has become uneconomic we should all take heed. The biggest irony of all is that their solution is to move towards a more consumer-focused approach, something some mainstream companies appear to be forgetting.

**"Dela Quist ":mailto: dela@alchemyworx.com is CEO of online contract publishing company"alchemyworx ":http://www.alchemyworx.com . He was formerly director of European sales for Excite and a member of the business development team at News International.**