Innovation Lessons from Adult and Gaming Sites

Rarely acknowledged by the mainstream, adult and gaming sites collect a healthy percentage of web traffic and account for a good deal of innovation, too.

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But past innovations pale in comparison to the rate at which the gambling and adult industries are blazing new ground on the Internet. Over and over again, the Web’s red light district has either pioneered or adopted a technology before the mainstream. The first customers of Duocash, a now-defunct anonymous payment system that allowed customers to pay for online services with prepaid phone cards, were gambling sites. A random sampling of 400,000 queries on the early peer-to-peer file sharing network Gnutella in 2003 found that 42 percent were looking for porn (compared to only 38 percent looking for music). And content delivery for mobile devices is now dominated by the adult and casino industries to such an extent that 3G, the high-speed mobile communication network, ought to stand for girls, games and gambling.

Today, adult websites make up 12 percent of the Internet, according to Top Ten Reviews. These sites attract 72 million unique visitors a month (more than 28,000 people are viewing Internet pornography at any given second) and the sex sites’ annual sales approach $5 billion, higher than the combined revenues of the ABC, CBS and NBC television networks. (Coopersmith warns that people should take numbers measuring the size of the adult industry with a grain of salt. “It’s like sex in general,” he says. “People exaggerate.”)

Meanwhile, the online gambling industry has made its sites incredibly sticky. According to Nielsen/NetRatings, visitors to the top gambling sites spend an average of 13 hours at the sites a month. The worldwide average for all sites is just 28 minutes.

Big Names in the Web's Red Light District

A naive view would be to dismiss the Web’s red light district as composed solely of sleazy people and websites with ridiculous names. But if you scratch the surface, says Frederick Lane, author of Obscene Profits: The Entrepreneurs of Pornography in the Cyber Age, you’ll find some extremely famous, well-known and established enterprises.

Major hotel chains such as Marriott and Holiday Inn profit to the tune of about $190 million a year on the sale of adult movies, according to a report by Citizens for Responsibility and Ethics in Washington (CREW), a government watch-dog group. About 90 percent of this revenue goes straight to the bottom line.

According to CREW, major cable companies such as Comcast and Time Warner also make hundreds of millions a year selling pay-per-view pornography. And telephone companies earn close to $500 million every year from phone sex. In the United Kingdom, $41 billion Vodafone, one of the world’s largest mobile telecom companies, has been frank about its decision to carry and process payments for pornography sent to mobile phones. Even good old General Motors was in the adult movie business (through its Direct TV subsidiary) until it sold that unit in December 2003.

Technology companies in the Internet world are also involved with pornography by helping to maintain the networks and channels by which it’s delivered. Of course, those companies have a good excuse for not calling attention to their role.

“On the Internet,” puns Lane, “all bits are naked.”

There are several reasons why the red light Web embraces innovation. Its target audience—males, 18 to 50—is a demographic that gravitates to new technology. Good technology is also a business necessity. “[Gambling and adult companies] have been forced to be innovative by constant attempts to legislate them away,” say Lawrence Walters, a First Amendment lawyer at the firm Weston, Garrou, DeWitt & Walters. In fact, the U.S. government passed a law late last year that makes it illegal for Americans to spend money at online casinos, a move that devastated the industry. The risk of prosecution has also kept gambling and adult sites from growing into large corporate entities. (See “Red Lights, Big Names,” this page.) “As a result they’ve tended to remain small and entrepreneurial,” Walters says.

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