Wendys Manager

The future of online billing is an important issue because the entire industry depends on the ability of Webmasters to extract money from consumers in a safe and secure manner. This process is currently under extraordinary stress due to the increased costs involved with the processing of credit cards, combined with a dilution of revenue from affiliate programs due to market saturation. In response, adult Webmasters are beginning to gravitate towards alternative billing mechanisms and limit the financial impact of (or financial dependence on) their affiliate programs.
These alternative-billing mechanisms will tend to encourage a "pay as you go" business model rather than an "automatic paid subscription" business model. As a result, adult Webmasters will be forced to spend an increasing amount of attention on customer retention.
This article discusses how billing mechanisms are likely to change in the near- to medium term, and what adult Webmasters will need to do in order to survive the difficult years ahead.

Crying all the Way to the Bank
Most adult Webmasters differentiate between the revenue that they receive from paid memberships on their own site (or sites) and the revenue that they receive from a Website to which they are affiliated. In recent months, many Webmasters have become painfully aware that both revenue streams are becoming increasingly unprofitable. While there are always case-by-case exceptions, revenue streams from conversions are generally down, due to an increasing number of adult sites on the Web, all chasing after the same consumer dollar. At the same time, the profit from each conversion continues to shrink as credit card processors continually add additional charges and fees to adult-oriented Websites.
To make matters worse, revenue from affiliate programs is shrinking as pay sites try to get their acquisition costs in line with the decreased profitability from conversions. To put it another way, an adult Webmaster can't keep paying big money to affiliates for traffic and conversions if the Webmaster isn't making big money on his or her pay sites. "Affiliate programs are beginning to become a major drain on the finances of many adult Websites," says Colin Rowntree of Wasteland.com.
The expense of executing a credit card charge has skyrocketed in recent years. Many adult Webmasters blame the banking industry, as if bankers were somehow prudish concerning adult content. However, the nature of the content is much less important than the nature of the adult Internet business itself. I recently attended a regional conference for developers of software for credit card processing, where I was able to interview several bankers on this issue. According to my sources, the reason that banks slap extra charges on adult Internet firms is because the banks themselves are lending money to high-risk enterprises. One banker told me of an adult merchant whose chargebacks in any given month were in the range of $5 million - enough to worry the bank's auditors. While the adult merchant was willing to make good on this amount, the bank was afraid that the merchant might go out of business, or simply disappear, leaving the bank with a $5 million liability.
When a bank lends a business $5 million, even short term, the bank needs to feel comfortable about the reliability and solidity of the business. They want to know who they're dealing with, who's going to be responsible, and how the bank is going to get its money when it's due. However, when banks look at adult Internet firms, in general they see people operating under pseudonyms, often with complicated corporate structures hiding actual ownership, and (more importantly) no discernible assets that could be seized in the event of a bankruptcy. "Trust me, our bank doesn't want to be in the porn business, no matter how much the content might be worth on the open market," one banker told me. This is why many banks no longer issue merchant accounts to adult firms and why the few banks (mostly outside the U.S.) that do issue merchant accounts assess significant add-on charges and fees. Third-party billing companies, like CCBill and iBill, create a buffer between the banks and the adult Webmasters. But risk is risk, and although the third-party billing companies screen out the worst offenders, the service they provide comes at a cost.

An Ailing Business Model
There is absolutely no indication that banks or third-party billing firms are going to lower their fees now or in the future. On the contrary, as the adult Internet market becomes increasingly saturated (i.e., too many sites), the likelihood increases that a number of Webmasters will either go bankrupt or simply skip out, leaving the third-party billing companies holding the debt. As this risk increases, third-party billing companies (and the banks that do the actual processing) are inevitably forced to raise their fees. In other words, adult Webmasters have every reason to expect that the cost of processing a credit card will continue to increase. "Too much free stuff, too much crap, and too many programs," complains Max of MaxHardcore.com, "It just seems like the sites that spam the most are the ones that rocket to the top, as they fool people with free trials. But how many cancellations can they process before they're cut off, and change processors? No wonder Visa is getting tougher."
The other source of revenue for adult Webmasters - the affiliate program concept - is similarly under stress. The initial model for affiliate programs - pay per click - is all but gone, because adult Webmasters soon learned that unqualified traffic is worthless. Most affiliate programs now have a "one time fee" for each conversion. Unfortunately, that fee is often greater than the revenue that's generated from the conversion. The reason is simple: There is so much competition for the consumer dollar, and so little differentiation between sites, that many consumers merely buy trial memberships, download the best content, and cancel, later to join a similar site.
Unfortunately, rather than figure out a way to retain these jumpy customers, adult Webmasters often prefer to increase their conversion rate in order to get more customers who forget to cancel. This dependence upon revenue from customers who aren't actively interested in a site, however, inevitably results in chargebacks. One Webmaster recently learned this when, as a test, he joined a site that had licensed his content overseas. "I wasn't sure who they were when we started getting spammed relentlessly," he explains, "so I signed up for a one-day free trial, cancelled immediately, then still got billed for $59.95, not the lower price they advertised. I had to do a chargeback."
The overall business model that has evolved for the adult Internet, dependent as it is upon revenue from dissatisfied customers, is simply not sustainable. As competition continues to increase for the same consumer dollar, the frantic attempts of adult Webmasters to secure additional conversions creates a base of customers who are difficult to retain, thereby creating the conditions for runaway chargebacks, which in turn increase the overall cost of credit card processing, with the net effect that "it's getting too fuckin' hard to make any fuckin' money in this fuckin' business," as one adjectivally-challenged Webmaster put it.

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I said SIG TOO FUCKING BIG ASSHAT