jayeff

Smug. Simplistic. Clichéd. Misleading.

The vast majority of people in any industry are "followers", but whether followers or innovators, most will fail: up to half within 1 year and 70% to 80% within 5 years is normal. A sizeable minority will achieve reasonable results and just a handful will be extremely successful. Although innovators often get the media attention, because everyone likes stories about how Joe Blow turned a used cardboard box into millions of dollars because he had a great idea in the shower one morning, most successful operators are followers. They simply do the job better.

We avoided such failure rates for most of the past decade (if you exclude students and so on who never had any intention of staying on), because online porn is a young industry and at least until about 2000, demand far outstripped supply. We are seeing declining ratios now because supply and demand are more evenly balanced and also because most sponsors are still using marketing methods and selling products which really have no place in a maturing, more competitive market.

We are about 2 years into a consolidation phase, but this is the first one in which operators with large bank accounts buy out those who see the tide turning and either have no motivation to react, or are unable to. Most of these purchases will not be successful because the purchasing businesses may be no more in tune with the changing face of the industry than those they are taking over. It could be 5 years or more before we see buyouts which will "stick" and the purchasers then will likely be companies which are either not now in online porn at all, or only peripherally.

Between now and then some sponsors will try to improve their bottom line by bringing more of their supply-line in-house. That again is an entirely predictable phase through which every industry passes and like the early buyouts, it rarely produces the anticipated benefits. We are seeing the beginning of this phase, with some sponsors putting designers and photographers on exclusive contracts, but that trend will likely reverse within 2-3 years.

Far from the industry dying, there is huge potential for growth. Online porn is still by far the poor relation of the adult entertainment family and has done very little to move beyond selling to those who come knocking at its door. We even turn many of them away. But most of the changes we see are merely tinkering with existing formulas: no-one has yet made any serious attempt to tackle legal, payment processing and other issues that are holding us back. So although we have businesses we recognize as at the top of the league, big and small we are all in the same league. There are no "super" businesses of the kind needed to drive the industry as a whole forward.

Profit margins will fall simply because the profit margins we have enjoyed in the past are unsupportable by any mature industry. That isn't a bad thing, because then we shall become more focussed on making sales and retaining our customers. That change in attitude will also help us grow.

And finally affiliates: the only aspect of our business, which although not unique, has no precisely parallel equivalents in other industries, so there are many more possibilities. Whatever changes take place in the role of affiliates and their relationships with sponsors, their impact will surely be to make this business, within perhaps as little as 5 years, as difficult as any other for new entrants. Inevitably far fewer people who invest little more than their time will continue to enjoy major rewards.

The solution, except in the very short term, is definitely not in looking for new marketing "angles" or in knowing "which niches are hot". That approach guarantees you are fighting over the same pizza as everyone else and investing all your imagination and effort into directions that only work for as long as it takes everyone else to climb all over them. Meanwhile the market evolves, leaving you further behind and each new direction becomes harder to develop and less profitable than the one before.

To make money long term, identify markets and learn about the customers who populate it: then provide what they want at a price they are willing to pay. Clever marketing can certainly play a part, but to enhance the intrinsic appeal of what is sold, not as substitute for that appeal. We must have lost millions of dollars by behaving as if we are selling to people from another planet, rather than to people exactly like ourselves, the same people to whom every other business sells. Now that repeat customers are far and away the largest group, that myth needs to be finally put to rest.