Sex on the Run
By Dan Briody, Thu Mar 28 00:00:00 GMT 2002

With sagging revenues and flaccid growth, the wireless industry is hoping that sex can give it a lift.


Everyone knows that sex sells, but can sex save? Because the wireless industry is turning to sex for salvation from slowing revenues and exorbitant network costs, a move that is as inevitable as it is risqué. And just like the anxious sexual tensions of early adolescence, the industry is shyly flirting with the attractive new market, uncertain of the potential for mutual satisfaction.

Operators, whether they admit it or not, are looking at adult content as the potential killer application for wireless. And the industry is hoping that wireless adult content can do for the mobile Internet what it did for the plain old Internet: make it stand up. In March, U.K.-based wireless consulting firm Analysys reported that mobile services revenues in Western Europe are expected to grow only 4 percent in 2002, down from 12 percent the previous year. With 70 percent of the population already owning a mobile phone, and the average revenue per user on the decline, operators desperately need to find ways to beef up their profits. Messaging and ringtones aren’t going to be enough to get carriers from their current doldrums to the delayed arrival of true 3G services, and that’s where sex can fill the gap.

But questions abound for this fledgling industry. What will people be willing to pay for? Which operators will take the plunge? How will operators keep adult content from getting into the wrong hands? Will pornographic images become available on cell phones? Over the coming year, these questions will be answered emphatically as the first wireless adult services are rolled out and carriers and adult content providers find themselves between the sheets.

De-Virginized


Ironically, though not surprisingly, Virgin Mobile is jumping head first into sex, appointing a head of Adult Services, Nick White, and turning the press on with rumors of a possible deal with Playboy.com. Though Virgin is the first carrier to come out in favor of adult content, they are quick to temper both the expectations and semantics of the industry.

Referring to the new services as “adult fun,” Virgin is not expecting adult images to play a central role in its offerings any time soon. “Our services aren’t about porn, they’re about adult fun, and some of the areas we believe are going to be important this year are actually more about the messaging side of adult fun,” explains White. “Whether that’s chat services or flirt services, or simply using messaging to interact with a game or a virtual person. These services have messaging at the core and fun as the focus.”

Though they deny any deal with Virgin has been struck, Playboy.com agrees with Virgin’s early assessment of the wireless adult content business. Laura Sigman, spokesperson for Playboy.com, says that the company hopes to many partners like Wireless Entertainment Services in Finland. Like Virgin Mobile, Playboy.com isn’t so hot for wireless adult images at the moment, mostly because of the technical limitations of cell phones and wireless transmission, and more positive about Playboy branded services like mobile flirting or sexy voice mail messages. But like most of the players in wireless adult services, Playboy.com is anxious for the day that 3G becomes a reality and images can easily be sent back and forth. “We’re ready to go, but the technology is not there yet,” says Sigman. “If the promise of 3G comes to fruition, we’ll be ready.”

Coming out of the closet


But Virgin Mobile’s studly embrace of adult content is more the exception than the rule among operators. Because of the naughty nature of adult content, many carriers are wary about being associated with such services. Thus far, only Hutchison 3G has publicly admitted it is looking into creating a division around adult content. But behind closed doors, the action is intense. Oliver Pfeiffer, managing director of Exitec, the new media company that belongs to Beate Uhse, the largest adult content provider in Europe, says that operators are coming on to him left and right, even if they won’t say so publicly.

“We wanted to be at an operator’s stand at CeBit, but we were told flat out that the operator didn’t want to be seen in public with us,” explains Pfeiffer, who declined to identify the operator in question. “You have to wonder how operators are going to make money on adult content if they won’t even admit they intend to offer it. There’s a saying in German: They want to go into the shower, but they don’t want to get wet.”

But carriers will have to woo the adult content market soon lest the opportunity to increase their mobile services revenue passes them by. Pfeiffer says that many companies are doing deals through third party companies, in order to avoid the stigma of adult content. But in the meantime, the door has been left open for smaller, more risk-tolerant startups to capitalize on the opportunities. One of those companies is RoundPoint, a small Silicon Valley startup that provides content management services to two of the largest adult content distributors in the world. After signing a deal with Exitec earlier in the year, Roundpoint consummated a deal with Spanish adult content powerhouse, Private Media in February. Roundpoint had been handling content distribution for major American newspapers like the San Francisco Chronicle and New York’s Daily News, when the adult content business came calling.

We kind of stumbled onto it,” explains Dan Benveniste, VP of marketing and development at Roundpoint. “But now it is clear that the adult market will be the deliverer of the killer app.” Roundpoint handles the distribution and digital rights management of adult content for its two high profile clients. In addition, the company uses its technology to assure the content does not get into the hands of underage teens, something that is far more important in the United States than in Europe.

But Roundpoint, Exitec, and Private Media, unlike Virgin Mobile and Playboy.com, see images as the real end game of adult content. These companies are focusing in on the PDA market, with its color screens and high-resolution graphical capabilities. And it doesn’t hurt that the PDA market’s demographics line up beautifully with the target markets for porn. According to Forrester Research, the average PDA user is a high-income individual over 18 years of age, who speaks English. “This is exactly the kind of user we want to reach, so it makes sense to target PDAs, and we’ll get this kind of user,” explains Bjorn Skarlen, new media director at Private Media.

Interestingly, the adult content market is forced to target broad swaths of technology users, like the PDA market, because the shroud of anonymity that blankets this market. Users of adult content have little desire to fill out extensive marketing surveys and provide demographic information to their service providers. Discretion is at a premium. “Our users aren’t like Amazon customers who want to sign in and fill out forms about things like hobbies and birthdays,” says Skarlen. “Users of adult content want to be anonymous and stay that way.”

Despite carriers’ early reluctance to embrace wireless adult content publicly, they all know the importance of the market. A JP Morgan survey of wireless operators showed that carriers expect adult entertainment to be the third most successful MMS application, behind person-to-person messaging and still images. And a number of content and service sites have already appeared. The most popular applications are like those from Mobile Streams, called simply Mobile Flirting. The company essentially took the concept of the online chat room, and move it to the wireless arena, providing a way for like-minded singles to meet, flirt, and carry on a virtual relationship. Mobile Streams had collected data that said the majority of SMS messaging was between young males and females, and most of it was flirtatious in nature.

That research jives with what Virgin Mobile had discovered, that 45 percent of women had been asked for a date via text messaging and that 20 percent had been asked for sex. For the less fortunate single, there is the virtual girlfriend applications, like Love by Mail, made by the Japanese maker of the Tamagotchi virtual pets years ago. It is estimated that more than 30,000 Japanese men date virtual girlfriends. Yes, there are a lot of sad, wireless weenies out there folks.

Pay to play


While it has been well established that the demand for wireless adult content is there, it is still unclear what and how customers will pay. Vendors are noodling with their billing models, trying to find the winning formula that reaps rewards both for the content provider, and the carrier. In most cases, a subscription-based model seems to fit, providing daily, monthly, or annual sign ups. The fee goes to the content provider, while the extra minutes reward the carrier. For example, Erotigo, the New York based provider of wireless adult services with the motto “Sex in the palm of your hand,” charges $14.95 a year for services that allow travelers to find sex shops, strip clubs, and escort services in various cities. Though wireless carriers aren’t the ones offering the service, they still benefit from the increase in minutes the service requires. Everyone’s happy, says Stephanie Schwab, Erotigo’s CEO. “At this point, it’s revenues at all cost for carriers, they be fools not to do this.”

But no one is fooling themselves about where the real money will come into play with wireless adult content, and that is good old fashioned pornography. Pictures, videos, and sound bytes, the same things that propelled the Internet in its early days, will drive adult content revenues through the roof. Messaging, ring tones, and the like aren’t going to be the killer app. Pictures will. And for that, the industry is twiddling its thumbs, waiting for 3G. In the meantime, vendors are setting out to build the community. Says Private Media’s Skarlen, “Adult services via mobile could be a big success – much bigger than they were on the Internet because they create ties in the biggest community there is: people who want to shag.” And that is a very large market indeed.

After failing miserably at every attempt to become the next great American author, Dan Briody settled in San Francisco and started writing about the technology revolution in the mid-90s. Today he is the author of Red Herring's Wireless Watch column, and he is still trying to write the great American novel.

Peggy Anne Salz, a freelance writer in Germany, contributed to this story. Peggy Anne Salz is a freelance who likes to go beyond the day-to-day developments in the mobile space to grapple with the toughest issue: where the industry is going.