Few Talk About It, but Porn Plays Big Role in Web Economy

By LEWIS PERDUE

Special to WallStreetJournal.COM

Pornography has always been the last thing the Internet industry wants to talk about. But as mainstream Web companies --particularly content sites and application-service providers --go out of business, Web-hosting firms and bandwidth sellers may have to lean more heavily than ever on revenue from porn.

Meanwhile, porn-site executives are increasingly worried about potential legislative and policy changes they fear will make their businesses more difficult to sustain. One hidden consequence of any crackdown on pornography: It could make the current tech-sector slump even worse.

Getting solid data is tough. Pornographers avoid the mainstream media, and the few Internet-industry research firms that once monitored the adult online ^{See a chart of top adult} sector --such as Forrester Research and DataMonitor --have stopped ^{sites and who owns their} covering those companies. For the most part, adult operations don't buy the ^netblocks. research reports and "the rest of the tech sector would prefer to remain in denial," says one research analyst who has worked on porn-industry reports.

There are some solid user statistics, however, that show the reach of the sex industry. Figures from Web-traffic measurement firms Netratings and Jupiter Media Metrix show that more than 25% of U.S. Web surfers visit adult sites in a given month. Search-term research firm Wordtracker says that "sex" is consistently the most frequently searched word on mainstream search engines.

DataMonitor's last porn-industry research report, issued last year, projected that adult sites would take in 69% of all premium-content revenue on the Web in 2001. And while analysts a year or two ago predicted that porn's importance would diminish as nonadult premium-content sites grew, there is no indication that has happened.

Assigning a monetary value to the porn sector's business is more challenging. One way to approach the problem is from a bandwidth and server-hosting perspective, since it's relatively easy to determine where a server is being hosted.

Server farms --the huge data centers that serve up Web sites to surfers --are full of Cisco Systems routers, Sun Microsystems servers and massive disk-storage arrays such as those sold by EMC. Hosting facilities are also where you find connections to the Web infrastructure, including high-bandwidth connections to the Web itself via Qwest Communications International Inc., WorldCom Inc. and other providers of fiber-optic lines, as well as all the technology to help them communicate.

Forrester Research put overall 2000 revenue for hosting companies at $3.5 billion, and predicted it would rise to $6 billion in 2001 and to $14.7 billion in 2003. The leader in the market is Exodus Communications Inc., which had $818 million in full-year 2000 revenue and a 15% share of the market. Other big players include Metromedia Fiber Network Inc.'s AboveNet unit, WorldCom's UUNet, Level 3 Communications Inc. and Nippon Telegraph & Telephone Corp.'s Verio unit.

These data centers --which can be as big as 50,000 square feet --are the core of the Internet. They are also the epicenter of the Web's sex industry. Indeed, data provided by PC Data Online and cross-referenced with data from NetCraft show that 13 of the top-20 adult Web sites reside on pieces of the Internet controlled by a handful of large, well-known public companies: AboveNet, WorldCom's Digex, Exodus, Level 3, UUNet and Verio.

NetCraft specializes in security audits and generates its data by polling remote servers and gather information including its so-called netblock owner and other information. A netblock is a large number of IP addresses managed by one company that can be subdivided for use by resellers.

According to NetCraft, AboveNet owns the netblock that includes the No. 1 adult site in terms of unique users, Karasxxx.com (owned by closely held RJB Telcom), which with 6.9 million unique users each month is No. 70 among all Web sites, according to PC Data. That's more visitors than health site WebMD.com, payments site PayPal or bookseller BarnesandNoble.com, according to PC Data.

Among the top 20 adult sites, many are parked on netblocks owned by WorldCom through its ownership of Digex and UUNet. These site include adult giant Cybererotica, which logged 4.6 million visitors in February, and No. 2 adult site adultrevenueservice.com along with smutserver.com, sexspy.com and amateurfreehost.com.

Exodus (including the GlobalCenter hosting business it bought from Global Crossing Ltd. in 2000) controls the netblock for top-20 sites sexshare.com and adultfriendfinder.com, as well as Danni's Hard Drive, which is among the Web's most prominent adult sites.

Level 3, which owns and runs one of the largest networks of fiber-optic cables, owns the netblock for top-20 porn sites sleazydream.com and lightningfree.com. NTT subsidiary Verio owns the netblock for two of the top-20 porn sites as well.

"For most of us, our adult-hosting division is something we try to leverage as much as possible, while drawing as little attention to it as possible," says an executive with one of the country's major Web-hosting firms, who asked that his named not be used. "To stay alive in [Web-hosting], we have to do business in that industry."

Of the nonadult hosting companies that provide data-center services to the top-20 adult sites, none was willing to speak on the record. Only a few were willing to speak off the record, and most didn't return phone calls and e-mail requests for comment.

Adult sites are good customers in today's difficult Internet environment. For one thing, they tend to stay in business.

"Two years ago, our money came from e-commerce companies, ASPs [application-service providers], ISPs and portals," one executive says. "Today companies in those sectors are struggling and mostly unable to pay their bills. Probably 20% of our mainstream customers have gone out of business over the last six months, while only 2% to 3% of our adult customers have gone out of business."

Other hosting and backbone sources largely backed those statistics, generally saying that nonporn-customer loss was as high as 10% to 25%, including those officially still on the books but not paying their bills.

Adult sites also can be lucrative. "An average mainstream customer at our company spends $5,000 per month," the executive says. "An average adult customer spends around $20,000 per month."

While porn pages make up only a fraction of overall Web pages, they tend to be very bandwidth-intensive because of heavy use of graphics.

Estimates vary on what portion of Internet traffic is porn-related. Some claim porn takes up 80% of Internet traffic. While that number may be high, no estimate puts it below 40%. Some on the front line see it somewhere in the middle. "I'd say that about 65% of the data transferred through the data center I work in is porn," says a network engineer with Exodus.

Using those estimates, along with the total amount and cost of Internet traffic, you can get a rough picture of porn's importance to the hosting industry.

Consider:

According to telecom-consulting firm RHK (www.rhk.com), 42,000 terabytes of data pass through the Internet each month. (A terabyte is 1,000 gigabytes, equivalent to the storage space on 50 of today's standard personal computers.)

Andrew Odlyzko, head of the Mathematics and Cryptography Research Department at AT&T Labs, says that Web traffic comprises about 80% of the bytes that are transmitted. (The rest is made up of e-mail and other non-Web files.)

According to Richard Elliott, founder and executive vice president of Band-X (www.band-x.com), a major bandwidth-trading exchange, the wholesale cost of "transit" --the transfer of files --ranges from $4 to $14 per gigabyte, but the retail cost to a hosting company's customers is substantially higher.

In an e-mail, Mr. Odlyzko wrote that, the current list price for content distribution networks like Akamai "appears to be around $2,000/month for 1 Mb/sec of the so-called 'burstable' measurement, which might translate into something like $20 or more per gigabyte (depending on usage patterns, etc.)."

So, if total Internet traffic is 42,000 terabytes a month and 80% of that is Web traffic, then about 33,600 terabytes of files cross the Web each month. If we estimate that 40% of that traffic is adult graphics and video streams (using the low end of the estimated 40% to 80% range), then porn accounts for 13,400 terabytes (13.4 million gigabytes) of Web traffic every month.

If we take a reasonably low estimate for bandwidth of $12 per gigabyte (midway between rock bottom wholesale of $4 per gigabyte and standard retail of $20 per gigabyte) and multiply that by the 13.4 million gigabytes of adult Web traffic, you get a very commanding number --$ 160.8 million a month, or $1.9 billion a year. To be sure, this is a rough estimate, but even at half that, or one-tenth, porn sites are worth hundreds of millions, if not billions, to the Web-hosting industry.

And that's a sobering thought. It is "somewhat depressing that pornography features so heavily," says Band-X's Mr. Elliott. "I'm confident that proportion will shrink but it's sad it's taking so long."

Busy Sites

Top ranked pornography sites in February, ranked by unique users.

Source: Traffic from PC Data Online; netblock data from NetCraft