How SexTracker nailed top 10

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Flying Crocodile's Web site resembles thousands of corporate Web sites. Tastefully done in green, black and white, it describes the company's Web design, hosting and tracking capabilities, and links to a listing of more than two dozen job openings.

The corporate headquarters, located above a trendy restaurant in downtown Seattle, is no more revealing. A simple sign at the alley entrance directs visitors to the second-floor office, where floral wingback chairs and a fish tank occupy the purple-walled recep- tion area. Copies of Computerworld, Internet Week and Network World fill magazine racks.

Company founder and CEO Andrew Edmond, a 26-year-old dressed in stereotypical Web-executive black, works in a stereotypical corner office dominated by an enormous dark wood desk and hutch. An assistant plies him with red licorice and Starbucks coffee. Outside his office, dozens of cubicle dwellers stare at computer screens.

The posed picture is that of a prototypical Web company, circa 2000. You'd never know you were in the offices of SexTracker.com. SexTracker, owned by Flying Crocodile, is among the largest providers of usage statistics and Webmaster hosting services for adult Web sites.

Flying Crocodile and its SexTracker business generated more than $15 million in revenue--and an easy seven-figure profit--in 1999 by providing services to online adult-content sites.

'OUR POLITE SIDE'

The Flying Crocodile moniker "is our polite side," said Mr. Edmond with a grin. "Anybody can look up FlyingCrocodile.com and see that we're an adult site."

Actually, you can't. The only thing that's curious is an oblique reference on the home page to "our recent ranking in the top 10 at Nielsen/NetRatings." It takes some investigation to determine that Flying Crocodile is the parent company of SexTracker.com, an adult Internet portal and one of the largest providers of Web site usage statistics and hosting services to Webmasters of adult sites.

More than 35,000 sites use the free SexTracker Stats program, and Flying Crocodile says it hosts more than 120,000 adult-content sites.

What's puzzling is the fact that SexTracker has been a top 10 Internet advertiser every month since August, according to Nielsen/NetRatings. In March, it was the seventh-biggest Internet advertiser, reaching 10.5% of the Internet audience. It rose as high as No. 4 in December, behind only TrustE, Microsoft Corp. and Amazon.com. The company even issued a news release touting its ranking.

TURBULENT TIMES AHEAD

So what is SexTracker doing among the Web's top advertisers, and what is Mr. Edmond up to?

"The adult Internet is headed for some turbulent times," he said, pointing to increasing credit-card problems at adult sites and the upcoming presidential election. "We have to prove our value to the community and our community is the Internet as a whole."

His goal: Make people think of Flying Crocodile as the same sort of upstanding, well-run business as America Online or DoubleClick even though it derives its revenue from the Internet's seamiest side.

Many people may find it difficult to be sympathetic to Mr. Edmond's cause. Online sex-related sites are patently disgusting to many. But there is no doubt it is a booming industry: Online porn is, depending on what estimates you believe, anywhere from a $175 million to $1 billion annual business, with lucrative profit margins.

But online sex-related sites are a business in which the tricks of the trade include Web pages that reload repeatedly (to boost a site's traffic), ad banners that don't lead where they say they lead (forcing viewers to click through several pages, creating extra page views for ads) and pay sites that continue to bill even after subscribers have canceled their memberships.

"There's a tremendous amount of barter, a tremendous amount of link exchanges," said Jupiter Communications analyst David Card. "I don't think the term Ponzi scheme is out of line" for some areas of the business, though he excludes Flying Crocodile from that group.

CHANGING PERCEPTIONS

Mr. Edmond claimed he's out to change that perception starting with his own company.

Sounding more than a little like a latter-day Hugh Hefner, he lays out his company's history. After graduating with a degree in botany from the University of Wyoming in 1996, he trekked to Seattle, where he did contract programming work at RealNetworks. A year later, he and co-worker Ross Perkins left to found Flying Crocodile.

With $23,000 he had saved, Mr. Edmond set up shop in the basement of his Seattle house. At one point, 22 people worked there. Last June, Flying Crocodile moved downtown and now has 97 employees with the expectation of growing to more than 200 by yearend. The company's job postings are standard dot-com entries: VP-marketing and public relations, project manager, UNIX programmer.

Mr. Edmond has gotten respectable in the process. He shows a photo of himself from a few years ago, where he sported a pierced lower lip, shoulder-length hair and Howard Stern-esque sunglasses. Today, he wears a tie to work.

INDUSTRY SPOKESMAN

Things really changed six months ago, when Mr. Edmond hired his older brother, JT Edmond, to handle PR for the company. Now SexTracker has a slick press kit and Andrew Edmond has become a frequent source for news articles about online sex-related sites, spouting off statistics about the business his company's tracking service has culled.

Oddly, Mr. Edmond rarely discusses his own business with the media. "We want to be the go-to people for questions about the adult Internet," he said.

So Advertising Age decided to ask: What's up with that top-advertiser ranking? As it turns out, SexTracker doesn't spend a dime on Web advertising. Every site that uses its statistics program must carry an icon or banner, which simultaneously serves as an ad for the SexTracker portal and as a counting device, reporting back to SexTracker computers every time a page is loaded. The ad appears on some 500,000 Web pages. (Privacy seal company TrustE achieves its top NetRatings ranking in a similar way by having its logo appear on the pages of sites that buy its services.)

In addition to statistics, SexTracker offers a variety of other services that include free Web hosting, a banner exchange program and an affiliate-based sponsorship program called MoneyTree that Mr. Edmond likens to DoubleClick's offerings.

PROGRAMS PULL 70% OF REVENUE

The company derives 70% of its revenue from SexTracker Stats and MoneyTree. (Though the stats program is free to Webmasters, SexTracker makes money from sites that pay to have traffic redirected to them.)

Mr. Edmond is adamant, however, that he's not in the content business.

"He who controls the distribution of the content is going to be king," Mr. Edmond said.

The adult content business, with low barriers to entry, is getting saturated, with a glut of content lowering the profit potential for any given site. By sticking to distribution rather than content, Mr. Edmond is in a position to make money regardless of what happens to margins in the content side of adult entertainment.

Mr. Edmond also is adamant that he has not a drop of interest in going public, unlike another Seattle online adult start-up, Seth Warshavsky's Internet Entertainment Group, which tried to find bankers for an initial stock offering last year and then pulled back to regroup. (Mr. Warshavsky was unavailable for comment.) Or like Hugh Hefner's Playboy.com, which is preparing to complete its initial public offering.

IPO 'BAD IDEA' FOR ADULT BUSINESS

"Going public is a bad idea for an adult business," said Mr. Edmond, adding that his venture is self-funded. "We're doing fine. Why do we need to raise money?"

Mr. Edmond's company certainly beats Playboy.com when it comes to traffic. In March, SexTracker properties got more than 2.5 million unique visitors compared with just less than 1 million for Playboy.com properties, according to Nielsen/NetRatings.

While Playboy.com lost $11.4 million last year on revenue of $13.6 million, Mr. Edmond said Flying Crocodile turned a profit in its first month in business. He said revenue is growing 10% to 30% monthly. Mr. Edmond added, without a hint of irony, "it typically takes at least a couple of months" for the average online adult business to turn a profit.

Mr. Edmond said he believes there's a lot the rest of the Internet can learn by studying the adult side of the business.

"We've had to deal with problems [such as fraud and credit-card chargebacks] well ahead of other businesses," he said.

MAINSTREAM AMBITION

There are signs the adult online business is moving beyond sex, just as Playboy has long offered more than just pictures. Another well-known online adult-content aggregator--Cybernet Ventures' AdultCheck--has added a portal, ACPrime, where visitors can get weather reports, news, stock quotes and free e-mail.

Mr. Edmond firmly stated he expects to offer his services to non-adult Internet companies by 2004.

"By 2004 the incredibly crazy Internet market will have settled down so much that it will allow [us] to enter a public world and compete dollar for dollar" for business, Mr. Edmond said.

A lot can happen between now and then, but one thing is clear: The name Flying Crocodile may open a heck of a lot more doors than SexTracker would.

Contributing Editor Debra Aho Williamson writes the monthly Inside the Web report. Send Internet case study ideas to debbie@milestone2.comor Editor Bradley Johnson at brad@adage.com.

Copyright May 2000, Crain Communications Inc.

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