Lessons From the Red Light Web

Tim Valenti and Greg Lindberg are accidental pornographers.

When the two former advertising men started their own Web design company, Cubik Media, in the mid-1990s, one of their first clients was Eidos Entertainment, the company that makes the Tomb Raider video game. Part of the campaign used streaming video, but the new technology was not ready for prime time and almost no one had the high-speed connections necessary to view the content. But Valenti and Lindberg saw potential. On a whim, they started Nakedsword.com, an adult site for gay men, figuring that online video would save a potentially embarrassing trip to the video store.

"We built some password-protected areas and threw up some videos, mainly as an experiment," says Lindberg, Cubik's CTO. Then something unexpected happened: "People started buying it left and right." Almost overnight, Nakedsword.com became 90 percent of Cubik's business. In the years since, Cubik has continued to innovate with online video. It was among the first to use Flash for streaming video, build digital rights management capability into its movies and use peer-to-peer networks for distribution. Most recently, Cubik is integrating a cutting-edge digital fingerprinting system that can spot copyrighted material posted by users on one of its sites, an adult version of YouTube. The system works by turning the sound waves from a movie's audio track into an image. Every time a user uploads a clip, the system makes a graph of the new audio and compares it to the graphs in its database. If the clip a user is trying to post matches a copyrighted one, Cubik takes it down.

"It's pretty amazing," says Lindberg. "There are lots of companies out there trying to solve this problem, but we actually have something that works."

On the Cutting Edge

Red light sites probably aren't places CIOs normally would look to find innovative IT. But the sex and gambling industries have always been at the forefront of technological innovation. During World War II, the illegal telephone network that bookies developed was more reliable than the one the War Department used, says Harold Layer, professor emeritus at San Francisco State University. And the pornography industry has helped select technology winners and losers for ages. In the 1980s, for example, demand for adult material gave VCR makers the economies of scale they needed to make their devices affordable, says Jonathan Coopersmith, a professor of technology history at Texas A&M University.

But past innovations pale in comparison to the rate at which the gambling and adult industries are blazing new ground on the Internet. Over and over again, the Web's red light district has either pioneered or adopted a technology before the mainstream. The first customers of Duocash, a now-defunct anonymous payment system that allowed customers to pay for online services with prepaid phone cards, were gambling sites. A random sampling of 400,000 queries on the early peer-to-peer file sharing network Gnutella in 2003 found that 42 percent were looking for porn (compared to only 38 percent looking for music). And content delivery for mobile devices is now dominated by the adult and casino industries to such an extent that 3G, the high-speed mobile communication network, ought to stand for girls, games and gambling.

Today, adult Web sites make up 12 percent of the Internet, according to Top Ten Reviews. These sites attract 72 million unique visitors a month (more than 28,000 people are viewing Internet pornography at any given second) and the sex sites' annual sales approach $US5 billion, higher than the combined revenues of the ABC, CBS and NBC television networks. (Coopersmith warns that people should take numbers measuring the size of the adult industry with a grain of salt. "It's like sex in general," he says. "People exaggerate.")

Meanwhile, the online gambling industry has made its sites incredibly sticky. According to Nielsen/NetRatings, visitors to the top gambling sites spend an average of 13 hours at the sites a month. The worldwide average for all sites is just 28 minutes.

There are several reasons why the red light Web embraces innovation. Its target audience — males, 18 to 50 — is a demographic that gravitates to new technology. Good technology is also a business necessity. "[Gambling and adult companies] have been forced to be innovative by constant attempts to legislate them away," say Lawrence Walters, a First Amendment lawyer at the firm Weston, Garrou, DeWitt & Walters. In fact, the US government passed a law late last year that makes it illegal for Americans to spend money at online casinos, a move that devastated the industry. The risk of prosecution has also kept gambling and adult sites from growing into large corporate entities. (see sidebar "Big Names in the Web's Red Light District", below.) "As a result they've tended to remain small and entrepreneurial," Walters says.

Technology is also one of the few ways that sites can differentiate themselves. "We have to compete with free porn," says James Cybert, director of IT for Hotmovies.com. "What makes us competitive is being virus-free and the consumer experience. If you aren't able to keep up with the technology you'll be beat over the head."

Or as Calvin Ayre, founder of the online gambling site Bodog.com, says, "Technology is our lifeblood.

Join the CIO Australia group on LinkedIn. The group is open to CIOs, IT Directors, COOs, CTOs and senior IT managers.

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