Probably because business efforts behind these domains are rather transparently profit-seeking and wired for the short-term, make a quick buck, approach.
Also there's a good amount of technological quackery that goes on in the hyping of these domains to not-so-tech-savvy investors who don't realize that a typical 14yo kid understands intuitively that "sex.com" is probably a crap parked site or link directory, whereas pornhub.com, on the other hand, provides a service that 14yo will love.
"..and we've got a GREAT domain name, pets.com, I mean, if you want a pet, where you gonna go? We're right there."
Labors of love are what win and enable you to eventually fleece your customers and have them thank you for doing it -- not having a 13 million dollar domain.
125k daily visitors x 1% conversion rate = 1250 new customers per day
1250 new customers per day x 365 days in 1 year = 456,250 new customers per year (reached at the end of the first year)
456k new customers per year x $120/year in revenue (assuming $10/month) = $54.7mil per year in revenue
(though the math isn't fully accurate since it doesn't take into account churn but it works to illustrate a point.)
With a tiny bit more brains, you could take that up to $100mil/year, prove the stability of the revenue and sell for 10x of revenue at a cool $1 Billion Dollars (Dr. Evil pinky finger lift)
Obviously it's much easier to be an armchair quarterback and pull numbers out of thin air than to execute and create real value.
How many people do you run into walking around town, what would justify a 1% conversion rate in selling products to them? Just because 1% seems small does not mean it's a guaranteed conversion rate.
The big problem is probably defining what people call 'conversion rate', typically that's 'virgin traffic' divided by actual sales.
The problem with that particular definition is to track accurately how many people have never seen your site before.
For a site that is growing steadily the number of 'new' visitors that will eventually convert over the life cycle of their account is a number that always relates all of todays 'new' traffic to the total sales of today, but the sales of today were not typically caused just by people that visited today for the first time.
So accurately tracking conversion rate is not as simple as it may seem at first glance.
Also, and this is a completely different issue, conversion rate is not the most important figure at all, and I find the thread we're discussing this in amusing because even though the first poster in the thread accurately identifies recurring billing as an excellent revenue driver it completely misses out on the life-cycle aspect of an account, and typically accounts do not last forever.
Industry standard is 3 months, so if your subscription site has a 1% conversion of free traffic to paying members then you will still only make 3 times your monthly charge on them.
To do better than that you'd have to work really hard on tweaking that 3 month figure, retention is almost as important (if not more important) as initial sign-ups.
That's where the real money is.
I guess people looking for sex are quicker to pull out their wallet but also quicker to be satisfied.
With a retention like that you could drop your conversion rate even further (so market more aggressively) and still come out on top.
Don't bother optimizing the conversion, the retention or any simple formula but instead focus on optimizing the one number that matters: net profits.
Edit: Costs are already so low that the only way to increase net profits would be to increase revenue per user, perhaps with added micropayments, but it seems to me that with so few paying users <1200, I should be trying to get a larger user base and then later increase revenue per user?
Or set up an affiliate program paying about $1 per free signup.
I get people via Adwords at less than 20 cents a click. According to Facebook, the minimum bid for people who like online games or mmorpgs, or other categories I've tried is currently well over a dollar. I did get some clicks from Facebook when their ads were fairly new and the minimum bids weren't so high, but conversion rates were much lower than those from Adwords.
- increase your price (see: http://news.ycombinator.com/item?id=1639712).
- consider partnering with sites that you select to send you traffic and give them a kickback of for instance $20 / signup.
This company promises 1:300 rate. subscriptions. 1 out of 300 unique visitors will join. I had 1200 unique visitors and no joiners.
She the conversion rate from viewers to paying members is about one in 200
How traffic converts from one site to another is a matter governed by a very large number of factors, typically if you sell balsa wood aircraft advertising on a site for knitting supplies is not going to net you a lot of customers.
I've been 'helping out' a fellow HN'er with a bunch of traffic and to date we've yet to see a single conversion. That doesn't mean that his product is bad or that the traffic is lousy, it simply means there is an impedance mismatch.
So you can only determine what works and what doesn't by trying it. But once you are spending money on clicks then that 1% is a good ballpark figure because that's what you'll need to make money on your traffic buys unless there is a scam involved.
On 'junk' traffic (exit consoles and other bad tricks) conversion rates can be as low as 0.01% or worse, on good or great (matching) traffic it can be substantially in excess of that 1%. Audience match is key, and that goes for any form of traffic buying, adult or non-adult makes no difference, if the user lands in something they didn't expect on the 'far' side of that click it had better be a positive surprise or you've just effectively made your precious domain worth less.
If you just want to break even, you should probably just register a google.com typo domain for $20, and then you need a lot fewer visitors to break even.
(Google results for "sex" are kind of funny.)
Isn't that the same plan Goldman Sachs has for its 'investment' in Facebook?
right now it's
1. Wikipedia Article
2. FBI Sex Offender Registry
3. Psychology article
4. Porn Tube Site
5. HIV charity
6. Virginia State Police Sex Offender Registry
7. Music Review Blog
8. Sex Pistols music site
9. Georgia Sex Offender Registry
10. Center for Sex Offender Registry
A better option would be to open a casual encounters type site(basically adult friend finder), and charge $5-10-20 bucks a month under the guise of making sure that there are no fake profiles.
The significant type-in traffic will help get over the network effect issues that plague most dating sites, and your traffic is very targeted- people looking for sex(or at least naughty pics). So you'll quickly have a core of active users you can leverage to build your audience.
Dating sites done right are FAR more profitable than porn sites.
Amateur Match conversion rate is between 14-22%, paying out an average EPC between $0.70-$1.07.
If they can afford to pay more than $1 per click and still be highly profitable, I assume they're converting free users to paid/upselling quite well.
If someone remains a member an average of 3 months at $30/month, you're looking at a CLV approaching close to $100.
That seems odd to me because if the dating site works people will not be coming back.
That's a mighty big if. Especially for an adult dating site, where I'd guess the guy/girl ratio would be at least 500:1.
Sex is something we all want to know about, but it is still taboo to publicly talk about in the US, UK, India, etc. I notice other posts mentioning developing a porn site, or adult dating site, but those seem like low hanging, 1-off sales. By building a brand, you can generate a higher customer LTV. If the owner of sex.com can afford to pay $13 million, he should be able to afford several million to develop expert content, products, and a long term business.
To give you insight in the value of creating a product company, look at Bill Phillips who acquired EAS in 1996, and solid it for $160 million in 1999. http://www.ergogenics.org/231.html
I've noticed recently that most porn businesses are, in fact, private. The TechCrunch article alludes to this as obvious, but to me it is not. What would be the obstacles to taking a porn business public?
Private Media and Playboy are both public. And unprofitable. And not especially worth all that much these days; you'd have a hard time getting a "real" IPO done even at Playboy's 180M market cap, let alone Private's 20M valuation.
I don't know why a porn company going public would be any less 'real' than any other company.
1999 was an easier time for IPOs but not an easier time to make money online. Don't mistake the money that was pumped in to the market for turnover, there are many more people making cold hard cash online now than there ever were in 1999.
The one problem with porn as a business is that the number of potential exits is very limited, another problem is that the market is very fragmented which will likely limit the size of the players.
How about they just buy my company (or hell, hire me), rebrand to sex.com, advertise mainstream utilizing a real ad agency, and easily turn in 20-30 million over the next 3 years.
I messed around for a few minutes and came up with:
You would have to hire a very expensive team and completely mismanage your funds.
It's a goldmine. You're pretty much guaranteed to get traffic.
* gasp * someone bought The Internets! All of them! What'll we do?!