WWW- Why is there so much porn on the Internet?

CAPS Internet Inc. offers a clue. CAPS, a small business housed in a Toronto office building, doesn’t create or sell any adult content. But it serves up millions of pornographic photos and video clips each day on its dozens of Web sites, which have names like HardHut.com and GalleryHeaven.com and are often stumbled upon by Web surfers prowling for free porn.

After visitors click on the free images, they’re directed to sites that charge for porn. If they become paying customers, CAPS receives a commission, often $40 per subscriber. The seven-employee company took in about $1.4 million in revenue last year, and is on track to top $1.8 million this year, according to Matthew Gamble, a senior executive.

So-called affiliates like CAPS are the lifeblood of the online-porn industry. Indeed, affiliates account for the overwhelming majority of adult sites on the Internet. A single site that sells porn often has thousands of free, affiliate sites pushing traffic its way, using sample images provided by the pay site. “The entire industry revolves around this relationship,” said Alec Helmy, publisher of XBiz.com, an information portal for the adult industry.

But affiliates are also responsible for some of the things that frustrate Internet users. Because competition is fierce and affiliates get paid only when they get a user to click through to a porn site, affiliates often use aggressive tactics. Some have been behind massive spam campaigns, while others design Web sites that “trap” visitors with a never-ending stream of popup windows. Many porn sellers have policies officially prohibiting things like spamming, though enforcement is difficult. The U.S. government has gone after a handful of porn purveyors over the behavior of their affiliates.

At Videobox.com, a four-year-old adult-movie site, “just about every one of our [customers] initially came through an affiliate,” said Josh Seims, a co-founder of the San Francisco company. The site has more than 70,000 subscribers, he said. “The affiliate bears the risk, not us, so that makes it a great model for marketing.”

Some companies pay affiliates a one-time fee of $30 or $40 for referring a customer, while others offer a cut, often 50%, of all revenue generated from that customer. It can be a lucrative proposition: It’s not uncommon for porn sites to charge $30 or more for monthly subscriptions.

The lure of big bucks has saturated the Internet with affiliate sites — and, by extension, free porn. Now, there are so many free images and video clips that affiliate companies say it has grown more challenging to get users to sign up with pay sites. CAPS’s Mr. Gamble said, at best, one of every 200 users he delivers to a porn seller’s site becomes a paying customer. The conversion rate can be as low as one in 1,000 for some of the sites CAPS promotes, he said.

The fierce competition has led to something of a no-holds-barred atmosphere among some affiliates, and some of the porn companies they promote have found themselves in hot water with the U.S. government as a result.

Last summer, the Federal Trade Commission accused seven online porn companies of violating the federal Can-Spam Act of 2003, which governs commercial email. The government said that affiliates of the porn companies violated a rule requiring the subject lines of emails with adult content to include the phrase “sexually explicit.” The spam messages also failed to include a postal address and a means for recipients to block future e-mails, also required under the law.

The government reached settlements with four of the companies for a total of about $1.2 million in penalties. Three other cases are pending in federal district courts. Under Can-Spam, the government argued, the companies are liable for spam sent by their affiliates because they are essentially paying affiliates to send messages on their behalf.

Jon Kraden, an attorney with the FTC’s Bureau of Consumer Protection, said the cases let adult companies “know they can’t just set up an online affiliate program, tell them not to break the law, stick their head in the sand and let the money roll in.”

James Seibert, an executive with HotMovies.com, which sells streaming adult videos, said the introduction of Can-Spam has prompted adult companies to more closely monitor their affiliates. But he acknowledged it is “a constant problem” to try to ensure that affiliates aren’t breaking the rules. Philadelphia-based HotMovies.com works with more than 10,000 affiliates and gets about 50% of its traffic from them, he said.

“You have 10,000 people trying to push your product for you,” he said. “It’s the ultimate guerilla marketing.”

It’s unclear just how many affiliate sites are on the Internet. Indeed, relatively few statistics are available for the porn industry because most sites are privately held. Jupiter Research, a New York-based technology-research firm, estimates that adult content on the Web may generate only about $250 million a year in U.S. revenue. At the other extreme, Adult Video News, an industry publication, estimates the figure at $2.5 billion.

The adult-entertainment industry has been credited with driving a lot of technological advances in media and on the Internet, from its early embrace of the VHS format to its online delivery of digital videos.

The industry’s use of elaborate affiliate systems has drawn the attention of more traditional companies, said Shawn Collins, a marketing consultant in Berkeley Heights, N.J., who manages affiliate programs for photo site Snapfish and retailer Payless ShoeShource Inc. “The adult space pretty much came up with all the innovations, good and bad, that were adopted by ‘mainstream’ affiliate marketing,” he said. Other companies using affiliate marketing include Netflix Inc., Target Corp. and Best Buy Co. Netflix, for instance, allows Web site owners to stick banners on their site promoting the DVDs-by-mail rental service. When visitors click one of those ads and sign up, Netflix pays a commission to the referring site.

Porn affiliates tend to work out of their homes or small offices, and they reside all over the world. Affiliate sites are relatively easy to set up, and many of the sites use similar formatting — a photo-heavy page with 40 or more thumbnail images displayed on a grid. Porn sellers keep affiliates supplied with a steady stream of fresh sample content to place on their sites.

Aside from sending email, affiliates market themselves by buying advertising in search engines like Google and Yahoo, and trying to optimize their sites so that they appear higher in search results. The top result in a Google search for “porn” is an affiliate site called PenisBot.com, which offers links to thousands of free photos and collects commissions from about 7,000 porn sites in exchange for delivering traffic. The site’s operator, who works from St. Petersburg, Russia, claims it gets about 200,000 unique visitors daily.

In addition to linking to pay porn sites, affiliate sites often link to other affiliate sites through complex “traffic trades.” These reciprocal relationships are also responsible for some of the frustrating scenarios encountered by people who have visited free porn sites. For example, on many of the sites, if a visitor clicks on several photos but doesn’t sign up for any pay site, the free site assumes the person is just window shopping, and redirects the user to a peer. New browser windows pop up for each new free site that’s shown, and users can quickly find themselves on a different site than the one they started on.

Affiliates’ tactics have evolved with the times. Recently, some have launched blogs that feature discussions of the latest adult content online, as well as links to the images or video clips. The editorial content helps those sites rank more highly in search engines, boosting traffic. Some porn affiliates, however, use computer programs to automatically generate scores of phony blogs featuring little content besides gibberish and links to adult sites.

Affiliates have been so successful at driving traffic to porn sites that purveyors spend a good deal of time and money keeping them happy. Affiliates drive about 60% of the 100,000 unique daily visitors to Vivid.com, the online unit of major adult-film producer Vivid Entertainment Group, said Michael Cardone, general manager of the company’s affiliate program. The Los Angeles company regularly pays commissions to as many as 1,000 affiliates each month.

Last week, Mr. Cardone attended an adult industry conference in Las Vegas, where he schmoozed with affiliates at the Hard Rock Hotel and Casino’s swimming pool. The company treated affiliates to drinks and took a group out to the chic Japanese restaurant Nobu for dinner, he said. “We spend a lot of money getting new ones and keeping existing ones as well,” Mr. Cardone said.

Sometimes, keeping affiliates happy means offering them gifts and bonuses, said Clark Chambers, who manages affiliate programs for pay sites OlderWomen.com and AuntJudys.com, among others. Mr. Chambers, based in Los Angeles, said he recently sent a $3,000 TAG Heuer watch to an 18-year-old in Moscow who runs a handful of affiliate Web sites. That was a bonus on top of the $5,000 to $8,000 a month in commissions he has been paying the teen. Mr. Chambers offers affiliates the option of either collecting 50% of referred sales, or receiving a flat $30 finder’s fee per customer. Getting good affiliates to pitch your wares “is super competitive,” Mr. Chambers said.