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& DESIGN Home Page Architecture Brand Equity Auto Design Game Room SMALLBIZ Smart Answers Success Stories Today's Tip INVESTING Investing: Europe Annual Reports BW 50 S&P Picks & Pans Stock Screeners Free S&P Stock Report SCOREBOARDS Hot Growth 100 Mutual Funds Info Tech 100 S&P 500 B-SCHOOLS Undergrad Programs MBA Blogs MBA Profiles MBA Rankings Who's Hiring Grads | | APRIL 25, 2001 MANAGEMENT Palm Porn Looks Like a Hard Sell Startup Erotigo wants to bring steamy content to handhelds. Trouble is, neither the technology nor the market seems to be ready
Many venture capitalists, already skittish in the economic downturn, see it as a misfit. Not only would Erotigo lack those all-important "synergies" with other companies in their portfolios, it could be a serious turnoff to a venture firm's investors. "They see stigma," admits Schwab. "Most potential investors don't understand how many businesses are in it," she adds, referring to adult entertainment. So far, she has used $120,000 of her own money to launch the 10-month-old company. That went mostly for product development, as well as networking and information gathering at national trade shows. She's hoping to get half a million dollars from angel investors to move ahead with marketing plans. ONLY THE BEST. The company's first product, Erotiguide, a directory of "everything sexy in New York City" -- from video stores to escort services to lingerie emporiums and more -- is scheduled to debut by the end of April. (Plans call for guides to more cities later.) Its other product, Erotifolio, which would deliver high-quality "adult content" to the wireless screen, is slated to start by the end of June. Erotigo is buying, rather than producing, the content for both the guide and folio. It has an exclusive license on the material in Sexy New York City, a paperback sold in mainstream bookstores. As for sex-related Internet content, there's plenty of it out there. What Erotifolio will offer, Schwab says, is only the best erotic content -- both words and images. She plans to achieve this by partnering with content providers currently on the Internet that are looking to offer their wares on wireless. Erotigo is in the process of patenting technology that delivers high-resolution images quickly to wireless devices, she says. The Erotiguide is free. Erotifolio will be sold by subscription -- probably $19.95 per month, Schwab says, which she estimates should bring in $2.7 million a year. Here's how she's doing the math: Based on subscription rates and usage at other sex-related content sites, she expects about 215,000 wireless-device owners to visit Erotiguide. Of those who visit, 25% will pay for Erotifolio month after month, she figures. TURN TO THE RIGHT. In addition to subscription fees, Schwab envisions revenue from mobile commerce -- "lingerie-of-the-day, things like that," she says -- and perhaps dating services. The privacy and mobility of wireless will be Erotifolio's appeal, she says -- especially for women. Schwab says women are an "underserved market" and would rather read or view sex-related content in an easy chair than at a computer desk. Still, Schwab is trying to sell her idea even as the mood of the country turns conservative. In mid-April, Internet portal Yahoo! announced it would remove much of the pornographic material from its site and would stop taking ads for such services, in response to public criticism. And Attorney General John Ashcroft is expected to step up enforcement of laws designed to restrict access to pornography, especially for minors. Schwab emphasizes her sensitivity to the "big problem" of child pornography, which she says will never be part of Erotigo's products or services. And Erotifolio would require a valid credit card for subscriptions to ensure that customers are over the age 18. M-COMMERCE HYPE? Schwab also acknowledges that wireless technology isn't where it should be for her service -- most handhelds have only 8 megabytes of memory and a very small screen. She's looking to gain both a foothold and a brand advantage while waiting for the technology to get faster, crisper, and to offer better connectivity. Her worst fears are that the adoption of handhelds will take too long and that wireless and Internet technology won't converge smoothly and quickly. It's a legitimate concern. Most forecasts say it will be three to four years before Internet-enabled wireless phones and mobile wireless computing devices become sophisticated enough to have widespread appeal. The number of worldwide wireless data subscribers is expected to grow from less than 200 million today to more than 1.3 billion by the end of 2004, according to Cahners In-Stat Group. At least initially, though, the strong demand is expected to come from business users rather than individual consumers. As for selling merchandise via wireless -- mobile commerce, or m-commerce -- that, too, is years from catching on, says Cahners In-Stat senior analyst Ken Hyers. "Users are not enjoying a wireless Internet experience that even remotely compares to the wired one that millions experience every day," according to Hyers. "Much of the hype surrounding m-commerce...is just that -- hype." FUZZY PICTURES. By being ahead of the technology, Erotigo may be ahead of its market. Pictures don't work well on wireless devices because the image is too small and too fuzzy, says Sean Kaldor, vice-president of e-commerce for NetRatings, the arm of ACNielsen that tracks Internet usage and sales. If Erotigo's high-resolution technology pans out, the image quality may improve -- but that still might not be enough to win paying subscribers. The Erotiguide listing is likely to work, though, Kaldor says. "A lot of people appreciate a free service for this kind of thing," but they wouldn't pay for it, just as they won't pay for Erotifolio, he predicts. People who want privacy and mobility can simply use a notebook computer, he points out, and get a bigger, better image and faster access. Schwab argues that it's impossible to measure demand for adult-entertainment content via wireless since so little is available. "Demand will be created by the companies that get into the game, including Erotigo," she says. Other entrants in the game are SinPalm and PalmStories, which deliver a limited number of pictures and stories to Palm devices. DRIVING FORCE. But according to Kaldor, Erotigo is "pushing the barrier too soon. When we have high bandwidth and streaming live video, then it might work." He estimates two to three years from now would be the right time to enter the content-delivery market for wireless. By then, of course, wireless tech is likely to have evolved away from compatibility with the technology Erotigo is patenting now. "If you're talking about delivering video content via wireless, other applications could be more compelling," Kaldor says. "Driving directions and maps, for example, might be useful today." It's true, driving directions aren't sexy. But that may be where the money is in wireless content.  By Theresa Forsman in New York Edited by Robin J. Phillips  | | |
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