On Saturday, the largest advertiser of online sex sites, XPics Publishing, stunned webmasters with an email informing them that, as of 30 October, it was discontinuing the massive "XCash" banner-ad campaign that had reshaped the economics of porn on the Web.
It dominated the industry by promising to pay webmasters 18 cents for every click on banners touting sites like the Ass Awards and the Sex Museum. Then XPics suddenly told its clients -- some of whom had reaped windfalls of thousands of dollars a month by hyping the XXX sites -- to take down all of the company's banners.
"We strongly recommend that all advertisers remove their XPics ads as soon as possible," the missive read, sent out as a newsletter for adult webmasters and called The Blue Electron.
The reason given for the sudden termination of the XCash program was vague. "Right on the heels of what was poised to be the most successful new ad program ever launched, XPics was notified that its licensees' ability to sign up members for XPics' content has been canceled.... This action was taken without any stated justification. Regrettably, these events have forced the suspension of all advertising programs."
The newsletter assured webmasters that outstanding payments to existing members would go out on schedule and encouraged webmasters to replace XPics banners with those of two other firms, Spearmint Rhino and 3i.com.
Many assumed that the mail, signed by XPics founders Brian Shuster and Mario Carmona, was a forgery. Because it had been sent out at the end of the day on Friday, however, there was no way of verifying it with XPics.
Bulletin boards for adult webmasters, like the YNOT Network's Hangout, were abuzz with rumors all weekend. In the competitive arena of X-rated e-commerce, it didn't take long for XPics' competitors to rev up their spam engines. Soon after the newsletter went out, adult webmasters were deluged with offers from other potential advertisers.
To verify the email, Jim Duvall, who runs an index of adult sites called Jane's Net Sex Guide, phoned Christopher Bond, the president of Public Card Services, the XPics affiliate that handles the company's credit-card transactions. Bond told Duvall that the letter was a forgery, that his company was still handling XPics' Visa transactions, and that the XCash program was on track.
Then, a few hours later, Bond called back with the news that the letter was, in fact, authentic.
"I don't see how their credit-card processor didn't know that their merchant numbers had been cancelled," says Duvall.
An email from an XPics employee who wishes to remain anonymous reads, "XPics is currently in negotiations with Visa to get their account back, but apparently Visa isn't budging. My understanding is that Visa has not found any wrongdoing on the part of XPics, but they will not restore the account because of all the trouble it caused. There have been thousands of chargebacks [charges removed by the customer], and a great number of the credit cards being used were fradulent. The entire XPics business plan has been turned upside down."
Rob Shapiro, vice-president of corporate relations for Visa USA, declined to discuss XPics' relationship with its bank. Of the newsletter and the employee email, he did say, however, that "There is some truth in the email. Of course, another bank may step in."
A spokesman for one of the companies linked on XPics' site explained, "The usual credit-card companies that handle adult traffic stay far away from XPics." Because his company is now benefitting from the collapse of the XCash program, however, he refused to use his name.
"We are trying to take the grapes which are hanging low right now," he said.
Calls to XPics and Public Card Services were not returned. A secretary at the Los Angeles phone number shared by both businesses said that it was unlikely that staff members other than Bond would return calls and refused even to verify the spelling of the last names of XPics' co-founders.
"I don't know Brian and Mario all that well," she said. Bond never returned the call.
The Kings of Sleaze
XPics' questionable use of users' credit cards -- including repeated billing of accounts cancelled by users, automatic conversions of free accounts to paying accounts, and Kafkaesque terms of membership making termination difficult -- has earned it scores of complaints with the Better Business Bureau of Southern California, and its proprietors are known by some adult webmasters as "the kings of sleaze," says Seth, the webmaster of numerous XXX picture galleries, such as 100pix.com.
Some of the most respected indexes of adult sites, like Jane's Net Sex Guide, refused to run XPics banners, despite lucrative offers.
Like many adult content providers, Seth climbed on the XCash gravy train after launching a series of free sites. Last January alone, Seth made US$5,000 from clicks on the XPics banners. Every few months, XPics would grab more points of market share by announcing that they were hiking up their pay-out rate by another few cents per click. But even the big pay-outs didn't match up with the hit counts, Seth says.
"Every time they raised the pay-out, they came out with another way of discounting traffic," he explains. Rather than credit raw hits, XPics would specify only hits from unique IP addresses would be tallied, then only hits on the second or third pages of sites.
After publishing an exposé of XPics' membership practices last May, Wired News received many letters from webmasters who had installed counters on their site. They said that XPics routinely "shaved" hit counts. Many of them also said, however, that they were making so much money they had never filed a complaint.
Blind Links
The collapse of the XCash program comes as XPics was moving beyond banners to a new ad strategy that was called the "modular" plan. In-house, it was codenamed "Armageddon."
Modular advertising supplanted the banners with full-page ads that looked like tables of contents for the sites hosting them. If you were on a free site, you could jump to an XPics module and click on thumbnail images, or buttons that said "lesbian" or "orgy," without knowing that you were leaving the free site for one of XPics' own. The modules used JavaScript to obscure the new URLs in the status bar of the browser. Once you were on an XPics server, you'd be asked for a credit-card number for "age verification."
Payment to webmasters would no longer be by-the-click, but by the number of registrations for membership on the XPics sites.
Beth Mansfield, the owner of Persian Kitty, an adult site index that gets 300,000 visitors a day, refused to include sites that used XPics modules in her index.
"They were tricking visitors with blind links to what looked like content, and I wasn't going to allow it on my site," she says.
The plan, she speculates, was to develop such a labyrinth of elaborately linked (http://www.lustylynx.com) that they wouldn't have to depend on -- or pay for -- ads on external sites. Mansfield believes that the XCash end game may be a ruse for dissolving the XPics brand into a number of smaller companies to "disperse their culpability in case a bunch of people file a class-action suit against them."
Jim Duvall concurs. "XPics exposure to chargebacks must have been increasing by a million [dollars] a day. It was at a point when it was so huge, it was bankruptcy for everyone involved."
If credit-card companies took a close look at what XPics has done, they'd "run from the Web," Duvall says.
With no comment from XPics other than the email, it's hard to know what will happen Friday, when the XCash program officially ends.
Seth, however, believes he can guess the game plan.
"I think they're packing up shop, getting houses in Hawaii, and smoking that bright green stuff with the crystals in it," he says. "It's the biggest scam in Internet history."
