Six things you can learn from Sex.com's failure

In 2006, the domain name Sex.com was purchased by a group of investors for a reported $14m.

The buyers of Sex.com, Escom LLC, had big plans for their $14m domain name. According to a press release announcing the sale, "The new Sex.com will transform into the market-leading adult entertainment destination by offering compelling, next-generation web interaction experiences to revolutionize the industry. The new Sex.com will leverage the millions of monthly unique visitors that are already coming to the site while it continues to roll-out a host of professionally produced products and services..."

Yet next week, Sex.com will go on sale again. The reason? For more than a year, Escom LLC has reportedly been in default on a loan it used to finance its Sex.com purchase. So the lender is finally foreclosing and hoping to recoup millions at auction.

For a domain that once reportedly generated $15,000 in revenue every day, the failure of Sex.com offers six important lessons.

• A great domain only goes so far. Sex.com is certainly one of the most desirable domain names on the internet -- perhaps the most desirable domain name -- yet a great domain and the type-in traffic that comes with it usually aren't enough to build a sustainable business.
• It's all about development. A great piece of land can appreciate in value, but you typically have to develop a property to produce income. Given the amount of competition online, developing an awesome website that offers  value is an absolute prerequisite for attracting and retaining users. As the Baltimore Sun notes, Sex.com features little more than a "mish-mash of blah links and boring essays (paired with a design our 10-year-old cousin could improve upon)". Make no mistake about it: poor execution on the development-side is one of the biggest reason Sex.com is heading to the deadpool.
• Focus is important. If you haven't visited, you might think Sex.com is something it isn't. For instance, you probably wouldn't expect Sex.com to be selling rather tame "I Saw Your Dad on Sex.com" t-shirts. But it is. You'll also find a YouTube video of the day, love horoscopes, and polls. In other words, Sex.com is trying to do everything, and because of that it does nothing well.
• Business models change in every market. The 'adult entertainment' industry is often heralded as cutting-edge adopter of technology, and that's probably true to an extent. But like all industries, it faces challenges online, from piracy to rampant competition. The owners of Sex.com clearly failed to innovate and adapt to the changes within the industry as they said they would, and they paid the price just like companies in other industries that have failed to keep up with the rapid pace of change.
• You always have to market yourself. Despite the domain, Quantcast reports that Sex.com receives less than half a million unique visitors in the US each month. Even more surprising: you won't find Sex.com on the first page of Google when you search for 'sex'. Whether you're paying for advertising or building organic traffic through SEO, you can't sit back and expect users to find you. That's especially true when you're not giving existing users much reason to come back.
• Allocation of resources is crucial to success. Every business has a budget. The key to success is maximizing that budget by allocating resources appropriately. Blowing all of your money on a domain name and skimping out on everything else, for instance, is a recipe for failure.

Like other massive .com flameouts before it, Sex.com is a reminder that money, ideas and domain names come easy. Building a real business doesn't. Without common business sense and execution, very little can keep a website from failing. Even Sex.com.

Photo credit: je@n via Flickr.