It's a typically sunny day in Rancho Santa Fe, California, and Gary Kremen is standing on the back patio of the mansion that's a monument to his greatest success - and his worst failure.
A sleepy suburb 15 miles north of San Diego, Rancho Santa Fe is the richest community in the country, according to the US Census Bureau. Even by local standards, Kremen's seven-bedroom home is swank: It has a swimming pool, an in-ground hot tub, a tennis court, and a volleyball sandpit, all set against rolling acres of lemon groves.
Kremen won the house in a lawsuit over the domain name Sex.com. In November 2000, at the end of a three-year legal battle, a federal judge ruled that Stephen Cohen had stolen the domain by forging a letter from Kremen's company to Network Solutions. Cohen was ordered to return Sex.com to Kremen and pay him $65 million in damages. (Cohen appealed, and in June of this year, the US Supreme Court declined to hear his case.) In the meantime, Cohen had fled the country, so all Kremen got as compensation was this California mansion and a derelict house on the US-Mexico border. Even so, Kremen figured he'd found his winning lottery ticket. Under Cohen, Sex.com had been taking in $500,000 a month selling banner ads to other online porn sites.
It takes only a quick peek inside the Rancho Santa Fe house to realize Kremen, 39, didn't hit the jackpot. The place is an utter mess. The doors have no knobs. Only a few of the rooms have beds, which are rented. The kitchen has 35 cabinets and four refrigerators, with Post-it notes on the few that contain food.
Sex.com is in similar shape, a marquee property decaying beneath an enticing facade. When Kremen took possession of the porn portal, he figured it would run itself. But by early 2001, the Internet had become saturated with free porn on peer-to-peer networks like Kazaa, and Sex.com's revenue dropped by two-thirds. Kremen compounded his problems with lousy management skills - multiple firings, obsessive litigation - and an addiction to speed. "I'd be lying," he admits, "if I said I wasn't my own worst enemy sometimes."
Most porn sites reacted to the crisis in the industry by getting more extreme - bombarding visitors with spam, hawking herbal sex-enhancement products, catering to bizarre fetishistic niches. But "we want to get away from porn's negative aspects," Kremen says. He wants to make Sex.com an advertising middleman, selling sponsored links that would appear on major search engines as well as his own site. "Our pitch is simple" Kremen explains. "We'll deal with the adult industry so you don't have to."
Even if that's possible, Kremen might not be the man for the job. As we talk in an office he keeps in the mansion, a man bounds into the room. Kevin Blatt is an adult-entertainment business consultant who goes by his initials; KB has short, gelled hair, a goatee, and sunglasses he keeps on indoors. He works for HerbalO, a company that sells virility products on adult Web sites. Kremen thinks that's tacky. KB scoffs: "If there's money on the table, I'm going to take it."
By KB's side is his current girlfriend and the star of Girliescam.com, Anna Castro, who's wearing a tank top that barely conceals her breasts. "This is Girlie," KB says by way of introduction. "She's hot. And she sucks cock like you wouldn't believe."
Kremen is speechless. "Well," he says.
Kremen sees himself as an accidental pornographer. But he's best described as a speculator in virtual real estate who bought property on the wrong side of the tracks and toughened up to fit in with the neighborhood. In the early 1990s, when the Mosaic browser was fresh to the Web, Kremen registered dozens of domain names like jobs.com and housing.com while they were still free, figuring they could be worth a lot down the road.
Meanwhile, he focused on a site he already had up and running, Match.com. At the time, online personals were seen as terminally tacky - customers faxed in their photos - and venture capitalists were dubious. In 1994, Kleiner Perkins Caufield & Byers offered to invest in the online classifieds business that Match.com was part of, but the VCs wanted to merge it with Architext, which would become Excite.com. Kremen said no, because he wouldn't be made CEO of the new company. Instead, he accepted money from a group of investors led by Canaan Partners. As Internet dating became popular, Match.com started to draw media coverage. A typical photo, in the San Francisco Chronicle, featured Kremen looking forlorn and holding flowers, alongside a story about how the founder of Match.com couldn't get a date.
His relationships with his financial backers weren't so smooth, either, and Kremen developed a reputation for being smart but tough to deal with. The board wanted him to start developing other classifieds and stop messing around with lonely-hearts ads. "They were embarrassed by it," Kremen remembers. Meetings became shouting matches. "Gary sometimes loses perspective," says Ron Posner, a venture capitalist who was on the Match.com board. "VCs would call me in the middle of the night and say, 'What are we going to do about Gary?'"
Over Kremen's objections, Match.com was sold for $8 million in 1997 to Cendant, a Connecticut consumer services company. (A year and a half later, Cendant sold it to Ticketmaster Online-CitySearch for $50 million.) All Kremen got was $50,000 and a lifetime account on the site - his login is "The Founder."
It was around this time that Kremen discovered Sex.com had been snatched by Cohen, and he pursued the epic case through six lawyers, two dismissals, and a host of setbacks. When he finally won three years later, he was on the verge of bankruptcy. He figured Sex.com represented his second chance to build an empire, to show those VCs what they had missed.
Kremen initially wanted someone else to run the business while he invested the profits in more respectable ventures; after all, he had an MBA from Stanford. But from the day he won control of the site, Kremen just couldn't let go. In January 2001, he fired his attorney, Charles Carreon, who had a 15 percent stake in the business, in a dispute over how much power the lawyer would have. In the course of a year, Kremen hired and fired three management teams. Some of the arguments were about his reluctance to pander as much as other porn sites did; he wouldn't allow bestiality, for example. "I'm judgmental about some of this stuff," he told me at the time. "There's a line I won't cross."
When he wasn't firing staffers, Kremen was filing lawsuits.
He filed a claim against Yahoo! (for intimidation), one against Wells Fargo (in its role as Cohen's bank), and a countersuit against Carreon, who had sued him first. Still bitter about the bruising legal battle to recover Sex.com, he hired a private investigator to track down Cohen in Mexico, without success. Before long, litigation was his biggest expense.
Driven, angry, and increasingly reluctant to surrender control, Kremen started pulling all-nighters and got hooked on speed in the process. His weight dropped as his stress level rose. "People used to say, 'You should be in rehab,'" Kremen remembers. "I'd say to them, 'I'm so efficient, you should be in rehab. I can be up for five days in a row - you guys are slackers.'" By Thanksgiving 2001, Kremen had fired more employees, and his friend and attorney, Sue Whatley, left the company to protest his self-destructive behavior. A month later, Sex.com was running out of cash.
It's spring 2002, a few months after he first met with KB, and Kremen's throwing a party at his mansion to jump-start the new business model. A statuesque redhead is soaking in his hot tub, wearing only a thong and pinching her nipples. Men gather round; some snap photos. The woman is Kym Wilde. Her job is to be the porn star who works for Sex.com. "You have to have a porn star on the payroll," Kremen says. "It's all part of the image."
Wilde steps out of the tub and moves over to a nearby table where Kremen is talking to a buddy, a Valley VC he knows from Stanford. Wilde, who also helped Kremen plan today's event, continues to squeeze her nipples as she and Kremen discuss the logistics for the rest of the evening. His friend's mouth hangs open, a shot of Don Julio tequila in his hand. "My God," he says when Wilde walks away. "Where did you find her?"
Kremen grins and pounds a shot. The party, co-sponsored by Python Video, one of the bigger companies in the adult-entertainment industry, is going well. Liquor is flowing. A DJ is spinning house music. And, most important, his friends from the straight business universe are mingling with his contacts from the porn world.
Kremen may want respect from the Stanford crowd, but he needs support from his new pals at places like Python, and to win it, he has to get up close and personal. As his friend Sue Whatley puts it, "These guys want to party with you, take drugs with you, sleep with the same girls, and then at 4 am sign a deal." Kremen doesn't go that far, but he does try to fit in. He compares himself to Tony Soprano, another man with his own, idiosyncratic moral code who craves acceptance in the legitimate world. "He's like a CEO," Kremen says, "a businessman who's got business problems."
By summer 2002, things are picking up - monthly revenues rise to $200,000. In August, Kremen appears on a panel at the Search Engine Strategies Conference & Expo, a trade show in San Jose, and spends all three days of the convention meeting with search companies interested in using his sponsored adult links. By then he is already stepping over the lines he's drawn for himself. He has started to use pop-up ads. Within months he will make a complicated deal to sell some of the email addresses he's acquired, and link to a fake bestiality site, figuring he can make money from people he considers loathsome but who will be too embarrassed to ask for it back. "People in this industry beat me mercilessly for not doing those things," he says. "I came to a compromise."
It's March 2003, and Kremen is taking a meeting with three sales reps from Qwest, at Sex.com's office in San Francisco's Dogpatch district. Sex.com has had problems with denial-of-service attacks, so Kremen's looking for backup hosting. He leads all of us downstairs, where he shows the guys from Qwest the servers, the Ping-Pong table, and, finally, the S/M dungeon a few of his friends built. Slack-jawed, the Qwest salesmen stare at the chains hanging from the ceiling. A Sex.com programmer peers in. "I think someone came by earlier to pick up the strap-ons," he says.
In a conference room partitioned off from the rest of the floor, the Qwest regional sales manager makes his pitch: Their network is reliable, their pricing structure is fair, their security is strong. Kremen listens with his arms folded.
As talk turns to technical details, a Sex.com staffer explains the site's business model: "So, let's say we're trying to drive traffic to one of our anal-sex customer sites … "
The Qwest reps shift in their chairs, but Kremen just sits there smiling. He needs a deal, but he hates the way these guys act like they're above him, like his money is good enough for them but he isn't. He's a businessman just like they are, doing what he needs to do to make a buck in a tough market.
When the Qwest manager asks about "the credibility of your numbers," Kremen can't take it anymore.
"Credibility?" he howls. His arms spring open and slap the table. "Whose stock is trading at 7 cents?"
"Actually," the manager says, "we're up over $3."
"Well, my business isn't being investigated by the SEC," Kremen exclaims, raising a triumphant finger in the air. "And we're profitable - unlike Qwest!"
The salesmen laugh nervously, and after a few more uncomfortable moments, the meeting breaks up. Kremen may have won a moral victory, but he still doesn't have a deal for a new hosting service.
There is some good news: Sex.com has signed up 2,300 advertisers, Kremen says, and has partnered with 60 search engines, including Lycos Europe, FindWhat, Mamma.com, and Kanoodle. Traffic has doubled. Monthly revenue has ticked up to $300,000.
But every dollar is a struggle, every customer a battle. Having a valuable piece of property is one thing, Kremen says. "Getting it developed is a hell of a different exercise."