In affiliate marketing, entrepreneurs are always looking for new ways to gain an edge over their competition. Tuan Vy, the founder of VMG Media Group and a veteran affiliate marketer who dominated the adult niche back in the days, saw an opportunity to create a software as a service (SaaS) product that would help affiliates in the adult and dating niches spy on their competitors' campaigns.
The result was Adult AdSpy, an ad intelligence tool that quickly gained traction and reached $250,000 in monthly recurring revenue (MRR) within just four months. However, as with many success stories, there were also challenges and lessons to be learned along the way.
In this case study, we'll take a closer look at the rise and fall of Adult AdSpy and the valuable insights Tuan Vy gained from the experience. Also if you are looking at launching a spy tool service for affiliate marketing, this is a good resource to learn from.
Tuan Vy, super affiliate and founder of VMG Media Group
The product: Adult AdSpy
Adult AdSpy was an ad intelligence software designed to scrape the internet for different types of ads and catalog them in a database for users to access, filter, and search. The tool was specifically targeted towards affiliates in the adult and dating niche who wanted to spy on their competitors' campaigns, find profitable offers, and discover new ad creatives. The software would crawl various traffic networks and sites, gathering banner ads, landing pages, and other useful data to help users gain insights into who was running what campaigns and for how long.
At the time of its launch in 2014, the dating niche had blown up and there were few spy tools in the market, giving Adult AdSpy a huge advantage as a first-mover in the space. The tool quickly achieved product-market fit by addressing a real need for affiliates in the adult niche.
Pricing structure
When it came to pricing, Tuan Vy and his team wanted to position Adult AdSpy as a business enterprise-level software rather than a typical affiliate marketing product. Instead of using the common "7" pricing strategy (e.g., $97, $197, etc.), they opted for a "5" pricing structure (e.g., $95, $195, etc.) to differentiate the tool from other affiliate marketing spy tools.
Adult AdSpy offered a 3-day $9.95 trial that would convert to a full-price membership of $179.50 per month after 7 days or when the user initiated an upsell to upgrade their account. The recurring subscription model ensured a steady stream of revenue as long as users remained subscribed.
While the pricing could have been lower, Tuan Vy says that he wanted to leave room for affiliate partners to earn commissions and still maintain healthy profit margins after accounting for overhead costs, processing fees, and ongoing development expenses.
Target market
The primary target market for Adult AdSpy was affiliates in the adult and dating niche who were looking to spy on their competitors' campaigns and find profitable offers. However, the tool also appealed to a broader audience, including:
- Traffic networks: Adult traffic networks used the tool to monitor for fraud and compliance issues across their networks.
- Affiliate networks: Affiliate managers used Adult AdSpy to find new ad creatives for their affiliates.
- Aspiring affiliates: Those looking to enter the adult affiliate marketing space saw the tool as an easy way to start making money by copying successful campaigns.
By targeting these different segments, Adult AdSpy was able to quickly gain traction and build a substantial user base.
Promotion strategies
Tuan Vy employed several key strategies to promote Adult AdSpy and drive user acquisition:
- Using internal email databases and influence:
Tuan Vy used his existing assets to jumpstart the product's growth. These included:
- His niche blog and authority site in the adult space, which had a substantial readership.
- His email database of potential affiliates interested in the adult niche.
- His own affiliate network (Smash Revenue) and forum (Adult Media Buys), providing access to a large pool of affiliates.
By promoting Adult AdSpy to these existing audiences, Tuan Vy was able to quickly gain initial traction without significant customer acquisition costs.
- Joint venture partnerships and a referral program:
Tuan Vy reached out to influential players in the affiliate marketing industry, such as affiliate network owners, blog influencers, and other key industry figures with large email lists of affiliates. He offered them a recurring commission for promoting Adult AdSpy to their audiences through a referral program. This strategy allowed Adult AdSpy to tap into the extensive reach of these partners and quickly expand its user base. The referral program incentivized partners to actively promote the tool, as they stood to earn ongoing commissions from each referred user.
- Positioning as a tool that helps affiliates to make money faster:
Adult AdSpy was promoted as a simple way for affiliates to spy on competitors' campaigns, find profitable offers, and start making money quickly by copying successful campaigns. This positioning made the tool attractive to both experienced affiliates looking to optimize their campaigns and newcomers seeking to enter the adult affiliate marketing space.
- Targeting a specific niche:
By targeting only the adult and dating niche, Adult AdSpy could focus its marketing strategies to a highly relevant audience. This niche-specific targeting allowed for more effective promotion and higher conversion rates among potential users.
These promotional strategies, combined with the product's first-mover advantage and strong product-market fit, enabled Adult AdSpy to quickly gain traction and scale to a substantial MRR within a short period.
The numbers
At its peak, Adult AdSpy had over 1,500 users paying the full monthly membership fee of around $180, resulting in an MRR of over $250,000. The initial development cost for the spying software was only $25,000 to $30,000, with ongoing server costs of $3,000 to $5,000 per month. Additional development work was outsourced on a contract basis as needed.
One of the major challenges Adult AdSpy faced was high merchant processing fees, ranging from 7% to 14% across various processors due to the high-risk nature of the adult industry. Despite this, the chargeback rate remained under 2%, as users generally knew what they were signing up for and received the expected value from the product.
Key success factors
Several factors contributed to the rapid success of Adult AdSpy:
- Riding an industry wave: The adult and dating niche was experiencing a surge in popularity among affiliates during the time of Adult AdSpy's launch, creating a perfect opportunity to capitalize on the trend.
- First-mover advantage: As one of the first ad intelligence tools specifically targeting the adult niche, Adult AdSpy had little competition in the market.
- Achieving product-market fit: By listening to user feedback and leveraging Tuan Vy's own experience as an active affiliate, the software quickly aligned with the needs and wants of its target audience.
- Leveraging internal databases: Tuan Vy used his existing niche blog, email lists, affiliate network, and forum to promote Adult AdSpy to a highly relevant audience, jumpstarting the product's growth.
- Joint venture partnerships: A referral program was created to incentivize influential affiliates, network owners, and other key players in the industry to promote the tool to their audiences in exchange for recurring commissions.
Challenges and lessons learned
Despite its rapid success, Adult AdSpy eventually faced several challenges that led to its decline:
- Spy tools are not a core component of affiliate’s businesses: While the tool was helpful for affiliates, it wasn't an essential part of their day-to-day operations like for example how a tracker or hosting service is. This led to high churn rates as users would subscribe only when they needed it.
- Competitors offering free alternatives: The emergence of competitors providing similar features for free, albeit with fewer capabilities, made it difficult for Adult AdSpy to maintain its paid user base.
- High-risk processing issues: The adult nature of the product led to constant struggles with merchant processors, resulting in high fees, frozen reserves, and uncooperative banks.
- Development team dissolution: The outsourced development team that built Adult AdSpy eventually dissolved, leaving no single developer with a comprehensive understanding of the codebase, making further development and maintenance challenging.
- High churn rates: Due to the non-essential nature of the tool and the availability of free alternatives, user retention was poor, with most subscribers staying for only a few months at a time.
- Too niche-specific: By focusing solely on the adult niche, Adult AdSpy limited its potential for growth and adaptability as affiliate market trends shifted. For example, when the crypto and e-commerce niches took off starting from 2016, the spy tool became less relevant as most affiliates switched from the adult niche to the other hot niches.
Key takeaways for affiliates and SaaS entrepreneurs
The Adult AdSpy case study offers valuable insights for entrepreneurs looking to create successful SaaS products in the affiliate marketing space:
- Solve a real problem: Identify a genuine need in your target market and build a product that addresses it effectively.
- Ride industry trends: Capitalize on emerging trends and be a first-mover in your niche to gain a competitive advantage.
- Look for product-market fit: Continuously gather user feedback and iterate on your product to ensure it aligns with your target audience's needs.
- Leverage existing assets: Use your existing networks, databases, and influence to jumpstart your product's growth.
- Build strategic partnerships: Develop mutually beneficial relationships with key players in your industry to expand your reach and drive user acquisition.
- Ensure your product is needed: Aim to create a tool that becomes a core component of your users' businesses to reduce churn and increase long-term revenue.
- Document and systemize development: Implement proper documentation and project management processes to ensure the long-term viability and maintainability of your software.
- Plan for the long run: Be prepared for development delays and budget overruns by multiplying your initial estimates by 3–4 times.
- Consider ethical and compliance issues: Be aware of potential ethical and compliance concerns surrounding your product, and take necessary precautions to mitigate risks.
- Don't be afraid to pivot: Be willing to adapt your product and target market as needed to ensure long-term success.
Conclusion
The rise and fall of Adult AdSpy serves as a powerful case study for entrepreneurs looking to create successful SaaS products in the affiliate marketing space and beyond. By riding industry trends, achieving product-market fit, leveraging existing assets, and fostering strategic partnerships, Tuan Vy was able to quickly scale the product to an impressive $250,000 MRR. However, the challenges faced along the way, such as high churn rates, development team issues, and being too niche-specific, ultimately led to the product's decline.
Despite the eventual outcome, the lessons learned from the Adult AdSpy experience are invaluable for any entrepreneur seeking to build a sustainable and profitable SaaS business. By focusing on solving real problems, ensuring your product is an essential part of your users' operations, and continuously adapting to market trends and user feedback, you can increase your chances of long-term success.
