Sex sells on the Internet. The online porn industry continually makes money hand over fist. But no Internet company with main street appeal has ever broken the hard-core barrier, that is until now.

News that Yahoo! (Nasdaq: YHOO) has been selling thousands of hard-core DVDs and videotapes at its online store for more than two years have been trickling out, to the chagrin of some investors.

"I don't think it will hurt their stock much as long as they have ways of preventing the videos from getting into the hands of minors," says U.S. Bancorp Piper Jaffray analyst Safa Rashtchy. "There is a negative connotation with sex-related products. Excite and Amazon sell soft-porn but nothing this extreme."

At this point, Yahoo! could use any extra revenue it can get its hands on. The Santa Clara-based company Wednesday said it would fire up to 12 percent of its employees as first-quarter revenue at the portal giant plunged from year-ago levels.

Because of market conditions and slow ad revenue, the company said it sales dropped to $180.2 million, down from $230.8 million from last year's first quarter. Second quarter revenues for 2001 are expected to be between $165 and $185 million.

Yahoo! says the video sales give the company another revenue stream and they are taking all necessary precautions.

"Yahoo! takes extra precautions so that products are available to only age-appropriate audiences, by placing adult merchants and products behind a secure firewall," says Yahoo! spokesperson Nicki Dugan. "To enter this area, users need to enter a credit card to verify their age. To date, we have received little negative user feedback regarding adult products. Yahoo! is always looking at ways to improve our service, and we continue to listen to our users and evaluate our policies."

In the past, sex-seekers have been able to find porn using Yahoo's Internet directory, but revamping the site recently to sell "adult and erotica" DVDs and videos themselves means the company will earn a percentage of the sales.

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"And if the strategy doesn't work, they can get rid of it quickly," says Rashtchy.