Demand Media , a name that isn't well-known but tends to stir existential emotions in those who do know the Santa Monica-based content farm and domain services company, confirmed some longstanding gossip and rumor on Friday when it filed for its initial public offering (IPO).
Demand operates something called Demand Studios , which is essentially a backend content production system with over 10,000 registered freelance writers, editors and video producers working for wages often well below industry standard to churn out content for Demand-owned, operated or partner sites like eHow.com , Trails.com , Travels.com , LIVESTRONG.com and others.
(Full disclosure: I'm a registered Demand Studios writer, although I haven't written or edited anything for the company for over a year. I wrote a few dozen how-to articles for eHow, most at $15 a pop, but now many writers earn as little as $3 per article. The income was very handy when several of the publications and programs I was contributing to at the end of 2008 suddenly went dark as the economy fell off a cliff.)
Demand raises the ire of many in the content creation community because its entire business model is driven by SEO and Google's mysterious search algorithm. It's not unusual to do a search on eHow for something like “how to open a checking account online” and have results returned that look something like this:
Matching Articles:
1.How to Open a Checking Account Online
2.How to Open a Checking Account with Online Banks
3.How to Open an Instant Checking Account Online
Each of those resulting links will take you to a different article written by a Demand Studios writer. The titles were generated by Demand's own database of search information and then assigned to writers who wrote them up quick for a few bucks so that it can be there, boosting eHow's relevance rankings whenever someone uses Google to look for information on online checking.
It's these kind of redundancies, inefficiencies and the reliance on trying to game Google for free traffic that caused TechCrunch founder Michael Arrington to label the idea of demand-driven media (led largely by Demand Media) as "a race to the bottom."
Still, Demand Media believes that investors will be happy to throw a collective billion dollars their way in the name of plugging whatever remaining gaps there are in the online information universe. And the company is well aware of the criticism it receives. It even addresses the issue of over-reliance on Google for revenue on page 14 of its shiny new prospectus.
We have an extensive relationship with Google and a significant portion of our revenue is derived from cost-per-click performance-based advertising provided by Google. For the year ended December 31, 2009 and the six months ended June 30, 2010, we derived approximately 18% and 26%, respectively, of our total revenue from our various advertising arrangements with Google.
This could be a potentially huge problem for the company, as Google regularly revises its search algorithm, in part, to weed out large-scale, lower-quality content providers who play the SEO game as Demand does.
But so far, Demand's strategy seems to be working. Although the company has yet to turn a profit, its year-over-year losses have been shrinking quickly as its operation expands. When I wrote for Demand in 2008, all the content being produced was for one site – eHow. Today the company is touting partnerships that has Demand Studios writers creating content for such big names as USA Today.
To revise Arrington's analogy, it would appear the first leg of a long “relay to the bottom” is over. Demand is still in the lead, but to keep the team in the race they're looking to pass the baton to Wall Street, which appears willing to run a few laps, but only time will tell if investors have enough enthusiasm to make it across the finish line.
