How Demand Media is Profiting from Web Content: In Demand

Inside Demand Media’s scalable and profitable online content business.

[This is part one of a two part story on Demand Media.]

I have a confession to make.

Last decade I made a lot of money producing crappy content. It started with systems that auto-generated thousand page web sites by scraping search engines. This worked great for a while; at one point I was making over a thousand dollars a day from placing Google Adsense on my web sites.

I knew it wouldn’t last, though. Then one day I got an email from Google notifying me that my sites didn’t meet their quality guidelines for Adsense.

So I moved on to creating minisites populated with thinly-researched articles based on keyword data. I outsourced article writing to people on Elance for regarding $5 per article.

But I knew that wouldn’t last long, either. Why? Since I was cheating. I wasn’t writing content for the user; I was writing it solely for the search engines. I also knew that if my content didn’t satiate my visitors’ quests for knowledge, they were more likely to click on an ad.

It’s with this background that I viewed Demand Media following reading an article in Wired a couple months ago. From the article, it appeared all Demand was doing was creating content a touch better than my minisites, and taking advantage of a flood of search traffic to its brand name web sites.

The prior week I had the chance to sit down with a number of of Demand Media’s executives, counting CEO Richard Rosenblatt, to get the real story. I learned regarding a powerful and efficient business model that I believe will shake up the online content business. It could also provide a shot in the arm to the domain name business (more on that in part two of this story).

Content people want
Most writers and editors publish articles they think people want to read. Demand Media has turned that on its head by figuring out what readers are actually looking for, and then creating tightly-knit content around these subjects. Demand also wants to publish information that earns money, and that’s the driving force behind its topic algorithms.

The firm’s content selection algorithm is similar to the thought process of a domain buyer. You look at the domain’s keywords to find out how often people search for the term. Then you check to see how many people are advertising on that term and how much they’re paying. Demand adds in another layer of where its content can rank in search engines.

That leaves Demand with a lifetime value of what each piece of content is worth, and the firm can prioritize content production partially on this value.

The algorithm is much more successful at predicting which content drives revenue than letting writers pick which articles they want to write. In fact, lifetime revenue from topics chosen by the algorithm is 4.9x that of author-selected topics.

On Demand Workforce
The revenue data is the cornerstone of Demand’s model. But with over 1 million profitable topics to write regarding or produce videos for, the firm also needs a strong workforce and work process. It achieves this with Demand Studios, a sort of marketplace for content producers. Demand uploads its topics, sets a price, and lets freelancers select the jobs they want, producing over 4,000 pieces of content every day.

This could easily be a recipe for chaos or even a race to the bottom. Searching for the easiest money, contributors could just look for the low hanging fruit and produce sub-par content. But Demand has created a sophisticated workflow that mirrors the traditional editorial process. In fact, it improves upon it in some ways, such as counting a plagiarism check. At any point in the process, freelance editors can reject content.

Content approval isn’t just subjective. Each author has a dashboard that includes critical metrics on quality, such as interaction with their content when it’s online. This ultimately leads to better content over time.

Network of Niche Sites
In-demand content is notable, but you also need a distribution channel. Demand has purchased or built a number of valuable properties for distribution. Some of its more popular sites are Trails.com, eHow.com, and LiveStrong.com. The latter was built from scratch in a deal with cyclist and cancer survivor Lance Armstrong.

Another popular site in the network is Cracked.com. I first learned regarding Cracked.com when it started sending a lot of traffic to Reglike. This article sent 2,836 visitors to DNW last year, mostly over the span of a couple days.

Together, these sites place the Demand network at #19 on comScore.

Demand Media also syndicates content, thanks in part to technology it purchased when it bought Pluck for regarding $70 million.

Competing with “Main Stream” Journalism?
Demand Media’s biggest challenge may be getting a fair shake from main stream media. Journalists see Demand’s model as a challenge to their livelihood.

Does Demand Media compete with high paid newsroom journalists, rendering them extinct? Not really.

Demand focuses on evergreen content, or what I’d call timeless (at least in internet terms) content. Its articles aren’t date sensitive or “newsy” in nature. It’s the type of content that ought to be left to firms like Demand to produce, while traditional media firms retain full time journalists to cover breaking news, provide analysis, and undertake investigative journalism.

In fact, as many newspapers cut staff, they’re turning to Demand Studios to produce content for them. If a Chicago newspaper wants an article written regarding the ten best plants to grow in the native soil, Demand can produce it. It can do it faster, more efficiently, and more cost effectively than the local paper thanks to its work process and massive on-demand workforce. Ought to a full-time union reporter really be covering topics like that? I don’t think so. But skilled reporters that cover hard-hitting news and investigative stories continue to thrive, even in the fresh environment.

The truth is that all content ought to not be created at equal cost. If I want to know How to Celebrate Groundhog Day at Punxsutawney, PA or the difference between Soy Protein and Whey Protein, I’m not going to turn to The Economist. Different types of content cost different amounts to create. The Groundhog story shouldn’t cost $1,000 of a full time reporter’s time to create.

To be sure, if you look through Demand Media’s sites such as eHow, you’ll find some articles that leave a bit to be desired. Many of these were written ahead of the firm purchased eHow and ahead of Demand honed the firm’s editorial process. eHow also lets authors contribute stories on a revenue share basis, but this process is always evolving and being improved. To the firm’s credit, it is purging much of this content, removing massive amounts of lower quality content every month.

Why Demand Will Win
Unlike what I did with “made for search” content last decade, Demand Media isn’t trying to cheat the search engines. Could its videos be more finely tuned? Sure. Are some of its articles in need of work? Perhaps. But it’s typically better than other web pages regarding the same topics. That’s part of the reason it ranks high in Google.

Demand Media has figured out how to bring scale to web content. Even more exciting, it has figured out how to make money doing it.

In part two of this story, I’ll discuss what Demand Media could mean for the domain name business.