In today’s issue of Kikabink News, we take a break from our regular coverage to provide an in-depth profile of Demand Media. Demand Media is a $1 billion information marketing company whose business model and activities are instructive for all Internet marketers, and especially those involved in information marketing and/or domain name investment.

This is a rather long profile, so grab your favorite beverage, relax, perhaps even print out this issue of Kikabink News, and enjoy…

Introducing Demand Media

ReadWriteWeb’s Richard MacManus and Wired’s Daniel Roth recently profiled one of the rising stars of online information publishing and marketing – Demand Media.

Haven’t heard of Demand Media? Well, you may have heard of some of its brands, such as eHow and domain registrar, eNom. In any case, here are some fascinating tid-bits about Demand Media. The company:

• Expects to earn $200 million in revenue in 2009;
• Is valued at $1 billion based on its most recent round of venture capital financing;
• Has raised more than $355 million in VC funding from blue-chip investors, including Oak Investment Partners, Spectrum Equity Investors and Goldman Sachs;
• Attracted over 52 million unique visitors to its web properties in October 2009 (based on comScore data), making it the 15th most visited website network online;
• Publishes some 4,000 videos and articles per day – over 1 million items of content per month;
• Is one the biggest contributors of videos to YouTube, where its 170,000 videos attract some 2 million YouTube views per day, and is a key partner in YouTube’s advertising based revenue sharing program;
• Has a unique and highly effective system for generating content from its team of freelancers at ‘Demand Studios’ (just wait ’til you see how they do it); and
• Comprises a diverse (yet synergistic) group of businesses from domain registrars to how-to information sites.

Intrigued yet?

If so, let’s delve in and take a closer look at the business – and the business model – of the online information marketing powerhouse that is Demand Media…

The Businesses of Demand Media

Demand Media bills itself as ‘the leader in distributed social media powering 3 billion conversations every month.’ I guess that’s as specific as you can get, considering the company is essentially divided into two main divisions: brands and products. Look closer, however, and you’ll see the synergies.

Demand Media’s brands are essentially consumer content sites. These cover several niches and range from eHow, a giant repository of how-to articles and videos on every imaginable subject, to Cracked.com, the online extension of the long-running American humor magazine Cracked, which features funny articles, videos and other items contributed by editors and users alike.

Demand Media’s products include Pluck Enterprise and Pluck On Demand. These are, respectively, a hosted solution and a ’self-serve’ solution for online publishers, enabling them to utilize Demand Media’s technologies and/or content for their own purposes. Demand Media’s third main product is eNom, the world’s largest wholesaler of Internet domains.

While Internet marketers in the information marketing game may be more eager to know about Demand Media’s how-to information sites – and these seem to have attracted most of the media’s interest – the company’s activities in the domain name industry are also interesting to me. Indeed, as the biggest wholesaler of domain names and as part-owner (with Network Solutions, Inc.) of aftermarket domain name auction house, Namejet, eNom is one of the dominant players in the domain name space alone.

Nevertheless, its Demand Media’s systematic and somewhat relentless approach to generating and monetizing consumer content that especially sets it apart from other information marketing companies.

While Demand Media’s formula for producing content will likely be familiar to direct response Internet marketers, Demand Media applies this formula on an unprecedented scale – some 4,000 items of content per day remember!

What’s the formula? Read on…

Demand Media’s Content Production Model

Here are the steps Demand Media goes through to produce an article on eHow. Similar steps apply to producing videos and other items of content:

1. An algorithm parses aggregated data from search engines, ISPs, Internet marketing firms and Demand Media’s traffic logs to identify what Internet users want to know about.
2. A second algorithm, called the ‘Knowledge Engine’, analyzes keyword search data – number of searches and keyword rates – to ascertain how much advertisers will pay to be associated with (i.e. appear beside) content, such as an article, that gives Internet users the information they’re looking for;
3. A freelance title proofer creates a title based on this keyword search data. Demand Media pays the freelance title proofer 8 cents per title;
4. A second title proofer improves the title for another 8 cents per title;
5. An editor loads the title onto the Demand Studios website (http://www.demandstudios.com), a central repository for offering assignments to Demand Media’s 6,000 or so freelancers;
6. A freelance writer perusing Demand Studios spots the title and accepts the assignment to write the article. The writer is expected to write a few hundred words and will be paid $15 for doing so.
7. A copy editor is paid $2.50 to review, edit and upload the article to Demand Studios, whereupon it’s automatically posted to eHow.
8. Pay-per-click ads appear on the page displaying the article and Demand Media earns money whenever someone clicks on them.

To give you an idea of just how effective the Demand Media content production model is, as at October 2009, Demand Media had paid over $17 million to Demand Studios workers – including writers, filmmakers, title proofers, copy editors. Based on producing 1 million pieces of content per month, the company will end up paying around $180-$200 million a year in freelance fees alone.

That may sound like a lot of money, but, as Daniel Roth notes in his Wired article, it’s actually less than a third of what The New York Times pays in wages and benefits to produce its 5,000 or so articles a month.

Of course, you might argue that there’s a significant difference in the quality of content churned out by Demand Studios and the pieces published by The New York Times.

According to ReadWriteWeb’s Richard MacManus, whilst each Demand Media article takes around 11 people spanning 15 unique roles to produce, this level of quality control is probably aimed more at meeting minimum standards of logical flow, grammar and spelling, etc than at creating inspirational, thought-provoking articles, images or videos!

Nevertheless, in terms of producing content that people want, Demand Media’s model seems to work.

Not that Demand Media has always used an algorithm or this ‘production line’ system for creating content. The company actually began using a traditional publishing model based on contributors suggesting topics they wanted to write about, and editors approving or modifying those article ideas.

It was after Demand Media bought Byron Reese’s how-to website ExpertVillage.com – and Byron Reese became Demand Media’s Chief Innovation Officer – that the information publishing company, led by Reese, replaced the old model with the system outlined above.

When Demand Media discovered that the new model of content production produced 4.9 times the revenue, and 20-25 more profit per piece, than the old model, it realized that the money was in giving people what they wanted… not what its editors thought they wanted.

Moreover, human contributors and editors just couldn’t – and can’t – produce the volume of article ideas that Demand Media’s algorithm is able to generate. And, given that Demand Media makes an estimated 15 to 60 cents on each ad clicked, pumping out a large volume of content is crucial to getting the millions of clicks the company needs to make real money.

The Origins of Demand Media

Demand Media was founded in 2006 by Shawn Colo and serial entrepreneur Richard Rosenblatt.

Among other things, Rosenblatt was previously chairman of Intermix Media, owner of MySpace, before he helped sell it to News Corporation for $650 million (earning Rosenblatt $23 million in the process).

Prior to that, Richard Rosenblatt founded and ran a string of ventures, beginning with a web design and seminar company back in 1994 just after he graduated from the University of Southern California law school.

Whilst not all Rosenblatt’s startups were successful – his businesses ventures also got him into trouble with the Federal Trade Commission and the New York Attorney General – they undoubtedly yielded a lot of learnings and sowed the seeds for Demand Media.

After selling Intermix Media to News Corp, Rosenblatt raised $355 million from investors in order to bring his idea for an online media empire based on domains, services and ad driven content to life. But rather than use the capital to build such an empire from scratch, Rosenblatt planned to buy, assemble and integrate companies that supported his vision.

When, in 2007, Demand Media bought ExpertVillage.com (for an estimated $20 million) the company soon adopted Byron Reese’s content production model, and its traffic – and presumably its revenues and profits – began to explode.

A Business Worth Modeling?

For all its success, Demand Media’s business model has attracted its fair share of detractors. In their respective articles, Daniel Roth and Richard MacManus both questioned the virtues of a publishing model based on quantity, rather than quality, of output.

Jason Liebman, the CEO of Howcast, has also openly criticized Demand Media’s approach. Howcast is one of Demand Media’s, and specifically eHow’s major competitors – it also provides free, ad-supported how-to videos and guides. Liebman, however, prides his company on using the traditional content generation model of having his team or contributors come up with content based on their own ideas and general research.

On the other hand, according to Compete data, with 283,223 unique visitors in October 2009, Howcast’s traffic is a fraction of that of eHow with 24.5 million uniques during the same month. What’s more, Howcast is apparently working on a algorithm similar to those used by Demand…

So, for all the criticism about Demand Media valuing quantity over quality, or its factory-like approach to generating content, the fact is that it’s getting a LOT of traffic.

And while Demand Media may not deliver what everyone wants, it seems to be delivering what millions of people do want. Moreover, even if, theoretically, the company isn’t delivering what millions of people would want if someone else offered something better, for now, Demand Media knows how to attract and monetize its traffic much better than its competitors.

In short, Demand Media is to information, what McDonald’s is to food.

Just as you may not like or think there’s any nutritional value in fast food, you may not like or think there’s any intellectual value in Demand Media’s ‘fast information’. But, just like McDonald’s, Demand Media has perfected a business system that consistently and relentlessly delivers what its audience wants.

Similarly, even though you may not want to model your own business on that of Demand Media, you would be wise to emulate its customer-focus. After all, the company’s entire business is built on identifying exactly what customers want and then delivering that to them in a way that’s profitable. If you’re not also in the business of doing that… what business are you in?

For more insights into the Demand Studio’s business and content production model, here is a November 2008 slide presentation by the company’s founder and CEO, Richard Rosenblatt:

Sources: Daniel Roth, “The Answer Factory: Demand Media and the Fast, Disposable, and Profitable as Hell Media Model,” Wired, October 19, 2009, Richard MacManus, “Demand Media Is a Page View Generating Machine – And it’s Working,” ReadWriteWeb, August 25, 2009, Richard MacManus, “How Demand Media Produces 4,000 Pieces of Content a Day,” ReadWriteWeb, November 12, 2009

This entry was posted on Tuesday, November 24th, 2009 at 10:16 am and is filed under Ecommerce, Feature, Internet Marketing Niche, Leadership and Management, Online Advertising, Traffic. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.