Epic Fail: The Rise and Fall of Demand Media

Demand Media: Rise and Fall of

The future of the so-called "content farm" looks bleak as its search-centric biz crumbles

Take note, Twitter: Not every tech company has a happy ending after a ballyhooed IPO.

Just look at Demand Media, the Santa Monica, Calif.-based firm some thought would revolutionize content production. Not long after the company went public in January 2011, its market capitalization soared to more than $2 billion, sending the then-5-year-old firm’s value briefly past that of the New York Times Co.

Compare those heights with where Demand finds itself today, having plummeted to roughly a quarter of its peak value. Revenues for the most recent quarter were down year-over-year for the first time since that IPO. Co-founder Richard Rosenblatt is no longer CEO as of October, and the search for his replacement is under way. Demand and Rosenblatt declined comment.

The chief exec’s role will be tough to fill given how steeply Demand has declined over its seven-year run. Changes in Google’s search algorithms have twice hammered the young company in recent years, leaving its few brands that managed to get significant marketplace traction, including eHow.com and Livestrong, hemorrhaging traffic.

Now Demand’s focus is on spinning off the only healthy component of its business — domain registration — while trying to motivate its content brands’ rapidly eroding audience to spend money on its growing collection of unproven e-commerce ventures. Having quietly sustained several rounds of layoffs this year, the media side of the business is almost certain to be sold or taken private after the split.

The freefall of Demand serves as a cautionary tale for hype in the Internet age: No company burns so hot that it can’t cool off.

But Joanne Bradford, newly named head of partnerships at Pinterest, who left her post as chief revenue officer at Demand in May, believes the company’s struggles are symptomatic of those at many Internet content companies. “There’s a big challenge for all content creators to overcome,” she said. “I think Demand has done a very smart, focused job and now needs to figure out how to take it to the next level.”

In early 2006, Rosenblatt and Shawn Colo, a principal with private-equity firm Spectrum Equity Investors, birthed the idea for a new kind of startup, which came to be known pejoratively as a “content farm.” The operation created articles and videos quickly and cheaply, based on analysis of the most popular Internet search queries.

Rosenblatt was fresh off selling Intermix Media, owner of MySpace, to News Corp. less than a year earlier for $580 million, earning $23 million from the deal.

The idea with Demand was to marry two businesses: domain name registration and low-cost content production. The foundations were the acquisitions of eHow.com, a provider of how-to tutorials, and eNom, a domain-name registration service provider.

Early on, Demand used eNom’s 1 million generic domain names (such as “3dblurayplayers.com”) to serve up relevant ads to people searching for specific topics. These “domain parking” pages were immensely profitable, generating north of $100,000 per day, according to a former Demand exec who requested anonymity. “That’s $35 million-$40 million per year without doing any work,” the exec said.

But the tactic was fundamentally a bait-and-switch. Users landed on the pages expecting to find information on a subject and instead found an ad. To try to drive up traffic, Demand shifted its strategy, populating the sites with thematically related content. Counterintuitively, though, that decreased ad click-through, since people were reading the articles instead of the ads, according to the former executive.

Demand then continued to build out the content-farm strategy, treating the domain-name registration business as largely separate from the content-production arm. Paying contributors comparatively little — usually less than $20 for a single article or video — it built up a stockpile of content against which it sold targeted advertising.

That content ranges from “How to Tell Who Has Unfollowed You in Twitter” to “How to Pick Blueberries” (tip: “Tie a bucket to your waist”) on the company’s biggest website, eHow.

When it started, the concept certainly looked like it could scale and pick up massive traffic — and it did. In November 2010, Demand’s owned-and-operated websites represented the 17th-largest Web property in the U.S., with 105 million unique visitors who viewed 679 million pages that month.

As a private firm, Demand had raised a staggering $355 million in funding over two years from investors including Goldman Sachs, Oak Investment Partners, 3i Group and Spectrum Equity Investors. It mostly used the funds to acquire companies that would further the reach of its content network and domain name businesses. At the close of 2012, Demand reported owning 171 subsidiary companies. Whether it was ever profitable is still subject to debate, but the acquisitions fueled its valuation, which in turn attracted more funding even as actual growth seemed ephemeral.

The company filed to go public in August 2010, betting that investor excitement over its algorithmic approach would make it one of the Internet’s biggest media firms. Skeptics wondered whether Demand could really keep the content-farm engine humming over the long haul. But some industry analysts were bullish, predicting the model would be hugely disruptive in the media landscape.

“Demand is truly onto something big,” Wedbush Securities analyst Lou Kerner wrote in a November 2010 blog post. “We love the media side of the business as it marches its way to significant free cash flow generation.”

On Jan. 26, 2011, Demand went public. Shares closed up 33% on the first day of trading to yield a market cap of around $1.5 billion.

That led to a brief mania around the content-farm approach. During its ascent, Demand had several copycats as well as interest from incumbents in buying the firm: Both AOL (then part of Time Warner) and Yahoo kicked the tires on Demand early on.

But less than three months after Demand’s IPO, the wheels began to come off.

The reason: Google made fundamental changes to its search algorithm to deprioritize results from what it called “junk” and “spam” websites. Under Google’s new algorithm, code-named Panda, companies that produced lots of content got penalized.

By April 2011, third-party measurement services were reporting that the Google changes had reduced traffic to Demand sites by as much as 40%. Demand issued a statement that the reports “significantly overstated the negative impact” of the change, but the stock took a dive — plummeting 38% over two weeks — from which it has not recovered.

“Panda came, and that just scared the shit out of all the investors,” the ex-Demand exec said.

Saul Hansell, who briefly ran AOL’s aborted attempt at a content farm, Seed.com, before moving on to news-video aggregation startup Sii.tv, believes the decline of Demand stems from a lack of quality control. “Using cheap freelancers who don’t have the expertise doesn’t work,” he said. “The cumulative effect was that millions of people went to eHow and other sites, and realized they didn’t really have the answer to their questions.”

Demand did its best to regroup, only to have Google make another algorithm adjustment last November that knocked the company for a loop all over again.

While still the 25th most popular site on the Internet and on mobile in the U.S., Demand is bleeding out fast. The number of unique visitors across its entire network of sites has sunk 56% over the past year, to 52.1 million in October. While Demand either owns or is affiliated with dozens of dotcom brands, eHow is far and away its biggest source of traffic, comprising 46.1 million uniques of its October total — down 35% from the same month last year. Perhaps the only other brand under the Demand umbrella with a significant audience is health site Livestrong, which has a user base of 9.8 million (when separated from eHow Health) — half the audience it had in October 2012 (the site broke ties with disgraced cyclist Lance Armstrong just one month after that, having released strong third-quarter results).

“The content business is still producing a lot of cash — it’s just not growing,” Evercore Partners analyst Douglas Arthur said.

Despite the declines, Demand is intent on funneling its remaining audience into e-commerce opportunities. The crafts channel on eHow, for instance, is being used as a platform for a small acquisition made in March, Creativebug, which offers lessons in everything from sewing to gift-wrapping. Demand also has leveraged eHow with a live-expert service, eHow Now, which lets users chat with experts of various stripes in real time for a fee. In June, it acquired e-commerce site Society6 — which sells apparel and tchotchkes — for $94 million in cash and stock.

Demand has attempted different iterations to try to create better quality content. For example, in 2011, eHow.com cut a deal with Food Network personality Rachael Ray, who was supposed to bring her fans to the website. It had a similar pact with supermodel Tyra Banks for a fashion and beauty site called TypeF.com. Both deals withered as celebrities proved to be a lackluster draw for editorial content.

Search isn’t the only place Google has stymied Demand. The company created three of the dozens of channels that Google subsid YouTube spent at least $100 million to fund in 2011, only to discontinue that funding.

To add insult to injury, Demand saw three key executives from its original team score big in online video production — but only once they left the company. Steven Kydd, Larry Fitzgibbon and Joe Perez launched foodie video hub Tastemade, which attracted $10 million in Series B funding in March.

Another original Demand player, Colo, is serving as interim CEO until Rosenblatt’s replacement is found. Rosenblatt declined to comment on the circumstances of his departure; reports range from his being ousted by the board to his leaving of his own volition.

Meanwhile, the company intends to spin off the domain-name services business, to be rechristened as Rightside Group.

Wall Street analysts wonder where Demand ultimately will end up in the coming months. The new CEO will have to quickly figure out a strategy to point Demand’s media business toward growth and profitability — otherwise, the company could be headed for a fire sale if its value keeps eroding.

“It’s getting late,” Arthur said.

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  1. pat says:

    According to some books that I have read, the word media is defined as “one of the means or channels of general communication in society, as newspapers, radio or television.”The beginning of human communication through designed channels, i.e. not vocalization or gestures, dates back to ancient cave paintings, drawn maps, and writing.The Persian Empire (centred on present-day Iran) played an important role in the field of communication. It has the first real mail or postal system, which is said to have been developed by the Persian emperor Cyrus the Great (c. 550 BC) after his conquest of Media. The role of the system as an intelligence gathering apparatus is well documented, and the service was (later) called angariae, a term that in time turned to indicate a tax system. The Old Testament (Esther, VIII) makes mention of this system: Ahasuerus, king of Medes, used couriers for communicating his decisions.

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  3. Rachel S. says:

    So happy to see them fail and keep failing. I worked for them for a short while writing content, and not only do they pay abysmally, but they also treat their writers like dirt. I have hoped they would go bankrupt for a long time, as a company this immoral does not deserve to be in existence.

  4. Not only was Demand Media a junk content farm (I should know, I worked for them in 2009 and the editors at the time were barely conscious cantaloupes), they were also (almost) a cult — they had a writers and editors user forum that was strictly policed and any hint of comment or complaint about how incompetent the editors were or how much the writing really sucked was quickly expunged, and warnings were sent by private message to “bad attitude” forum posters to watch their step else they’d lose their $10 per article jobs. The saddest spectacle were the delusional writers who furiously defended DM against the charge that it was a junk content farm AND at the same time insisted that they were “real” writers, highly paid, like at the NYTimes, because they were cranking out garbage articles at a rate of 4 or 5 per hour . . . it was nuts in those days . . .

  5. Glenn Abel says:

    There was plenty of collateral damage with Panda, alas. Good sites punished along with the producers of junk content. Google was too lazy to clean up then mess. Meanwhile, Demand Media’s output was and is garbage, produced at slave-labor prices — a plague on the Internet. The bait and switch never went away. Ehow somehow continues to get priority placement from Google, which collaborates with these junk merchants despite the spin on Panda. Variety, which never understood the Internet, does a disservice by playing along and treating Demand Media as a company worth consideration.

  6. Smart people avoid eHow.com as they would a venereal disease. The site is a trove of useless information and ultimately a waste of time. It would appear Demand Media bought and published ridiculously cheap content from anyone who offered to write it. There are home electrical-wiring projects on one Demand site (replacing a light switch, installing a circuit breaker, etc.) that will kill you if you follow the instructions. Other articles titles are just stupid, e.g., “How to Make a Wig Out of Dog Hair” is one infamous example. The writers clearly don’t know their subjects and editorial oversight appears nonexistent. After observing this “new media” model for a few years, the takeaway here is the company was built on a two-pronged strategy of exploitation: taking advantage of Google search methodologies pre-Panda, and offer cheap payouts to evidently desperate/ill-qualified writers.

    Epic fail, indeed.

  7. MrTechAnon says:

    It’s remarkable how many comments here argue about the *quality* of the writing. To those bickering over the creative writing (or limits thereupon) of how-to articles presented in a step-by-step format, I herewith provide – without charge – a clue: IT’S THE CONTENT, STUPID! Or more precisely, the lack of useful, helpful content. The quality of the content is atrocious; it truly seems as if any idiot can write an article for eHow and it’s posted as if it’s helpful, useful, accurate information. Some of the articles are downright dangerous, like those on installing Windows that don’t mention that following the instructions provided will wipe your hard drive (nor mention alternative methods that won’t). Or the amazing number of articles on a given subject like the 10 articles on how to hand-wash clothes, all of which are semantically identical. As a content consumer, I don’t care if it’s written in iambec pentameter – an article with 14 step-by-step instructions that boil down to “Read and follow product’s directions” is not only useless, but aggravating enough that I actively avoid any search results linked to eHow. Especially now that about 75% of any page is ads…

    • Contributor says:

      Please don’t blame the writers (or even the CE’s) for the content. Maybe we should blame the public at large? After all, titles are generated by the internet search phrases people on the web enter. This is a not a defense of DS (I hate that place) What we are dealing with are lousy topics/titles.There is just no way to make “how-to” content engaging. It should however, be accurate, and not introduce problems for the person following the steps. There are standards in place that every writer and CE must follow to make sure this doesn’t happen. But, while the writer has to have experience in a topic area to write about it, a CE not so much…and, since the CE’s are treated like Gods at DS, there are always writer complaints about them introducing errors in the editing process. Writers are the backbone of DS, but they will never learn to appreciate and respect their expertise. And THAT is why they are sliding off the mountain.

  8. Carl says:

    The decline is easy to explain: eHow.com sucks. When I see eHow in my search results, I ignore.

    • You hit the nail on the head Carl. Demand might have hit the jackpot and got a ton of traffic since they were the first people to come up with this model, but it’s not sustainable without quality content. It’s sketchy enough for investors to put money into something that can be so easily influenced by another company’s changes (Google), at least if they had quality content people would keep coming back. They’ve burned their bridges with my generation.

  9. toryduff says:

    I am surprised at so many negative opinions about Demand Studios. Yes, DS has turned out a lot of bad copy, but during the last two years there has been a focus on attracting and retaining skillful and experienced writers and CEs.

    In this economy, DS has accumulated some true experts and excellent writers because it is helpful to have a fill-in source of income that actually pays promptly and reasonably well compared to the other content mills. And while it might still be true that some of the writers are SEO writers or not very good at the craft, others are turning out good short articles.

    Recent changes in management have resulted in significant changes in the quality of the titles, too.

    The name of the game in Web and mobile content is quality, and DS has been steadily improving in this regard.

    I wouldn’t necessarily write this company off just yet ….

    • CE_Cluebat says:

      Tory, Demand says it’s trying to improve quality, but the non-business people running the editorial side don’t understand what “quality” means to Google. Lally and Lederman think it means improving the fact-checking and spell checking of articles, not the information in the articles. That’s how they define content – “correctness,” not “unique and valuable information.”

      As others have said, they are actively discouraging expert writing with the rules they’ve put in place. For example, Demand forbids experts in their field from supplying original content. Writers MUST re-use information from two other sources, often MacArticles. That means that if Warren Buffet offered to write an article for Demand on how to pick stocks, he would have to include at least two facts contained in two other Internet articles and include those references when he submitted his work. So, Lally and Lederman are aiding and abetting SEO writers and driving away the experts because experts “write off the tops of their heads.” All new Demand articles must now contain at least two facts that have already appeared in two other articles – aka, Demand is repurposing others’ content.

  10. filiwiese says:

    “Under Google’s new algorithm, code-named Panda, companies that produced lots of content got penalized.” -> this is technically incorrect. Panda does not penalised, it re-evaluates.

    This business model would never have worked long time and I am surprised that the company thought it would. They could have asked anyone within Google Search Quality (including me at the time) and they would have heard this was not a smart business model.

    Enom I like though, except for the default parking pages (then again, all big registrars use parking pages).

    • IrishWonder says:

      Fili, I would be surprised if this company – or any other, for that matter – did NOT think this business model would work, given Google’s previous history of ranking shit content as long as it came from large authority sites. Let’s just name Wikipedia ranking for every imaginable query, regardless of the quality of the actual article ranking or its completeness, as only one prominent example. You may argue back that Panda has changed that – to which I’ll say there are loads of issues Panda has failed to fix, such as scraped content. Pre-Panda or post-Panda, Google is still notoriously poor at identifying the original source of content and ranking sites scraping others’ content above the original sites.

      • irishwonder says:

        Dave Baxter – does it make it the best result to rank for every query out there?

      • Dave Baxter says:

        IrishWonder, Wikipedia is known to be an open source, community based content generator, always evolving, which is an important distinction from a for-profit cheaply paid generator like Demand who produce content merely for company valuation reasons. Demand doesn’t care what the content they generate is so long as it achieves particular company goals. Wikipedia on the other hand is community regulated and the content is neither dictated nor farmed, but freely donated and edited.

  11. mike siims says:

    Never buy a THING from this CROOKED company! I owned the best .tv portfolio in the world! Richard STOLE them back!!!! WARNING!

  12. Israel Thornstein says:

    One would be wise to keep in mind that Google does not have clean hands as the supposed leading arbiter of what constitutes quality content. Take for example the drama at the content farm Google itself built in its Zagat sector, memorably recorded here (http://www.businessinsider.com/google-zagat-story-2013-6), which included the screwing over of a few dozen contractors once it became clear to the C-suite computer whizzes that producing quality written content isn’t like producing computer code and costs more than meets the eye. The content created by that particular endeavor – headlines and overviews for restaurants and bars that are plotted on the Maps app – is no better in quality than the stuff DM produces. It’s riddled with factual errors and other QA issues. Let’s see Google man up and tag its own content as the spam it is. I’m not holding my e-breath.

  13. Reblogged this on zebedeerox and commented:
    How Demand Media took “Write Epic Shit” too literally
    If there’s one thing I hate, it’s crappy writing. There may be the odd reference on this here blog to back up that statement.
    So when I heard from Brian Clark that Demand Media was fading fast, I rubbed my hands with glee. I do apologise to all its staff for delighting in their demise, but the Internet does not need this sort of copywriting. Neither do writers, if truth be told.
    Sadly, the site doesn’t seem to be as bad off as all that. Writers will still be exploited, Editors will still do their best to drown out a good copywriter’s talent by stifling them with dubious editing guidelines.
    Is there a silver lining?
    What the “haemorrhaging traffic” and plummet in visitors may do is force Demand Media to allow its writers’ voices cut through the mundanity and actually accentuate the content so that it’s both informative and engaging. Currently, the majority of its produce makes bland look exciting.
    It may also encourage a proper wage for its contributors, too. The knock-on effect of Demand realising that “you get what you pay for” would resonate across global media. Now that would be progress, if it happened.
    I’m not holding my breath.

    Have Your Say:

    Is the demise of Demand Media a good thing for global media?
    Or, if managed, could it yet be a platform to launch the Internet’s future backbone, quality copywriters?

    • Contributor says:

      I think DS could survive and thrive if they would stop trying to reinvent the writing wheel and give writers a real voice. They insist on expertise and then disallow it. The way it is now, CE’s and zombie guidelines have the final say on the approach of an article and the result is a “rubber stamp” affect. Many DS writers are educated and experienced journalists but they are treated like minions.

  14. Cheryl Hines says:

    Demand recruited copy editors from academic job sites such as higheredjobs et. al. so the CEs coming from grad schools are used to reading and generating good or at least grammatically correct and comprehensible writing. The problem with the Demand content is the writers and Richard Lally’s babying of them. Compared to undergrads in an English Comp 1000 level course – nothing to write home about – the majority (there are certainly talented and hardworking exceptions) are terrible – next to illiterate in some cases, the typical “writer” who equates “writing” with that movie Amy Adams was in about Julia Child…they want to be famous, in other words, not work to produce prose.

    It doesn’t matter because DM is going under but there isn’t any reason, except stupidity and illiteracy (which theoretically should make the market better for people who *can* read and write) an ad-driven site with credible content couldn’t have worked.

    • Contributor says:

      I’m glad you clarified that there are “talented and hardworking exceptions” otherwise your comment would have been highly insulting. I pick up extra cash as an occasional DS writer. I have a BS in English, several traditionally published books and numerous articles placed in respected magazines such as Vanity Fair. Even so, I get condescending comments from CE’s who obviously believe (falsely) that they are smarter than everyone else in their path. No, I don’t list my DS work in my portfolio because it is embarrassing. Not because of MY writing but due to the ridiculous guidelines and silly titles. Don’t blame the writer, the titles we have to work with are a joke. I mean, really, how interesting can you make a title like “How to teach a cat to cuddle?” So think about that before you make fun of the inexperienced writers who depend on DS and try to make the most out of a bad situation. People gotta eat! (sorry for the grammatical errors, perhaps you would like to give me a score of “2” and cause me to get kicked into the WDP so you can justify the $3.50 you earn as a CE.

  15. CE_Cluebat says:

    One of the main problems that led to Panda (and Panda was a direct response to Demand’s low quality) was that the Demand Media suits put a bunch of writers and editors in control of the editorial side of the business, despite the fact that they apparently have no business backgrounds. Eve Lederman and Richard Lally might be top magazine writers and editors, but the instructions they gave their writer army for creating content were constantly haphazard, blew up and had to be changed within weeks. I almost see the Demand C-suite as being negligent in not putting a non-editorial business person in charge of Lederman, Lally and the overall editorial staff. Lederman and Lally created Panda, and 5+ years later, they are still running the ship. Amazing. Stockholders should be furious that the editorial department hasn’t been completely cleaned out and new blood brought in.

  16. Contributor says:

    One of Demand’s biggest problems is they allow no individuality in the writing. They only want zombie writing. To address the poster who said they use bottom of the barrel talent, that is not entirely true. With all of the drastic changes in journalism and publishing there are a lot of seasoned writers working for DS just to survive. If the writing is bad it’s because Demand insists its guidelines are strictly followed. This makes the end product zombie-like; with no trace of personality. In addition, they have flipped the traditional writer/editor roles. Copy editors are allowed and encouraged to critique the writers articles instead of just correcting typos etc. At DS copy editors always have the last word above writers. Editors are good at the mechanics of writing but that’s all.This is why the articles are “blah.” DS could survive if they put the editors back on clean-up duty where they belong and nurtured a writer’s talent instead of watering it down.

  17. Lucy French says:

    Demand has told its writers that the content business is shutting down for two weeks over Christmas, until Jan 2. In previous years, they’ve offered freelancers incentives to keep on working over the holidays. Writing on wall?

  18. JMort says:

    only problem with Demand, was the attempted “Creation” of a business model after raising to much money through a rampant acquisition strategy to essentially fake growth. Give Colo credit, he did tons of acquisitions while Rosenblatt was puffing smoke to wallstreet as fast as he could. One lesson learned, once these businesses go public and are forced to operate like a veritable business (and Private equity can’t spin valuations through multiple rounds of finance) these businesses need real management and a core business

  19. Snuffle says:

    The dumber side of the comments section reminded me – Isn’t Cracked a Demand Media property as well? How do they fit in to all this?

  20. Great points. Demand Media was a sleazy operation from the start. Definitely not a sustainable business model. 2014 is going to be a bloodbath across the media industry. CEOs are promising Wall Street they will grow more – but the only way they’ll do that is with BIG cuts.

  21. OG says:

    You can dump on DMD… But RR and Colo came along and put a 4-finger ring proper Sir Too $hort pimp slap across the face the the traditional candy ass content business and straight said, “Biiiiiiiaaaatttccchhhh, I’m rich!!!,” in the process.

    I’m pouring a little liquor out for all the homies @ DMD and all the impressions that died in the struggle.

    • davidfricks says:

      RR = Like A Boss! How can anyone call DMD an “Epic Fail”? If making fists full of cash is a FAIL, sign me up! Haters gonna hate.

    • The Truth says:

      If you believe DMD or anyone merits accolades for pimping crappy “content,” you’re pathetic. You think you’re somehow superior to the “mobile vulgus,” but you’re just a doofus douchebag. Get your jargon-addled head out of your ass.

    • Agent Provocateur says:

      By “traditional candy ass content” you mean LEGITIMATE content written by people who actually know what they’re doing, right?

      You sell a crap product and eventually the public catches on.

      You fail to pay creatives what they’re worth and you end up with the uncreative bottom of the barrel talent.

      That’s capitalism, folks. In this case, it actually worked!

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