Demand Media is now a publicly traded company following its IPO, and by all accounts it’s going quite well. This morning Demand was valued at over $1.5billion on the New York Stock Exchange, which isn’t too shabby by anybody’s standards. Investors clearly think Demand’s strategy of flooding the Web with search engine optimized low-cost content is a good one. But is it sustainable? I’m not so sure.
From my perspective Demand Media is the digital equivalent of building a house in the middle of a tropical earthquake zone. The climate is beautiful, the house is lavish and the lifestyle is everything you dreamed of. But there’s that small, nagging thought in the back of your mind that one day an earthquake could come along and wipe everything out in a heartbeat. That earthquake **might** never happen for hundreds of years. But then it **could** happen tomorrow.
Demand Media has in some respects built a brilliant business by persuading unemployed semi-professional writers to contribute articles on topics that mirror high volume Google search queries for a very low cost. Not only has this allowed the company to keep its overheads down compared to other media organizations, but its ability to exploit some of the shortcomings of Google’s search algorithm has driven millions and millions of eyeballs to Demand sites such as e-how.
The result? More semi-literate articles on “how to roast a chicken” than you could ever dream of which, depending on your perspective, is either destroying the content business as we know it, or simply giving people what they want. But one thing that isn’t in dispute is how effective Demand has been in growing its audience. It has seen the type of traffic growth that most traditional content companies can only dream of, and most of that has been through search.
But building your entire business off the back of another company’s algorithm is risky. As I noted in a previous post, Google has a love/hate relationship with companies like Demand. It hates that it leads to the perception that Google’s search results are becoming less relevant and clogged-up with spammy links. But it loves the fact that all this traffic being driven to Demand will likely click on Google ads that appear across Demand sites.
So while Google could theoretically tweak its algorithm to the detriment of Demand, it’s highly unlikely it’d ever kill this golden goose. At least not yet.
But there’s another threat to Demand, which is the ongoing march of social media and the social graph. Social networking is starting to become more important with respect to content discovery. Consumers are getting exposed to content that is being surfaced by their friends, and there are a host of products out there – from Flipboard to Blippy – that illustrate how this trend is starting to shape-up.
The notion that people you know and trust are more likely to surface relevant content for you than a machine-driven algorithm is a powerful one. And that means that as social curation becomes more important, simply publishing content with the right number of keywords on a page, or inbound links, or meta tags will no longer be enough. Once again the pendulum will swing back to quality, engaging content that resonates with real people and not just machines.
Google is obviously aware of this problem and we’ll no doubt see it make some changes to its algorithm in the next 12 months. Some have speculated it could involve adding a “like or dislike” button next to search results to add a human layer of filtering to the mix. Whatever the solution is, the big question for Demand is this: will real people be inclined to recommend or promote Demand content?
I think the jury’s still out on this question, but my instinct is Demand might start to struggle – as might others who rely exclusively on Google for their source of traffic.