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Does Demand Media’s Successful IPO Validate Content Farms?




Yesterday, Demand Media may have pulled off one of the best “just in time” IPO’s of all time. The company mass produces content and is one of the leading content farms in the online space. People within their company and others like them (Yahoo’s Associated Content, Examiner.com, AOL’s Seed etc.) bristle at the notion that they only produce high volume, keyword specific content which leaves quality far down the list of desired results. Truth be told, the vast majority if readers don’t know the difference which is more an indictment of education levels than a companies ability to capitalize on a market.

What is most intriguing, though, is the timing of the IPO relative to Google’s announcement that it is going to be cracking down on the types of content that these farms generate en masse on a daily basis. I have affectionately referred to it as craptent in the past. Harsh? Yes, but if you read some of what is produced on these ‘farms’ you can see that the classification is on point. (Please note that I know that everything I write doesn’t smell like roses either :-) ).

It was just last week that Matt Cutts went public with Google’s recognition that their search results can be a bit spammy at times. If Matt has been green-lighted to address the issue in public then you know that Google is at least giving it real consideration as a problem. This recognition comes only after years of cries for them to clean up the SERP’s so people searching could get real results and those producing higher quality content would have a shot at the top positions.

All of this being said, Demand Media managed to raise $151 million in its IPO (it was aiming for $138 million) on a valuation of just under $1.5 billion which is higher than the New York Times. Talk about all the news that is fit to mass produce! As Peter Kafka of All Things Digital noted there have been more than a few questions around Demand as well.

Demand Media has given skeptics plenty to chew on over the last six months: Accounting issues to hash out with the Feds; weird noises from Google, which it depends on; and debates about what “profitable” means.

Another element in all of this is Goldman Sachs who was the lead underwriter for the IPO. I suspect that there is nothing more to be said about this aspect considering the high moral character of that shop (Got any Facebook investments stateside?).

But you cannot deny the success of the company from a business standpoint. They have people interested in investing in them. Are these people completely aware of all the threats to the business model of Demand Media? I would have to say yes but back in the late 1990’s we also suspected that people thought outlandish valuations for companies with no revenue was a good thing as well. Not to mention business folks penchant for thinking bad home loans were a great way to fuel growth. Based on history, it looks like we have a real winner here!

In the end, this IPO and its success don’t make much sense. I guess I was hoping for these mass content producers to not get the financial support to move this technique further along. But with business being more about making money than making things better (or even making sense at all) this shouldn’t be a surprise to anyone.

One day’s ‘validation’ of this concept could simply be a speculative move rather than one based on long term success of the content farm model. On the other hand, if Google can’t figure out how to determine real quality in content this argument could be for naught. If that’s the case then there may be a lot of changes in the online landscape, not the least of which is a real erosion in trust in Google’s ability to deliver the best results at any given moment (meaning more than just from industry types but from the actual search engine using public).

Now that would be news. How do you feel about content farms? Are they a boon to online business or a boondoggle for the Internet as a whole? Let us know in the comments today.

  • http://www.daviddalka.com/ David Dalka

    Ultimately these sites would not exist as they do today without CPM advertising models online. Google could do 10x more to solve this by helping lead the world to a cost per action marketing model than by having Mr. Cutts play whack a mole (and potentially harming some quality blogs in the process by accident).

    Hope they shift their efforts…but I won’t hold my breath here.

    • http://www.frankthinking.com Frank Reed

      @David – Good point. The likelihood of Google changing their current model is slim and approaching none rapidly. One way that they are marginalizing any content at all is how in local queries, organic results are getting pushed off the first page to make way for the Place Page brigade.

      Whether content farm production has impact in the local search realm is an interesting thought.

      There will be plenty of hand-wringing and concern from either Google or investors in Demand Media because their eventual profitability (which as a current question mark baffles me as to why there was such interest to begin with – maybe Goldman hard sold the offering, I don’t know) is dependent on Google’s moves.

      Honestly, if Google is dependent on this type of content to fuel the revenue numbers behind PPC we are all in trouble because there will be no reason to clean up anything. I don’t believe that to be the case but who knows these days?

      Any comment, Mr. Cutts :-) ?

  • miamiman

    “On the other hand, if Google can’t figure out how to determine real quality in content this argument could be for naught. ”

    I would like to make the counter-argument.

    If Google really can’t do it… maybe it’s invalidation of Google and their valuation and not that of the Content Farms. The king has no clothes!

    • http://www.frankthinking.com Frank Reed

      @miamiman – Always a possibility.

  • http://www.mosthost.net Chris

    I’d say the short answer to whether this validates content farms is “Hell Yes.” Back in the day, when people heard Weblogs Inc made a million on Google Adsense, they jumped into the game. Now, when they hear Demand Media is worth $1.5 billion, similar ideas of content farming is bound to proliferate.

    It looks like Google anticipated this, and fired a warning shot.

  • Ad

    However, keep in mind that not all writers write crappy content. I don’t think is fair to blame it on these poor soul suckers, some of them making money by writing on these sites, some articles are well written while others aren’t. Google is the one to blame for not knowing the difference between quality and shite sites, I also happen to think that is not fair to the real writers, who are going to suffer if the big G takes some drastic measures against them.

  • http://www.seo-theory.com/ Michael Martinez

    “…the vast majority if readers don’t know the difference which is more an indictment of education levels than a companies ability to capitalize on a market.”

    If that is really true, then Google will be unable to stop “content farms” because, frankly, I have no idea of what makes a Website a content farm, either.

    Someone needs to provide a good, concise, PREcise definition that we can all live with before this nonsense debate goes any further.

    • http://www.frankthinking.com Frank Reed

      @Michael – I disagree that the debate is nonsense. If high quality content from actual companies that provide services is being pushed aside for low cost, keyword rich fluff that’s an issue. I have seen articles from some of these providers that were embarrassing.

      I realize that I am not perfect and I can be typo prone but in most cases I can put a sentence together (sometimes lengthy ones but sentences nonetheless). Overall, though what kind of quality and depth of information should one expect from a $10 an article model?

  • cynthia

    Content farms will go away when porn goes away = as in, never. There’s too much money being made in both areas for anyone to pull the plug.