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.