Unbelievably, Demand Media—the largest of the content farm organizations, and one that has never turned a profit—went public. The stock closed 33 percent above its inflated offering price. At one time during its first day on the exchange, Demand Media’s stock was selling 41 percent above the offering price.
Demand Media uses an algorithm to determine what users are searching for on the web and then commissions freelance content—which is almost universally poorly written and unusable—to meet those requests. Sam Gustin, writing for Wired, reports that Demand Media understands this liability and notes it in its prospectus:
“Because our business is transforming traditional content creation models and is therefore not easily understood by casual observers, our brand, business, and reputation is vulnerable to poor perception. For example, perception that the quality of our content may not be the same or better than that of other published internet content, even though baseless, can damage our reputation.”
The US Securities and Exchange Commission (SEC) approved an outrageous accounting tactic allowing Demand Media to amortize its content costs over five years. Demand Media is almost totally dependent on Google search traffic and Google has announced that its going to rework how it ranks content like Demand Media’s. More precisely, Google never mentioned Demand Media by name, but that’s the common assumption.
Except Demand Media insists that Google isn’t talking about it. Peter Kafka, writing for All Things Digital, cites Demand Media chief executive Richard Rosenblatt as saying, “Demand and Google are getting along just great, in a relationship that pays out real dividends for both parties. It looks like investors believe him.”
What’s especially shocking in all of this, as noted by Matt Kinsman, writing for Folio, is that Demand Media’s market capitalization is now larger than that of the New York Times. “Today, stocks were trading at US$22.27, giving the company a market capitalization of US$1.9 billion, exceeding that of the New York Times Co. at US$1.5 billion,” writes Kinsman.
That’s just sad.
Update: Thursday, 27 January 2011 6:04PM CST: Don’t believe Demand Media is a content farm? Consider the cursory analysis of Jeff Bercovici, writing for Forbes. Of the seven low-quality Demand Media pieces Bercovici looked at, one was plagiarized and two were taken down.
0 responses. Comments closed for this article.