Yes, Demand Media’s IPO looks frothy. But there’s a reason for all the attention: purpose-built business models for creating online content are few and far between, and this just might be one that has a future.
There are certainly things to be wary of in the Demand Media stock offering (which now values it at around $1.9bn, more than The New York Times) – not least, Google’s veiled warning that it wants to relegate the output of “content factories” lower down its rankings (we first wrote about this issue last year, but it’s become a hot topic on the blogs this month).
But these are few of the things baked into the business model that should give it an edge:
SEO. Like it or not, search engine optimisation is a reality for any company trying to find an audience on the Web. Older media organisations are still trying to learn the techniques, but Demand has them embedded in its processes from the start (of course, that implies a constant battle with Google – but that’s just a reality of the SEO game).
Low-cost production. Paying freelancers a piece-rate is an attractive way to acquire content, particularly when the price of each article or video is tied closely to the money that can be made from it. The big challenge is quality control.
Content Library. Much of the content is created to have a shelf life (though it’s debatable whether this justifies the five years over which the company amortises its costs of content production – another of the risks of trying out an unproven model like this).
You can hear the story from the horse’s mouth at our Digital Media conference in London next month – I’ll be there speaking to Shawn Colo, one of Demand’s founders. When Shawn came three years ago it provoked a lot of interest, so I’m looking forward to getting another chance to grill him.
