Demand Media’s Troubles Are Good for Thought Leadership

Demand Media’s share price today is $5.50, down from a high of $24.55 shortly after it went public in 2011. This is good news for companies that can create good content. Let me explain why.

Demand Media is one of several “content farms” that sprang up in the first decade of the new millennium to capitalize on the perceived need of companies for content. The rationale went something like this:

  • More and more people and businesses are searching for and evaluating products and services online.
  • People reach sites via search engines.
  • Search engines use content to rank sites by search terms.
  • Companies therefore need more content now, and they’ll need more going forward.
  • Therefore (Demand Media figured) there is an opportunity in the market for giant firms that can generate massive amounts of content.
  • Content, words organized in sentences, can be sourced (and are, by these firms) from starving freelance writers for about 5 cents per word.
  • Therefore, given the growing demand, a huge stable of underpaid freelancers would provide a huge profit to whoever could corral that demand.  
  • Right?
  • Wrong.

Wrong, because the rationale is fatally flawed in several places.

Here are two: First, no one ever pays handsomely for a freely-available commodity. No one pays much for salt, sand, matches, or postcards. So why would anyone pay a lot for words, strung together? Talk, they say, is cheap. Words, if they are not assembled by people who are good at it, are no dearer. Second, if everyone who is selling, say, VHS digitization services, populates their website with 5 cent-a-word commodity content, how would any of them ever stand out in a search? They wouldn’t. They won’t.

There are other indicators that commodity words are never going to be worth much. For example:

  • A study we conducted in 2013 shows consulting firms that produce less but better material get superior results from it (here).
  • Google keeps making changes to its search algorithms to reward good content over poor (e.g., here).

So the initial excitement over content farms, reflected by Demand Media’s once-soaring stock, is now waning, just as Demand Media’s stock is now plummeting. And this continues to be good news for firms that can produce good content, bad news for those that can’t.

To finish with an example of how to do content well: One firm we know conducted a large study on Social Media last year (here). So far, that study has produced:

  • A keystone report.
  • A Slideshare/webinar/conference presentation.
  • A YouTube video.
  • A microsite.
  • Op-eds for two business journals, and more.

Of course, this took a lot of effort, but that’s why the firm only publishes two or three such studies a year. And although the results (in terms of leads and sales) are confidential, they do track them, and they are sure that producing deep, insightful content is well worth the extra effort.


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