Epic Fail: The Rise and Fall of Demand Media

http://variety.com/2013/biz/news/epic-fail-the-rise-and-fall-of-demand-media-1200914646/

by bcn • 13 years ago

116 61 13 years ago

lkrubner• 13 years ago

This falls into the broader category of stories "Don't build a business that is wholly dependent on another business" of which we hear variations here on Hacker News (such as "Don't build your whole business around the API of another business.") Demand Media was far too reliant on its ability to manipulate its rankings in Google.

We had a similar opportunity. We built Accumulist in 2006. We wanted stories posted to Accumulist to do well at Google, but we succeeded way beyond our expectations. Something about the structure of Accumulist hit the sweet spot of whatever algorithms that Google was using during 2006. Any article posted to Accumulist jumped to the front page of Google. Accumulist had an API so outside bloggers could ping it with their stories, and generally, for any story posted to Accumulist, the page that got ranked in Google was the page on Accumulist, rather than the original page on the blog.

For us, at the time, Accumulist was one of many projects we were working on. It was an unexpected hit. We did think about making it our full time focus. I was in favor of expanding it. However, my partners were against it. At one point we were working with an outside consultant whose advice I greatly respected. He said, "The business plan can not consist soley of 'Accumulist ranks high with Google.'" And that was a good argument.

For businesses like Demand Media and Accumulist, I think ranking highly with a search engine can only be the beginning of a process. If that's all you've got, then quit. There has to be something else you can do, something to add to the process, something real, that gives your business independence from the other business that you are initially depending on. Otherwise I think you are building your business on sand, and its only a matter of time before it washes away.

larrys7• 13 years ago

"The business plan can not consist soley of 'Accumulist ranks high with Google."

This is really a variation of the general notion in business that you are in trouble if you only have several big customers or a few customers control most of your destiny. In this case of course google is not a customer but it's really the same thing. Eggs in a basket. Anyone with any history in business would quickly realize the problem with putting all your eggs in one basket.

Certainly one of the reasons I am not a fan of SEO. Live by the sword die by the sword. Rank high at SEO and you can lose that rank.

Less likely if you are paying for your advertising.

Back in the day the furniture and department stores that were paying for advertising in the local paper had a good situation. A barrier to entry against competition because they paid. It wasn't free. Likewise I was very successful with the yellow pages in on past business. Any competitor could have done the same thing. But they didn't. They were to cheap to just take a chance, even with a small advertisement. I liked the fact that I paid for those ads. They worked very well. Each year we took out a bigger ad.

Let's take a real world case here. Let's take grellas who gets almost certainly business from his postings on HN. Let's further assume the fact that he is to big and popular to fail and that he is not likely or even close to likely to get banned from HN. As if.

But now let's add that he has managed to build his firm with more associates and rent more space as a result of being on HN (speculation on my part for the purpose of my point). Now let's say something happens and all the sudden HN is not in favor anymore. After all nothing is guaranteed. What does grellas do then (with all that overhead)? How will he quickly come up with more work?

Would be much better if grellas had a formula for business that he paid for or had more control over.

Not making a specific judgement or suggestion that grellas stop posting or that he is not spending his time wisely. Just drilling down to illustrate that if you get something you don't pay for you lose a certain amount of control (and a barrier to entry) that having to pay gives you.

nl2• 13 years ago

That scenario isn't the same thing at all. A lawyer has recurring income, and something like HN is merely a source of new business. HN closing stops growth, but you don't lose the existing income sources.

Demand Media isn't the same - "Google traffic" was the recurring business. When that went away they were screwed.

(Also, I think it's inadvisable to name real people in hypothetical scenarios without their permission.)

suchusername• 13 years ago

It seems to be an extreme case of digital sharecropping. http://www.roughtype.com/?p=1600

rhizome• 13 years ago

I've never been to business school, but I have to think there is a basic tenet regarding external dependencies that Demand Media ignored, whether it was through ignorance or hubris.

larrys7• 13 years ago

Would like to point out (I did go to business school) this may very well be something they teach in business school (I don't really remember) but much of business is really common sense at least with respect to entrepreneurship. (Which is why there are so many successful people that did not go to business school). Not to mention the fact that even if you do learn this in business school it might be any number of things that you learn without any degree of "how important is this anyway". Think of reading a "man" page with a million options and arguments. Someone with real life experience knows what is really important from experience to concentrate on. Anyone can memorize things.

mathattack• 13 years ago

As an MBA speaking, business school wouldn't have taught you anything beyond 3 years of reading of HN on this topic. Perhaps MBAspeak calls is not outsourcing your core competencies, but the common sense answer is not to put your entire livelihood in the hands of one external party.

aaronbrethorst• 13 years ago

Or you could take away the lesson of 'build something that is of real, meaningful value to users.'

larrys7• 13 years ago

"real, meaningful value to users" only helps with part of the problem.

The other part, depending on the whims of a big player for your traffic which is a big issue even if there is value.

After all the chance of a site going down in rankings enough to impact profits is much greater than the chance that anyone is going to complain (as a group) to get that previous ranking restored. Or certainly the site operator can go in most cases and pound sand.

So let's say you are "perlanswers.com" (arbitrary for example name not even registered) and you currently rank near the top. Then all the sudden you don't rank near the top and you fall to #8 or #15 which greatly hurts traffic. You can't complain and even if you have a loyal customer base "meaningful value" they really aren't going to be able to do much either. Right?

Of course if you have a large group of people typing in perlanswers.com that's a different story. But how many times does that happen as opposed to the "other" way people tend to get answers?

kevinchen2• 13 years ago

"Don't build a business that churns out garbage by treating workers like shit"

cookiecaper• 13 years ago

Definitely agree with this attitude. There's not necessarily a problem with banking on a reasonably stable "partner" (whether they're aware of their participation or not) early on if you have a pretty good/quick/easy way to grab those coattails, but it can't be anything more than a springboard.

ghshephard2• 13 years ago

For those who cashed out after the IPO and walked away with several 10s of millions of dollars, I would suggest that you can certainly profit (if not build a business) around "xxx ranks high with google."

I'm sure that has to be an attractive outcome for a pretty large population of business people, VCs included.

jotm4• 13 years ago

"Under Google’s new algorithm, code-named Panda, companies that produced lots of content got penalized"

Hahaha! Yeah, let me fix that for you: "companies that produced lots of useless, worthless, trash content got penalized".

Good for Google, good for everyone, screw Demand media for ad-filled "content farms" on crappy domains like 3d-blueray-players.com".

Even eHow and Livestrong are borderline spammy, although they do have enough good content to make them popular (and they are).

Should've focused on quality content while they were a $2 billion company instead of whining about it now.

adventured2• 13 years ago

This. eHow has 3.1 million results listed in Google. Stackoverflow has 6.7 million results listed (6.2 million questions per their site). Stack's traffic of course just keeps growing.

Pretty weak article overall.

ghshephard2• 13 years ago

"This." ? This what? I'm wondering if, in the future, you might expand just a little bit so when we're reading your response we could have some insight into what, in particular, you agree with, other than, "This."

valgaze• 13 years ago

Speaking of junky content: http://imgur.com/a/zUaPG

jotm4• 13 years ago

Is that on a tablet?

Anyway, I hate when they do that - Instructables is the first one that comes to mind (they offer a paid subscription for viewing articles on a single page).

PaulHoule• 13 years ago

Does anybody search for "3d bluray players?"

jotm4• 13 years ago

Around 500 searches per month in the US and 300 searches per month in the UK, according to Google. Have a bunch of these ugly sites with redirects to Amazon or other stores and you had a nice profit with little investment.

CalRobert• 13 years ago

Funny that this completely fails to mention that in addition to being a registrar (eNom), they've spent tons of cash on new TLD's and are operating a registry with around 20 or so TLD"s.

tomasien2• 13 years ago

"The freefall of Demand serves as a cautionary tale for hype in the Internet age: No company burns so hot that it can’t cool off."

What a crock - what cautionary tale? A company that grew really fast, is still producing lots of cash, and is already public? Companies rise and fall and are dependent on lots of other forces. Airbnb could crash any time if cities decided they don't want it (I doubt it will), same with Uber, and TONS of companies are in some way dependent on Google not shutting them out.

Seems like this was a pretty crappy business with extremely low value added to the world, but it's so obnoxious to hear every single company that starts to decline or doesn't grow the way we thought it would as a "cautionary tale". Companies grow, companies die.

adventured2• 13 years ago

How do you figure Demand Media is producing lots of cash?

Their business is struggling just to break even on an operational basis, and has been for years.

tomasien2• 13 years ago

Because it says in the article that several of their businesses are producing lots of cash, just not growing.

This is not to defend the business, I have no interest in doing so, but the ONLY thing about this that is even reasonably a cautionary tale is building a business that has no intrinsic value to anyone. Those businesses have little chance, but that's the point they're making when they declare it a cautionary tale.

001sky• 13 years ago

'Content Farming' was a cynical, manipulative business model. Frankly, we should all be glad that Google found a way to kill it. Some 'innovation' needs to be culled from an ecosystem occasionally to allow higher forms of life to not be starved. Pruning the deadwood is the proper method of 'farming' content when you are intent on producing high-quality, IMHO.

larrys7• 13 years ago

"These “domain parking” pages were immensely profitable, generating north of $100,000 per day, according to a former Demand exec who requested anonymity. “That’s $35 million-$40 million per year without doing any work,” the exec said."

Separate point domain parking pages (have much experience here) have fallen greatly over the years. Portfolios of pages used to sell for multiples of future earnings as people didn't realize how mercurial that situation was. Once again your destiny is determined by a few big players who have very little transparency (and in all honesty their own issues with fraud to deal with).

I have seen parked domains that earn perhaps 1/5 to 1/10th of what they did in the last decade. (As one example a domain related to mortgages used to earn perhaps $500 per month back during the boom and now I'd be lucky to get $50).

Not only that but both yahoo and google can ban a domain parked page if they feel there are fraud clicks. You don't get a reason and there is practically no accountability or appeal process.

rohin• 13 years ago

Hey, not sure if you'll see this, but we'd love to write about the decline of the domain parking business at Priceonomics (or feature a guest post on the topic if you're interested).

If you have any interest, you can email me at rohin@priceonomics.com

lotharbot• 13 years ago

I treat complaints from content farms that produce low-quality content kind of like I treat complaints from real farms that produce low-quality food. People will stop buying your stuff because they know it's worse than competing offerings, so don't blame Google for giving you less prominent placement on the homepage, and don't blame the grocery store for giving you less prominent placement on the shelf.

curiouslurker• 13 years ago

To counter many of the points made here, nothing lasts forever. Some businesses are built for the ages, others are not. There's nothing wrong with doing something that makes money for a while if you provided same value in the process. I am sure the founders and early investers did well and they still have a business valued at a quarter billion!

kevinchen2• 13 years ago

if you provided same value in the process. I am sure the founders and early investers did well and they still have a business valued at a quarter billion!

Because that is the only reason to start a company

chasing• 13 years ago

Epic Fail?

I didn't see it in the article, but how much did the founders/investors walk away with? If they walked away with a tidy fortune of cash (which I suspect they did), then no: Not an epic fail. An epic win!

danso• 13 years ago

There is something a bit ironic about Variety, a legendary media giant of more than 100 years that was sold in a fire sale in 2012 to an entertainment blog network, writing about the downfall of another online media outlet.

http://mediadecoder.blogs.nytimes.com/2012/10/09/in-a-fire-s...

wpietri4• 13 years ago

And I couldn't be happier to hear it.

Demand Media is a business that was about making money, not creating user value. They were essentially a parasite on the attention economy. It's no shock to me that the chairman of MySpace went on to create another business that turned out problematic.

I can only hope that GoDaddy is next to falter, but it appears to be run by a more cunning set of predators.

dpcheng2003• 13 years ago

As someone that produces content, I am pleased that Hummingbird is moving into the direction of higher-quality content, with appreciation for long-form content.

I am not pleased with all the stuff we have to do with Google+ such as authorship.

So yes, SEO is changing for the better but I don't think anyone believes Google is doing it solely for user experience.

JacobJans2• 13 years ago

I recently read an article at the Harvard Business review that very much proves why Demand Media didn't last.

It's called "Three Rules for Making a Company Great."

The first rule is:

1. Better before cheaper

Demand Media severely violated rule number 1. They were all about cheaper before better. Their entire business model seemed to be about producing as much low quality content as possible. No wonder Google wanted to penalize them.

Think about this: If Demand has built their empire on producing super-high-quality articles, they would have had Google as an ally, instead of a threat. Google would have done what it takes to make sure they stuck around. Because Google wants high quality content. Instead, they abused Google's search engine, generating as much content as they could -- with very little focus on quality.

It is fortunate that many companies today are focusing on quality first. The fate of Demand Media is a good lesson for us all.

If we want to build something that lasts, we'll have a much easier time if we're building something that people actually want to stick around.

Who thinks the "content" produced by Demand Media is worth fighting for?

Their investors. Anyone else? I highly doubt it.

http://hbr.org/2013/04/three-rules-for-making-a-company-trul...

driverdan2• 13 years ago

Except that rule is often bullshit. There are many successful companies that have been built upon cheaper rather than better, eg Walmart.

defen2• 13 years ago

Walmart did (does?) logistics and supplier negotiations better than anyone in the business. That is their advantage, not that their merchandise is sometimes low-quality.

JacobJans2• 13 years ago

Yes, of course there are successful companies that don't follow the rules. However, according to the study, the most successful companies DO follow the rules.

Of course, success depends on how you define it.

For example, if you invested $1 in Walmart stock five years ago, and $1 in Family Dollar, guess which investment would give you greater return?

The company that doesn't compete on price. They win. By a lot.

Isn't it odd that in the discount retail market, the company that doesn't compete on price gives investors a better return?

Very odd indeed.

Read the article, in goes into more detail addressing what you brought up.

derleth• 13 years ago

There are many successful companies that have been built upon cheaper rather than better, eg Walmart.

In addition to what everyone else said, Walmart owns a market other companies don't seem to want: Poor people. Both Costco and Target go after a much richer clientele, and KMart, which is otherwise very similar, is dying. Walmart is the go-to one-stop shopping experience for people working one or more minimum wage jobs.

Related to this is the fact Walmart builds stores where other companies don't. As a result, Walmart owns some very rural markets nobody else is touching.

Edited to add: My point: Given the above, for Walmart, 'cheaper' is a necessary element for success. They're chasing a market that straight-up can't afford 'better'.

droob• 13 years ago

Wired article from three years back: http://www.wired.com/magazine/2009/10/ff_demandmedia

ewharton• 13 years ago

Two clear flaws with this business:

(1) They were built on another business - see Michael Porter's supplier power. If you need one company too much, you face a lot of tail risk. Of course, there's nothing wrong with starting this way. In fact, being focused can be the best way to prove an in idea, get money (revenue or risk capital) and scale to other platforms.

(2) They did not add value. In effect, Demand Media was an arbitrage of digital adspace. Arbitrages get spotted and, eventually, disappear or diminish.

The dependency on another business & the lack of value add makes me wonder how they got as big as they got and just why they did not fail sooner. Of course, I hate to see any companies fail, given the risks of entrepreneurship & positive economic benefits (it makes the economy antifragile).

marknutter• 13 years ago

Funny, all the sites they mention in the article are listed in my Personal Blocklist extension. Garbage, all of them, and good riddance.

wpietri4• 13 years ago

Free plan for anybody looking for something to do: start an open-culture content farm. Demand Media's major strength is a way to match underserved searches with cheaply written content.

They (and other content farms) could be crushed by a Wikipedia-like project that fills the same user needs. It's hard to compete with free labor, especially when that free labor uses the lack of time constraint to produce high-quality content.

The main trick is to figure out how they're finding underserved searches, so you can establish a good feedback loop between readers and contributors.

Epic Fail: The Rise and Fall of Demand Media

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