| Type | Public (NYSE: DMD) |
|---|---|
| Industry | Internet |
| Founded | Santa Monica, California (May 1, 2006) |
| Headquarters | 1299 Ocean Avenue, Suite 500 Santa Monica, California, USA |
| Key people | Richard Rosenblatt, Co-Founder, Chairman and Chief Executive Officer Shawn Colo, Co-Founder and Head of M&A Charles Hilliard, President and CFO |
| Revenue | $200 million USD (2008) [1] |
| Employees | 500 (2008).[2] |
| Website | www.demandmedia.com |
Demand Media, Inc. is an online media company and content farm[3] that operates online brands such as eHow, and Cracked, and is known for creating online content through its Demand Media Studios division based on a combination of measured consumer demand and predicted ROI. The company also provides social media platforms to existing large company websites and distributes content bundled with social media tools to outlets around the web.[4][5] The company also owns eNom, the world’s second-largest domain registrar.[6]
Demand Media was created in 2006 by a former private equity investor, Shawn Colo, and the former chairman of MySpace, Richard Rosenblatt.
The company employs an algorithm that identifies topics with high advertising potential, based on search engine query data and bids on advertising auctions. These topics are typically in the advice and how-to field. It then commissions freelancers to produce corresponding text or video content. The content is posted on a variety of sites, including YouTube and the company's own sites such as eHow, Livestrong.com, Trails.com, GolfLink.com, Mania.com, and Cracked.com.[7][8]
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Demand Media was co-founded in May 2006 [9] by Richard Rosenblatt and Shawn Colo. Rosenblatt has a long history of building and selling Internet media companies. As CEO of Intermix Media and Chairman of MySpace.com, Rosenblatt was one of the innovators of Internet social networking.[10] Colo is a financial acquisition specialist. He worked for 10 years in the private equity industry as a Principal with Spectrum Equity Investors specializing in media and communications companies.[11]
Demand Media raised more than $355 million in financing over its first two years from investors such as Oak Investment Partners, Spectrum Equity Investors, Generation Partners and Goldman Sachs.[12][13]
In June 2007 Demand Media hired Charles Hilliard, a former Morgan Stanley investment banker and United Online senior executive, as its President and CFO[14] and acquired Byron Reese's how-to website, ExpertVillage.com of Austin, TX, for about $20 million. Reese became the company's Chief Innovation Officer and developed the algorithm that the company now uses to identify topics with high advertising potential.[7] By 2008, Demand Media had acquired more than 30 domain name portfolios and owned 65 destination websites. Demand Media said that its 2009 revenue was nearly $200 million and that it was making a profit,[1] but in fact the company had never been profitable.[15]
In July 2008 it was widely reported that Yahoo! was interested in buying Demand Media for between $1.5 and $2 billion.[16] Sources close to both companies said Yahoo! executives were attracted to Demand Media’s generation of advertising impressions and its ability to create niche social networks for media sites. Demand Media CEO Richard Rosenblatt later said that the company was not for sale.[17] The deal never got past the talking stage. It was reported that Rosenblatt wanted a price closer to $3 billion for Demand Media.[18]
Since 2006, Demand Media has acquired a collection of relatively unknown sites and relaunched them with social networking features and video capabilities that serve specific niche interests[19] In the company’s first six months it made nine acquisitions, including the purchase of major registrars eNom and BulkRegister.[20] On November 6, 2008, Demand Media Head of M & A Shawn Colo said the company would continue to buy niche, well-trafficked sites because the company is profitable and still has a lot of cash in the bank.[21]
In 2008 Demand Media acquired Pluck, a company providing social networking and commenting solutions to other websites, for a reported $75 million in cash.[22]
In August 2011 Demand Media announced acquisitions of IndieClick and RSS Grafitti. The latter may allow access to providing content to Facebook publishers.
Demand Media executives say their websites are content-driven to attract visitors by showing up in multiword search-engine queries. The more words that are typed into a search engine, the more specific the search will be. This is called “the long tail”[23] search. Demand Media attempts to get visitors to its websites with these long-tail searches. It then tries to retain visitors with related content and social media tools. Their social media platforms get 3 billion interactions per month for clients with already well established brands.[24] Demand Media commissions specific website content that it then distributes to its own websites and others where they have advertising revenue sharing agreements.[25] As of 2008 Demand Media owned 135,000 videos and 340,000 articles. It is the largest contributor to YouTube, uploading between 10,000 and 20,000 new videos per month, and gets about 1.5 million page views per day on YouTube.[26]
Content is generated via a process in which Demand Media uses algorithms to generate titles, then posts the titles to a screened pool of free-lance writers or video creators. The list of available titles used to be >100,000 but was severely curtailed in the second half of 2011. Typically, writers can claim up to ten titles and then have a week to submit the articles. Format and length are dictated by guidelines. Submitted articles go to an editor (also a freelancer) who can either clean it up or request a rewrite. After writers submit a revised article it is either accepted or rejected. Payment via PayPal is twice a week.
Demand Media’s acquisition of Pluck.com in 2008 gave it the means to provide specialized content and social media platforms to any website.[16] The content comes with advertising attached. The website owners get free content for their sites and split the advertising revenue with Demand Media. This hybrid Internet publishing model has been referred to as Curated Social Content.[27] It is a combination of Enterprise Generated Media, such as newspapers, and consumer-generated media, such as blogs.
As of second quarter 2010, Financial Times reported that Demand Media is planning on an Initial Public Offering which would mean any acquisitions would be out of the question. IPO filing was completed in August 2010. Shares were initially expected to be offered in December 2010, in an offer that would give Demand Media a value of approximately $1.5 billion.[28] However, due to a Securities and Exchange Commission investigation regarding the company's novel accounting for "long-lived content," the IPO pricing was delayed until January, 2011. On January 12, 2011, the company announced it would price its IPO between $14 and $16 per share giving it a valuation of approximately $1.3 billion.[29] Some blogs have questioned Demand Media's claim to be profitable, given that its IPO filings show that has reported losses for the past several years. Additionally, several news sources claim that the company's accounting practices have recently been the subject of government examination.[30][31][32][33][34]
Post-IPO the stock rose to the mid-20s, but by fall 2011 had plateaued under $7.00.
Demand Media has attracted criticism from Internet watchdogs for being one of the largest buyers of articles and videos,[23] purchasing thousands of search engine-driven content from low-paid freelancers to use on its websites to attract advertisers, such as Google's AdSense.[35][36] During autumn 2010 opportunities to write articles for $25 or $30 dwindled, leaving mostly $15 or $20 titles. New content volume also shrank, as Demand Media attempted a transition from "quantity to quality" postings.
From Business Insider Oct 20, 2011: "Demand is still sticking with its aggressive accounting, in which it capitalizes content costs and amortizes them over five years. This practice makes the company look profitable when it isn't. It also gives the company much higher "EBITDA" than it really has, because in Demand's case, "EBITDA" is really earnings before content costs."