When bad content is profitable: The Demand Media business model

While eating lunch at my desk today, I read an interesting article about a company called Demand Media in the November issue of Wired magazine.  Then later in the day, on the media site FOLIO:, I saw a blog post by Jason Fell with some thoughts on the article from a media perspective.

Demand Media has made a $200 million a year business from churning out an insane amount of quick, cheap, super-targeted content. (For example, videos about “how to heel flip on a skateboard” and “where can I donate a car in Dallas” are both mentioned in the Wired article).

I found it especially interesting to read the online comments below both articles.  They range from fear and disgust (editors lamenting the good old days of journalism and saying Demand Media is nothing but a slave labor house that’s exploiting writers and videographers) to people annoyed at Demand Media “junking up the web” with so much cheaply produced content.

Many comments focus on the low quality of the content from a journalistic standpoint and from a reader standpoint.  And while that might be true, this exact characteristic – generally low quality – makes the content more profitable as a whole.  Here’s what I mean:

There’s an old journalism axiom about leaving your audience “hungry for more.”  You’re never supposed to completely answer the audience’s questions about the topic or fully satisfy their desire for information.  You want to make them think, ask questions, and have a hunger to learn more.  This works perfectly with Demand Media’s business model, because Demand wouldn’t earn nearly as much money if its content fully satisfied viewers’ needs.

According to the Wired article, Demand makes a large amount of its money from pay-per-click ads that appear next to its content, including Google AdSense, and YouTube ads.  So if Demand’s videos and articles fully satisfied a viewer’s needs, the user could simply close their browser and be happy with the information they just received – without clicking on any links.  But I suspect the less-than-perfect quality of Demand’s content actually boosts the company’s ad earnings, because when users view a video that doesn’t quite answer their question or read an article that falls short, they still probably want to find an answer elsewhere on the web.  Luckily for the user, they see a Google ad adjacent to the Demand content that looks encouraging, so they click it.  Demand makes money from that click.  Bingo.  Lower quality content generates more revenue than higher quality content would have made.

It might seem counterintuitive that low quality can be an asset in the world of online content, but in this case it probably makes economic sense for Demand.  I don’t know how many long-term brand repercussions there will be for Demand’s websites and videos if they consistently fail to live up to users’ expectations.  But I suppose that probably isn’t a major concern, because new websites are easy to start up – and Demand can easily launch new brands in the future if its existing brands’ reputations are tarnished.  As long as Demand keeps producing large amounts of quick, inexpensive content that gets high Google rankings, and as long as the payouts from its pay-per-click ad revenue stream remains steady, I anticipate Demand Media’s market niche will continue to be quite profitable and sustainable.

Prove your value, social media

As companies continue to experiment with social media as part of their marketing mix, the obvious question that arises will be “how do I measure this?”.  In the past few years, metrics have been playing an increasing role in most companies’ marketing programs – and I don’t expect social media to be an exception.

1.  In a blog post last week, my friend Mike Frichol discusses how companies see value in social media, but he illustrates many reasons why they fear it.  Mike cites research that says 81% of executives think social media can enhance customer relationships and build a company’s brand.  But the downside might be reach – since so many companies block social media access for their employees, or see productivity declines.  That’s one measurement that’s pretty scary to B2B social media advocates in particular.

2.  A post by my friend Tom Pick mentions three challenges B2B marketers have in measuring their social media ROI, including: 1) it’s more PR than direct response; 2) last-click attribution; and 3) it’s more about influencing people who can influence buying decisions.

3.  A MediaPost column from yesterday lists 100 ways to measure social media.  It’s a long and impressive list of metrics which many marketers might find helpful.  These metrics at least provide a place to start when you need to gauge the effectiveness of a social media campaign.  But many of these are tough to quantify, and most don’t provide the elusive ROI numbers that Tom Pick wrote about in point 2 above.

Takeaway:  There’s no doubt metrics will play a huge role in social media’s success (or failure) at getting senior executive buy-in.  Before most companies truly embrace social media and start to shift large amounts of dollars and resources to it, the execs will need to see some solid proof that social media provides a solid return on investment.

Photo by chefranden

Ask your doctor if social media is right for you

I've been fighting a bad cold for the past couple weeks.  A week ago Sunday when my condition worsened, I went to an urgent care center to be checked out by a doctor, just to make sure I didn't have a nasty infection brewing.  The doctor said it was probably some sort of bug that I'd have to fight through, and that it was probably viral (make up your own viral marketing pun here), so antibiotics likely wouldn't help.  But then she said, "But if it would make you feel better that I’m giving you something, I'll write you a prescription for an antibiotic.  It probably won't do anything, but if you want it, I'll write it."

This experience made me think about how many individuals and companies are taking a similar approach to social media.  A marketing manager hears he's supposed to be using Twitter, or his company should have a page on Facebook, so he spends a small amount of time to establish these things.  It makes the marketing manager feel better -- so when the boss says "I've been hearing a lot about this Twitter -- what are we doing about it?", the marketing manager can tell his boss that he has already set up an account.  Never mind that their new Twitter account is probably not going to move the needle at all without some sort of planning, real thought, or concentrated effort behind it!

To many, Twitter and Facebook are the miracle drugs of the marketing world.  Even if the symptoms of the company's marketing plan don't call for them -- and even if they probably won't do anything to alleviate a company's real marketing pains -- sometimes it's just easier to write the prescription.

Photo by rodrigo senna