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.