What are Demand Media’s secret “agreements” with Google?

  • 0
  • January 28, 2011
Patrick Altoft

Patrick Altoft

Director of Strategy

Just been reading an interesting article about Demand Media following the IPO earlier this month.

For those of you that haven’t heard of the company they are a content farm using outsourced writers to produce 5000 articles per day on sites such as eHow and various other informational resources.

On January 25th Demand Media sold 8.9 million shares at $17 each in an initial public offering. The following day, the price rose 35 percent to $22.61, which would give the company a market capitalisation of $1.9 billion, greater than New York Times value of $1.5 billion.

The company has never made a profit since 2006 despite revenues of $198.4m in 2009.

The interesting part of the article was this:

A disproportionate chunk of Demand Media’s revenue comes directly from Google—making the search giant a life raft for the company. During the first nine months of 2010, according to Demand Media’s Securities and Exchange Commission filings, 28 percent of total revenues came from Google. Demand is aware of the risk of piggybacking so heavily on one source for traffic and revenue, warning potential investors in its SEC filings that the company is “dependent upon certain material agreements with Google for a significant portion of our revenue” and that a “termination of these agreements, or a failure to renew them on favorable terms, would adversely affect our business.

28% seems very low to me. Any company relying on SEO to drive traffic must surely get more than 28% of revenue from the worlds biggest search engine?

The really interesting thing to me is finding out what material agreements they have with Google to drive this revenue? Doesn’t sound like AdWords to me, could be Adsense but Google would never terminate that.

Google declared war on “content farms” last week but refused to comment on Demand Media specifically.

As “pure webspam” has decreased over time, attention has shifted instead to “content farms,” which are sites with shallow or low-quality content. In 2010, we launched two major algorithmic changes focused on low-quality sites. Nonetheless, we hear the feedback from the web loud and clear: people are asking for even stronger action on content farms and sites that consist primarily of spammy or low-quality content. We take pride in Google search and strive to make each and every search perfect. The fact is that we’re not perfect, and combined with users’ skyrocketing expectations of Google, these imperfections get magnified in perception. However, we can and should do better.

I certainly won’t be buying shares in Demand Media anytime soon, unless they can let us have a look at that agreement with Google perhaps.

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