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How Google Decimated A $US2 Billion Search Business

Richard RosenblattRichard Rosenblatt, CEO of Demand Media, attends the Allen & Co Media Conference in Sun Valley, Idaho July 10, 2012.

Demand Media, the Santa Monica firm whose network includes
eHowand
eNom, was valued at over $US2 billion when it went public in 2011. Now it is only worth about a quarter of that, and its founder and original chief innovation officer are
no longer with the company.

As Variety reports, it turns out that Google was a key player in the company’s downfall.

Richard Rosenblatt co-founded Demand in 2006 as a “content farm” that would take advantage of search engine optimization. The how-to site eHow would provide easy-to-produce content for targeted ads, and the domain registration site eNom would crank out sites with generic names to serve as homes to only ads.

This collection of 1 million spammy sites was incredibly successful, making $US100,000 per day.

Demand eventually expanded its less-profitable content production side by paying contributors around 20 bucks for every post or video they produced.

A quick look at eHow.com shows that even today, many posts are often quite vague, and on pages cluttered with ads. But at the time, some speculators thought content farming was the future. Yahoo considered buying the firm in 2008, as did AOL.

Soon after Demand went public in January 2011, things started to fall apart.

Google changed its search algorithm in February of that year to keep users from clicking on low-quality, spammy pages that found their way into top results. This version of the algorithm was called Panda, and Google continues to update it. Its refinement scared investors, which included Goldman Sachs.

According to Google, low-quality sites have “numerous paid links, are mostly empty, contain thin content, and have too many ads.” That’s basically the definition of a Demand-type content farm.

Later in 2011, Google hit Demand again when it gave up on a $US100 million effort to promote TV-style content channels on YouTube, of which Demand owned three.

Demand’s network — which includes LiveStrong.com (separate from Lance Armstrong’s organisation following last year’s scandal) and Cracked.com — got 52.1 million uniques in October, down 35 per cent. A full 46.1 million hits came from eHow.

In its third quarter earnings report from November, Demand continued to blame “declines in search referral traffic and advertising demand,” for its losses.

Revenue at its domain registration business, however, was up 11 per cent from last year. Demand plans to spin it off, reports Bloomberg.

Saul Hansell, who used to run AOL’s former content farm Seed.com, told Variety that Demand’s dramatic fall over seven years wasn’t just Google’s fault.

“Using cheap freelancers who don’t have the expertise doesn’t work. The cumulative effect was that millions of people went to eHow and other sites, and realised they didn’t have the answer to their questions.”

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