Haters Don't Understand Demand Media

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As one of this year’s most interesting IPOs draws nearer, much has already been written around Demand Media’s general business model, why it is worth over 1.7 billion dollars, or, in the case of Bo Peabody’s recent article on Business Insider, not worth considering an investment.Both Yahoo with the acquisition of the contributor platform Associated Content and AOL with its strategic focus on its content creation model Seed have recently made significant bets on the evolution of scalable content models. The New York Times was particularly far-sighted in purchasing About.com already over five years ago.

While Bo may be “down on the farm,” I see misunderstanding on several key aspects of our industry not well understood outside the space.

Quality matters for search audiences

Much of the conversation around search-driven content sites has been about quality, and how websites can possibly scale content quality. Does quality even matter to success in search?

A diffuse perception of lacking quality in successful search-driven sites seems to be fuelled by everyone’s recurring experience that scraped, automated or clumsily fabricated content – frustrating reads – occasionally bubble to the top of search engine results pages. This is not as bad as it used to be. Search engines are forever in a fight against poor quality content, and it’s a fight they are winning, particularly by not shying away from manual, editorial reviews of sites that attract conspicuously significant audiences.

Then there is also the case of “original,” yet uninspired content: content executed with a minimalistic approach to just about satisfy quality demands of search users. This is a trickier call for search engines, since even barely adequate content will be more useful as a search result than no content at all. It is a more subtle competition for traffic, one that will ultimately be won according to users’ preferences.

Today there are several noteworthy approaches being tried out by different content companies: from free-for-all models over pay-per-post sites to high-quality publishing destinations. This is ultimately happening for the benefit of the web’s users, whose preferences will decide the outcome. It will take time to assess the most successful models; Demand Media has certainly demonstrated that an efficiency-minded focus on popular search terms in demand can quickly build traction. I also think that the company has especially over the past year shown that it can improve quality standards in a process-driven way.

We at Suite101 started our site with the belief that only high-quality contributors can create the content search users want to find and thus be the focus of the winning long-term strategy. Instead of starting with algorithmically generated “assignments,” we take great care in selecting the best contributors for our site, providing them with access to experienced editors, and equipping them with the tools and techniques (both algorithmic and manual in nature) to succeed in attracting audiences within their personal fields of expertise. Since we pay our writers revenue share royalties instead of flat fees, our writers benefit from their and our focus on quality in the long run.

Quality truly matters for search audiences, but it will still take time before users get only quality results for all their search queries.

Advice content has a very long shelf life

Opinion makers’ personal experiences with web traffic are often dominated by their experience with the current content they themselves consume and produce: generally relevant in the short term only, succeeded by the latest news that always attract all the attention and traffic. Thus, a recurring question concerns the longevity of the content that sites like eHow, Suite101 or About.com publish.

The lifecycle of advice-type content our industry specialises in is not very similar to news content, but bears much more resemblance to the purchasing patterns of traditional non-fiction publishing (which, from a utility perspective, is the realm we really compete with). Depending on the subject matter, stories may be current for years, and continual amendment will ensure they remain up to date and interesting, thus allowing continuous monetization.

If one removes seasonality and other external factors, evergreen articles on Suite101 tend to display a pattern of continuous traffic growth. Our writers can typically expect increasing revenues from their articles on Suite101 for years. I would assume that Demand Media’s eHow content behaves similarly to ours in that respect.

Brand advertising is a bonus, not requirement for search content monetization

Monetization is another area where search-driven advice content follows different rules from traditional online media sites.

Search audiences try to accomplish given objectives, which means they are not loyal users to the sites they visit and will try to follow the path that leads them to their objective the fastest. Search audiences are thus quite open to be influenced by advertisers inserting action-oriented messaging targeted to this objective. As I have argued elsewhere, this is an audience characteristic that has been understood well by niche, non-brand advertisers

Performance-based advertising is by now operating at a level of sophistication that typically results in effective per-impression revenues above the monetization normally attainable from brand advertising on search-driven content. Suite101 is able to pay its English language writers average revenue share royalties of over $3 per 1,000 page impressions – on worldwide traffic, inclusive of lowly monetized subject areas like “History” – and operates profitably.

Whenever we speak with brand advertisers about space on Suite101, the single issue that requires the most discussion is competition with the monetization level we achieve with performance-based advertising. Nonetheless, incremental monetization potential does exist by selling higher eCPM brand advertising on search-driven content sites.

My prediction: our next frontier will be defined by the advent of smarter, widely accepted micro payment services. As traditional publishing has demonstrated, there is a large market for selling the best advice available at a premium, and there is little reason to doubt that people will pay for very high quality advice, given much simpler payment options than exist today. PayPal has recently made an important step in the right direction; others will push the boundary further. Removing payment obstacles will make the high quality advice market accessible for well positioned online publishers and allow their contributors the profitable creation of higher quality content.

Google traffic share mirrors users’ preferences

Commentators on Demand Media’s S-1 statements frequently point at the company’s dependence on Google for traffic, but this speaks to the state of Online itself, and not to specific failings of the company.

Given current online users’ behaviour and preferences, receiving the majority of search traffic from Google is a sign of normality. A while ago, Jason Calacanis reflected on the ongoing discussion regarding the health of the situation that Google operates as the de facto “operating system” of the search-driven web. Despite the subsequent advent of innovative search models like Wolfram Alpha and, recently, Blekko, as well as heavy marketing of rival Microsoft touting its Bing search engine, that situation has still not changed. Until user preferences shift, search-driven content sites need to ensure that they are receiving the “fair” large majority of their traffic from Google. User preferences might in the future shift to other search models, and those will once again be models that bring the best quality content forward.

Until the search market evolves into a more balanced situation, what content businesses must do to ensure their future relevance is invest in the content quality search engines want to present to their users – and understand the dominant search engines of the day sufficiently to attract a fair share of their users’ traffic.

Search audiences don’t stay around

A frequently used measure of traditional web sites’ quality is the ability to engage with and retain users in every visit. The more entertaining, media-rich, interactive a site is, the more time people spend on it, and the “better” in the eyes of users it must be. Since branded advertising revenues are driven by engagement metrics such as the page views-per-visit ratio, this directly translates into a traditional site’s revenue potential.

These metrics have been used when attempting to measure “quality” on search-driven sites, but this is a fundamentally flawed comparison: when users are searching, the fewer clicks it takes to achieve their objectives the better (and more valuable) is their experience. Google is constantly improving in getting audiences directly to the single best page on the web to accomplish their objectives, which historically has resulted in slowly declining page views-per-visit ratios for strongly search-driven sites over long time horizons. We have also seen the search traffic slow on sites that started to artificially paginate stories to boost “engagement” metrics.

While the economic value of search-driven sites’ content is easy to calculate, its “quality” can not be captured by simplistic engagement metrics

Search-focused content models will be an integral part of the future media landscape

Stating that “search will be huge” after watching Google’s rise might sound like a late insight, but we have so far only seen a glimpse of the search marketplace of the future.

Going back to my initial comment on quality: concerns about search results lacking quality are more often than not observations of missing quality information on the web, not insufficient search engine capabilities. To accomplish complex search objectives, users today must break down their journey into simple, “answerable” queries.

This is changing, and better researched, better written and executed answers will become more abundant on the web. By systematically enabling content creators to add value to the web where it matters, scalable content models are instrumental in accelerating the increase in usefulness of the web to provide ever more complex answers to all conceivable problems and questions.

Despite all its potential, this discussion has not yet hit the mainstream, and this is where the real opportunities lie. Even the currently biggest players in the space like Demand Media have not achieved anything resembling general public awareness; sites like Suite101 have quietly built a reputation predominantly in online writers’ circles.

This market is in an early land-grab phase, but it is already possible to make a certain stand. One can combine a quality-only focus to online content with high scalability, quick growth, and true profitability. At Suite101, we prove this every day.

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