Demand media is an American content and social media company that operates online

brands, such as eHow and Cracked, and is known for creating online content through its Demand
Media Studios division based on a combination of measured consumer demand and predicted
return on investment. Its business model consists of 5 steps: gathering data about queries, using
algorithms to determine appropriate profitable queries, outsourcing the queries to writers,
videographers and other professionals and instructing them for producing articles and videos at a
fixed cost, using SEO techniques to try to ensure that the answer works prominently, selling
advertisements to the content's audience

Gathering
data

Advertisem Algorithm
ent s

SEO Outsourci
technoqu ng
es content

What revenue sources does Demand Media rely on?

DM has 2 distinct and complementary parts: the domain registration business and a content
and media business.
Basic revenue sources are:
 Domain registration
o eNom
 Content and media business
o Generated from contents in its own sites (LivesStrong.com, eHow, Anserbag.com,
Cracket.com, Trials.com, Golflink.com)
 o Generated from contents in other sites ( Only Google was responsible for ¼ of its
revenue)
o Generated from the licenses to the 3rd party companies to use its contents. (in this
case benefits are shared among them)

Here are the revenues according to their sources.

Year ended Year ended Year ended

December 31, December 31, December 31,
2008 2007 2006
Revenue 170,300 198,500 252,900
Owned & operated 62,800 73,200 110,800
Network 22,000 34,500 42,100
Registrar 85,400 90,700 100,000

Source: Demand media, Inc.

DM tried to attract more and more visitors as the customer acquisition costs were negligible. On
average, DM estimated that the company could make $20-30 per thousand page views from
performance advertising across the broad range of topics covered on a site like eHow. In 2010
and 2011 the company invested heavily in building a direct sales force to sell advertising space
to marketers and advertising agencies. Early results had been promising from both a revenue and
advertising-performance standpoint. The company estimated that it might be able to sell branded
advertising for $10-20 per thousand page views and what was unsold for branding might fetch
$1-2 per thousand page views, as remnant advertising running on the same pages as the
performance advertisements.

Collaborators
DM existed to meet the consumer need for relevant and specific content. When traffic related
to particular topics reached a significant volume, a branded identity would be given to the topic
and a well-known personality would be associated with it, e.g.
 Content related to fitness and nutrition was represented by the cyclist Lance Armstrong
and was assembled on web-site under the name LIVESTRONG
 To serve fashion and beauty, a partnership was formed with the model Tyra Banks and
her company Bankable Enterprises.

In April 2010, the Gannett-owned USA Today announced it’d be outsourcing its newly
created online travel tips section to DM. 4 months later, Hearst Corporation (another of the
country’s largest media organizations) announced that it had partnered with DM for online
content for 2 of its properties. DM had been contracted to write content for Homes Guide in the
real estate section of San Francisco Chronicle’s website SFGate.com and for a small business
guide on the Houston Chronicle’s site.
One of advertising networks that DM is partnering with is Google Ad Network. As YouTube
partner DM share in the revenues generated from advertisements that appeared either before its
videos, as overlays, or on banners.

Competitors
In the sphere of domain registration business, DM’s largest competitor was GoDaddy, which
was also the largest domain registrar, who sought to sell web hosting and e-business software and
services to registrar customers.
As for content and media business DM competed for consumers’ attention using question-
and-answer sites, online encyclopedias, and blogs and topically focused online media. It
competed for advertising revenues with these properties and with advertising networks.

In the sphere of question-and-answer sites DM’s competitors are:

 Ask.com
 Associated Content
 About.com
 Answer.com
 Suite 101
 ChaCha
 Mahalo
Compared to competitor sites like Ask.com, About.com, and Answer.com, DM’s ehow.com has
less unique monthly visitors in 2008-2010.

Models for attracting contributors to create content for question-and-answer sites were
different. Some of them paid contributors per article, some shared advertising revenues with
content creators.
DM’s main competitors are:
 Wikipedia – is operated by Wikimedia Foundation, a nonprofit charitable foundation.
It has 78mln unique US visitors per month. It allows its users to freely create and add
webpage content on their preferred topic.
 AOL – is a media company whose profile has risen and fallen a number of times
since its inception 20 years earlier. In 2010 AOL made acquisition that helped to
move the company away from its revenue base as an internet service provider and
cultivate revenue from content and platform services. AOL reached 112mln unique
US visitors per month.
 New York Times Digital – in 2011 NYT portfolio comprised NYTimes.com,
Boston.com, About.com and third party sites such as Winetoday.com,
GolfDigest.com. The family of sites drew 72 mln unique US visitors per month.
  Yahoo! – is a portfolio of owned-and-operated content and community sites and third
party sites for which it served as an exclusive advertising placement through a
wholly-owned subsidiary Right Media. It was second only to Google in traffic with
167 mln unique US visitors per month.
 Google – Consistent with its mission of organizing the world’s information, Google
hosted and indexed specialized content on sites such as YouTube, Picasa, Blogger,
Google News, and Scholar among others and it indexed general content on
Google.com. Google had historically preferred the role of provider to that of content
creator, but in some areas it gave preference to its own content.
 Glam Media – is concentrated on content related to fashion. The majority of Glam’s
visitors were women. It performs more as a publisher than a network.

In this slide we can see Top web properties in the US (January 2011)
Property Unique visitors per month (US;
000s)
Yahoo! sites 178.864
Google sites 178.516
Microsoft sites 176.770
Facebook.com 153.020
AOL, Inc. 110.996
Ask Network 95.719
Amazon Sites 82.608
Wikimedia Foundation sites 78.563
Demand Media 75.454
Apple Inc. 71.952
New York Times Digital 71.887
eBay 65.913
Answers.com sites 55.467

Unique Monthly visitors and monthly page views of eHow and competitor sites
(October 2010)
Unique monthly Monthly page
visitors(000s) views(000s)
Ask.com 80.200 927.161
About.com 49.074 365.512
Answers.com 38.190 185.441
eHow.com 35.880 127.635
Hubpages 12.391 43.357
Associated Content 12.307 56.559
Squidoo 8.805 38.642
Suite101.com 7.871 31.207
Examiner.com 7.577 44.026
 WikiHow 7.574 18.632
Mahalo 5.081 11.398
Which should management prioritize–content quality or that content be found
by search engines?

From the beginning of its creation Demand Media gave highest priority to its content quality.
It outsourced stable 10.000 freelance writers, video producers and editors to produce over 5000
pieces of content per day. Each piece processed by Demand Media Studios had 14 human
touchpoints involved in the creation of each article or video. In addition to this the categorization
community was accurately tagging and indexing each piece of content with 94% precision versus
to machines’ 50-60%.

Actually the revenues from better-quality contents were higher. The reason was they ranked
higher in search results than inferior content and the top-ranked search results netted the most
clicks. The first search result got 45% of the traffic.

The company prided itself on employing more copyeditors than the top 10 newspapers
combined.

To have its content found by customers using search engines, Demand Media adhered to the
SEO techniques recommended by Google. It ensured that its sites loaded fast and did their best
to host content that would satisfy its visitors.

To sum up, we can see that the technical tools are already being used in order to get attention.
Thus our group came up to the conclusion that Demand Media should rather prioritize the
content quality, which in its turn, will bring to broader visibility.

Demand Media Income Statement ($, 000s)

December 2008 December 2009 December 2010
Revenue 170.300 198.500 252.900
Owned & Operated 62.800 73.200 110.800
Network 22.000 34.500 42.100
Registrar 85.400 90.700 100.000

Operating expenses
Service costs 98.200 114.500 131.300
Sales and marketing 15.400 20.000 24.400
Product development 14.400 21.500 26.500
General and Administrative 28.200 28.400 36.700
Loss on disposal of assets 700
Amortization 33.200 32.200 33.800
Total Operating expenses 189.400 216.500 253.400

Income(loss) from (19.100) (18.000) (500)

operations
Net income before interest, (20.300) (21.000) (2.400)
taxes

How should the business respond if Web audiences begin

to rely more on social recommendation than search in the
future?
Demand media’s model proved to be effective for the five years of its existence, and company
started to demonstrate an ability to generate a profit. But in a dynamic world where we live
changes are made every moment. Recently, two new trends in the behavior of audience could
threaten the future success of the company. The first one is the emergence and increasing
popularity of social networks. More and more people started to spend more and more time in
social sites like Facebook, Twitter, and FourSquare, relying on social discovery rather than
search. The company could not depend only on the users who will share the links of their sites
because people were usually sharing newsworthy, intriguing or funny things, and it was harder to
predict what will inspire them. Moreover the shared content did not monetize very well because
visitors arrive to the site by chance and not with intent to search or buy something.

The second one was the adoption of applications for smart phones and tablets. Apps suggest
another way of content distribution and as the popularity of IPhone and IPad grew, more and
more media companies use this opportunity to create an advantage that they lost with search.

But both of these threats could become a good opportunity for the company if it makes the right
use of them.

Initially Rosenblatt aspired to a “balanced pie”, in which traffic from search would constitute no
more than one-third of total traffic, and direct traffic and social media would constitute the other
two-thirds as equal contributors. But with the changes of online landscape they should pay more
attention to social media and change the proportion in favor of it.

At first we suggest to collaborate with Facebook and other social networks. The company should
create Facebook pages for all of its popular sites like ehow.com, Livestrong.com etc. The users
will “like” this pages in Facebook and will regularly get news and new articles from the sites.
With use of algorithms they can also detect what the user is searching for by search engines and
bring the link of relevant content to its Facebook page.
The second thing that it can do is to create a “multi-author blogs” covering a single subject, for
example politics with posts written by large numbers of authors and professionally edited. Blogs
are interactive, allowing visitors to leave comments and even message each other via GUI
widgets on the blogs, and it is this interactivity that distinguishes them from other static websites.
Here the articles would be more intriguing and newsworthy, and this will increase the number of
shares.

And the third step is to make use of app-based distribution and create a mobile and tablet
applications for their most popular sites. As for monetization of their apps, they can use
freemium model of The Economist or Cosmopolitan where the part of an issue was available for
free and the consumer could elect to unlock the full issue for a fee.

All these changes can be made with the contribution of Pluck - the company that was recently
acquired by Demand Media. Pluck possessed mobile capabilities as well as the core functionality
of article comments, ratings, and reviews, blogs, photo galleries, and integration with Facebook,
Twitter, and LinkedIn.

Of course, all these steps will require additional investments but there are necessary and crucial
for future development of the company. The investments will surely be paid off in near future.
For some time company can rely on the revenue of its domain registration business which
comprises 50 % of its total revenues.