Wednesday evening, Matt Cutts and Amit Singhal of Google (NASDAQ:GOOG) blogged about changes made to the search engine's algorithm for ranking results. Although Google made no specific mention of the company, and it's really too early to tell if they're a target, pundits have already started claiming that this move directly targets Demand Media (NYSE:DMD). Let the irresponsible headline writing begin.
Google Announces Massive Algorithm Change, Declares War on Content Farms, Including Demand Media
-Business Insider, 2/24/2011
Cutts and Singhal note that most tweaks Google makes go unnoticed by a majority of users, "But in the last day or so we launched a pretty big algorithmic improvement to our ranking -- a change that noticeably impacts 11.8% of our queries." The duo continue:
This update is designed to reduce rankings for low-quality sites—sites which are low-value add for users, copy content from other websites or sites that are just not very useful. At the same time, it will provide better rankings for high-quality sites—sites with original content and information such as research, in-depth reports, thoughtful analysis and so on.
If Demand takes a hit because of this change, it's safe to assume eHow, the company's flagship owned-and-operated site, will suffer most. eHow contains a mix of articles, including popular "how-to's," which explain everything from "How to Open an Online Brokerage Account" to "How to Trim Your Toenails." Wednesday night, I punched in how-to topics at random. While I conducted a highly unscientific sampling (particularly for a PhD dropout), Demand seemed to be affected, but not to the extent people will claim. eHow frequently appeared as the top result on several of my how-to searches. At times, it ranked lower, but still above the fold. And, maybe more often than I recall at earlier dates, eHow articles turned up below the fold. I intend to take a slightly more rigorous approach in the near future. In any case, I don't think it's time to panic, if you are cheering for Demand Media.
Talk the Talk, Walk the Walk
I listened in to DMD's first conference call as a public company on Wednesday. Demand Chairman and CEO Richard Rosenblatt laid out an impressive game plan. An earlier Seeking Alpha article I wrote provides highlights and analysis of the call. In this article, I focus on the things Rosenblatt said that I believe have the most relevance vis-a-vis Google's announcement.
- Rosenblatt spent a lot of time explaining that Demand strives to fill gaps in online content. He pointed out that while many of the questions eHow writers answer tend toward the obscure, thousands of people search for solutions to these odd conundrums monthly. By writing an article on the subject, Demand serves a sizable portion of that audience because they cannot find suitable, or any, answers elsewhere.
Quite logical. My somewhat-educated guess -- eHow articles will likely stop popping up on topics where the site, even if Demand claims the freelancer comes qualified, lacks credibility. For instance, when you search for an article on the side effects of a medication or how to handle a child with ADHD, eHow probably should not make it above the fold. Personally, I would rather see a couple of academic articles, a non-profit or two (e.g., the American Heart Association), and a Mayo Clinic summary pop up first. Top authorities already answer these questions, leaving much less of a gap for Demand to fill. Where Demand focuses on the gaps or otherwise provides significant pieces of information not readily available elsewhere, they win. This is how I read what Google wrote and how I think Demand should operate as they forge ahead.
- As I noted in my other article, I do freelance and contract work for Demand Media. While I write for eHow, the best assignments came when I wrote for the SF Gate website and theNest.com. Over the last several years, Demand has provided content for these sites and many others, including USA Today and NFL.com. Rosenblatt indicated that Demand hopes to cultivate more of these relationships.
Another major key. If nothing else, providing content to these and a growing list of major organizations gives Demand Media credibility. I can tell you from experience that only the best editors work on these projects, making the process more enjoyable as a writer and the content of a relatively higher quality. But there is something else. If Demand becomes a credible and seemingly ubiquitous presence across the web, how Google tweaks search results will matter less and less. You can't search for a national news story without finding the same Associated Press report in half of the "local" newspapers that turn up on the results. Nobody complains about that. Demand could become the (hipper) AP of the 21st Century.
- Rosenblatt stressed that Demand has seen great success selling its own advertising and building its own marketing partnerships. They have sold ad space and struck marketing deals with a whole host of Fortune 500 companies. Demand recently expanded its New York City sales office and opened new digs in Chicago. Rosenblatt claims that direct sales will get built out and focused on in 2011.
Clearly, the more revenue Demand generates by selling its own advertising the less it relies on dollars from Google clicks. Of course, people need to get to Demand's content. Often, they'll get there via Google. Undoubtedly, less Google exposure would hurt. Rosenblatt contends, however, that people are increasingly accessing Demand content through social media (i.e., "sharing" on Facebook) and by typing URLs such as eHow.com directly into their web browser. The more Demand generates direct sales revenue and drives people to its brands in ways aside from search, the less it relies on Google.
While I am not sure I would be long DMD for the time being, I would not hit the panic button quite yet. I doubt they are panicking at Demand's Santa Monica headquarters. I live a few blocks away and have yet to hear the screams. I have worked with several Demand staffers. I have watched them in action. They're sharp. Rosenblatt made a convincing case for the company's model on the call. The detractors make it sound like Demand cannot execute without Google. First of all, Google will never banish Demand completely. I am not sure it can, but, more so, I am not sure it even wants to. And second, it won't really matter if Demand can walk Rosenblatt's talk.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
Additional disclosure: I conduct freelance and contract work for Demand Media. I did not provide them with advance warning about my Seeking Alpha articles, nor do I anticipate negative consequences as a result.