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Rocco Pendola is the Director of Social Media and Writer for TheStreet.com. Please go visit TheStreet to read his articles: http://www.thestreet.com/author/1257229/RoccoPendola/all.html?page=1&perPage=100 He no longer writes for Seeking Alpha.
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  • Demand Media's eHow and Google Search Results 1 comment
    Feb 25, 2011 7:32 PM | about stocks: DMD, GOOG
    I really should be serving lattes at the local Starbucks (SBUX). You see, I am a PhD dropout. And that's what I have heard PhD dropouts do. I'm not sure how I got into writing and investing in the stock market. I did some research, published snazzy academic articles, and almost lost my mind during my second year of grad school, so I quit. But, I took my professorial research skills with me. As evidence of my investigative prowess, consider the following qualitative study that attempts to offer insight into the Google (GOOG) hates Demand Media's (DMD) guts hysteria. 

    Methodology

    Here's how I went about my rigorous query. I skimmed the introductory paragraph of this article. I jotted down potential eHow How-to articles on the basis of its content. I searched for them on Google to see where they came up. Next, I noted the article's rank in Google's search results. I then considered if I -- on the basis of the subject matter, the author, Facebook "shares," and other random factors -- felt that Google got it right. 

    To add even more rigor, I went to eHow's homepage. I poked around awhile and randomly selected (using a random number chart and a copy of my old advisor's dissertation) eHow articles to search for on Google. I put them through the same above-mentioned test. 

    The Sample of the Sample

    "How to Make a Latte"

    It took Google's hamsters just 0.11 seconds to churn out 8.2 million results for me. At the top of the list appeared an eHow article, written by "an eHow contributor," entitled "How to Make a Caffe Latte." While a commenter or two took exception with the method, I found it useful, plus 45 people shared it with friends on Facebook -- not bad. The other results -- all spamish, "content farm" type stuff. No kidding -- WikiHow, NerdGrind, and the ultra-specific "latte-101.com" all make eHow look pretty darn slick in comparison. I searched for alternatives, using .org and .edu filters. I also checked out world barista competitions and, I have got to say, Google made the right choice on this one. 

    "How to Get Into Graduate School" 

    I was expecting big things from Google on this one. With the recent tweak, I thought the search would return articles written by world class professors and university academic counseling offices; instead, I received less-than-inspiring results above the fold. Four out of six above-the-fold results were hack websites with generic content, designed simply to generate Google Adsense revenue. Another hit was from a Demand competitor, About.com. And the other was GradSchools.com, which appeared to be a pretty reasonable resource for grad school prospects. An eHow page on the topic did not show up until page five, but it was a link to eHow's Graduate School page, which lists its directory of articles on the subject. 

    "How to Conduct Research"

    What a broad subject. And, given Google's enduring commitment to quality, I fully intended to find a slew of .edu sites and blogs written by professors, statisticians, and policy wonks. Instead, the number one hit -- "How to Conduct Research," scribed by the ever-popular "an eHow contributor." I guess it's all about intended audience. The advice given in this article probably wouldn't be of much value to anybody studying past high school, but it did prompt two people to share it on Facebook. Google's next two hits came from Purdue University and the University of California-Santa Cruz -- both good choices. 

    "How to Conduct Scientific Research"

    eHow provided this as one of five articles you could link to from "How to Conduct Research." It might seem like semantics, but I think this is good. It shows that Demand understands the different levels of research and the various audiences seeking direction. This article was definitely not a winner. Written again by an "eHow contributor," it barely went beyond its four-worded counterpart. When you plop the 'scientific research' title into a Google search, the eHow article comes up fifth. The top spot goes to WikiHow with a strong University of Washington webpage showing up third. 

    "How to Prevent Ice Storm Damage"

    I popped over to the eHow homepage to sample a few more articles. The featured article -- "How to Prevent Ice Storm Damage" -- was solid. The author, Meg Jernigan, appeared to have conducted thorough research. If I were a homeowner I could see myself making use of the details she provided. Three people shared Meg's article on Facebook, as of this writing. A Google search for the title pulled up the eHow article first. The fourth hit came from FEMA.

    "How to Calculate a Tax Write-Off"

    Another article featured at the eHow homepage -- "How to Calculate a Tax Write-Off" - is both timely and well-written. The person who wrote it, Mark P. Cussen, is a CFP with more than a decade of financial industry experience. Nobody has shared it yet on Facebook, but, let's face it, sharing a boring tax-related article is no way to craft your online identity. A Google search produces this article as the number two hit. The funny part about the search results, however, is that above the fold, the eHow article is the only one that directly answers the question. Every other above-the-fold result, including the first one from IRS.gov, answers some related topic, but not my direct search question.

    Takeaways

    To jump to too many conclusions on the basis of an unscientific sampling conducted by a PhD dropout would be unfair to both Google and Demand Media. This exercise did affirm several thoughts I have had about the Google-Demand relationship since I started freelancing for Demand last year, but did not address in my two previous Seeking Alpha articles on the company

    First, I think Google is more full of itself than people make Apple (AAPL) out to be. I am more than willing to be wrong about this. In fact, I welcome Google fans and the SEO-inclined techies of the Seeking Alpha community to set me straight in the comments. I think, despite the apparent high-level "big algorithmic improvement" touted by Google engineers, the results you get when you search the site are as good as random. When I search for "Am I having a heart attack," I might come up with a Mayo Clinic article or a blog written by a veterinarian -- it's Russian roulette. As someone who conducts a ton of research online, the only way I have found to get true value out of Google is to filter your searches by domain and other variables. If you know how to search, Google's useful. If you don't, it can be a pool of good-for-nothing randomness. Also, you need to know what you're looking for. As advanced as we all think Google is, it's little more than the public library of the 21st Century. Google is in business for Google. The talk about quality is smoke and mirrors. Google wants to get you to sites and content that makes them money. 

    In some ways, I wonder if Google needs eHow and Demand Media more than the inverse. According to DMD Chairman and CEO Richard Rosenblatt on the company's conference call last week, Livestrong.com ranks as the number one website in the "health domain," Cracked.com is number one in the U.S. for humor, and users are spending more and more time on all DMD-owned sites with each visit. The more time they spend there, the more likely they will click on a Google ad. While this makes money for DMD, it does for Google as well. Of course, you can give Google all the credit for Demand's success, but it's a weak argument. Not only does Demand have the business model and the content to make it a search-result powerhouse, but Rosenblatt reported strong growth rates in social media referrals and direct access (typing a URL directly into your browser) to DMD properties. Simply put, Demand must be doing something right other than getting lucky if they can single-handedly dominate Google search results. 

    I don't believe Demand pays as much attention to Google as many critics would have you think. If Demand's smart -- and something tells me they are -- they look inward. In addition to focusing on driving non-search engine traffic to their sites, generating more advertising revenue through its in-house sales teams, and signing contracts with more major brands for the outsourcing of its content, Demand should become obsessive about quality control, irrespective of Google. It should purge eHow of articles written by "an eHow contributor" and permanently delete poorly-written articles from the eHow of days gone by. If Demand chooses to split hairs between "research" and "scientific research," it should respect the distinction. Of course, eHow remains DMD's flagship, but the same applies across DMD-touched sites. Demand should not strive for top-notch content out of fear of Google's algorithmic dog and pony show; rather, it should preoccupy itself with quality because it's the right thing to do for its business and its consumers.

    DMD started trading options on Friday. I am not quite ready to go long the stock at its present level -- DMD closed at 22.96 on Friday. I am, however, looking at the possibility of selling put options with strike prices I could handle buying the underlying at. I think many investors are in wait-and-see mode regarding DMD. Many want to see the next couple earnings reports prior to committing one way or another. Demand will be presenting at several conferences in the coming weeks and months, giving the "smart money" a chance to assess the firm's prospects. In the interim, I don't think the stock will make drastic moves. 

    Depending on price action over the next week or so, I would be willing to sell DMD $20 puts with March or April expirations. DMD March $20 puts are trading at 0.80, as of Friday's close, while DMD April $20 puts closed at 1.53. I want to see how these options shake out, as the respective bid/ask spreads sat at 0.20/0.55 and 0.85/1.15, as of Friday. In each case, DMD stock would have drop below $20 for a put writer to have to buy the shares at $20 each. If the stock trades sideways or rises and falls by similar amounts each day, as it has over the last week or so, you would end up keeping the premium your were paid on the puts you sold.

    The stock held up remarkably well in light of the Google news. Demand did a nice job responding to the general Google hysteria in its conference call and to the actual blog post shortly after it hit. I don't see the bottom falling out of the stock in the coming months. Investors should pay close attention not to poorly-researched articles with catchy headlines, but to what the company actually says about its diverse business model. If the next earnings report brings not just good revenue- and earnings-related news, but progress on the things DMD critics don't seem to want to acknowledge -- non-search related traffic to DMD properties, more contracts to provide content to major brands, and increased direct sales success -- it might be time to go long DMD via other mentions such as buying the common stock or implementing moderately-bullish to bullish call option strategies. 






    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.
    Themes: Internet stocks, IPOs Stocks: DMD, GOOG
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  • Care to write a follow up on $DMD ?
    27 Dec 2013, 08:01 PM Reply Like
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