{"id":354,"date":"2011-04-26T11:09:09","date_gmt":"2011-04-26T15:09:09","guid":{"rendered":"http:\/\/blog.payne.org\/?p=354"},"modified":"2011-04-26T11:09:09","modified_gmt":"2011-04-26T15:09:09","slug":"how-will-demand-media-make-this-work","status":"publish","type":"post","link":"https:\/\/payne.org\/blog\/how-will-demand-media-make-this-work\/","title":{"rendered":"How Will Demand Media Make This Work?"},"content":{"rendered":"

As I often tell my friends, it’s more fun to run other<\/em> people’s businesses. \u00a0In that spirit, SEC filings are a great source of\u00a0entrepreneurial\u00a0case studies, and recently I’ve been reading about\u00a0Demand Media<\/a>.<\/p>\n

Demand Media has a mix of businesses, including a domain name registrar. \u00a0The most visible property is eHow<\/a> (acquired in 2006), which you’ve likely seen in search results. For eHow, Demand Media pays authors small amounts (~$15 and up) to write focused topic articles, then decorates those articles with ads. \u00a0As you’d expect for these price points, articles are relatively low quality (see\u00a0how to roast a chicken<\/a>).<\/p>\n

Their risk for Google search algorithm changes has been well-reported. \u00a0Google has gone on record they are going after low-quality content<\/a>, and recent algorithm updates appear to have hit eHow hard<\/a>. \u00a0Demand Media has downplayed the impact<\/a>, saying:<\/p>\n

… the Company currently expects that its year-over-year page view growth across its owned and operated Content & Media properties in the second quarter of 2011 will be comparable to, or greater than, the year-over-year page view growth achieved in the second quarter of 2010.<\/p><\/blockquote>\n

This will likely be true, because they’ve added lots of new article content in the past year.<\/p>\n

But it avoids the real question: \u00a0how do Google’s updates affect the per-article ROI? \u00a0 Can Demand Media make a $20 article fee back in some reasonable period of time?<\/p>\n

On this issue, what’s most interesting is Demand Media’s accounting treatment of the article fee.\u00a0Instead of treating it as an expense (as a newspaper would do with journalist salaries), Demand Media argues their articles are a capital asset, with the creation cost depreciated over 5 years. \u00a0This method makes them look more profitable (or less unprofitable) than they would otherwise: \u00a0instead of a $20 article expense in the first year, they only expense $4.<\/p>\n

Depreciation makes sense for assets that have a relatively predictable lifespan and value: \u00a0telephones, furniture, servers, tools, machinery, etc. \u00a0 In this case, it’s a stretch application of the concept. \u00a0First, things change, and 5 years is forever<\/em> in Internet time. \u00a0Second, \u00a0the content’s value-over-time is heavily influenced by\u00a0external factors <\/strong>that they can’t control: \u00a0the search rankings (which are trending the wrong way), and the emergence of competitive content.<\/p>\n

My bet: \u00a0their per-article ROI was already on the cusp, and Google’s updates are pushing it in the wrong direction. \u00a0Their content’s asset values will decline far faster than the depreciation model reflects, and they’ll be stuck holding the remaining depreciation expense.<\/p>\n

What am I missing?<\/p>\n","protected":false},"excerpt":{"rendered":"

As I often tell my friends, it’s more fun to run other people’s businesses. \u00a0In that spirit, SEC filings are a great source of\u00a0entrepreneurial\u00a0case studies, and recently I’ve been reading about\u00a0Demand Media. Demand Media has a mix of businesses, including … Continue reading →<\/span><\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[7],"tags":[],"class_list":["post-354","post","type-post","status-publish","format-standard","hentry","category-ramblings"],"_links":{"self":[{"href":"https:\/\/payne.org\/blog\/wp-json\/wp\/v2\/posts\/354","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/payne.org\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/payne.org\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/payne.org\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/payne.org\/blog\/wp-json\/wp\/v2\/comments?post=354"}],"version-history":[{"count":0,"href":"https:\/\/payne.org\/blog\/wp-json\/wp\/v2\/posts\/354\/revisions"}],"wp:attachment":[{"href":"https:\/\/payne.org\/blog\/wp-json\/wp\/v2\/media?parent=354"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/payne.org\/blog\/wp-json\/wp\/v2\/categories?post=354"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/payne.org\/blog\/wp-json\/wp\/v2\/tags?post=354"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}