Demand Media looked like a promising new model for internet publishing in 2008. Outsell was one of the first to analyst firms to recognize Demand’s rapid growth, as well as its evolutionary content and audience development model (Demand Media: This Online Pied Piper Draws Large Audiences Using a Disruptive Publishing Model, 18 November 2008).

Demand’s market capitalization quickly rose to more than $2 billion, after it went public in 2011, greater than that of the New York Times. Today,
Demand’s stock has plunged to roughly a quarter of its peak value. Revenues for the most recent quarter were down year-over-year for the first time since that IPO.

Now, Demand is focused on spinning off the only healthy component of its business – its commodity domain registration business. Meanwhile, it is attempting to pivot its content business from an SEO-driven advertising model with weak audience relationships to an ecommerce model. Having quietly sustained several rounds of layoffs this year, the media side of the business is almost certain to be sold or taken private after the split.

Implications

Demand Media’s rise and fall provides two important lessons for internet media.

Integrity matters. During Demand’s rise, the elephant in the room was always that they were spamming Google. Demand’s content wasn’t very good, but they used questionable SEO techniques to get themselvs on the first page of search results. In other words, their strategy was to make Google a less useful product for Google’s customers. The problem wasn’t simply that the advice on (for example) eHow was poor to worthless. It made Google results less helpful, and it muddied the waters for useful Q&A services. As Google tuned their algorithms, more useful services, such as Stack Exchange, rose to the top. This was good news for publishers who focused on quality content in the dark days of the late 00’s.

There’s a bigger lesson for publishers who care about quality. It’s a bad idea to build a business on someone else’s reservation. Using another company’s API, or site, or data introduces arbitrary risks as a partner’s business priorities change. Facebook schooled Zynga on this. Twitter schooled their third party developers on this as well.

Today, publishers who are using Facebook for their comments and community are risking their relationships with their audiences. Outsourcing comments may be the best business decision, but a fee-for-service company with a sound migration option, such as Disqus, will be less likely to lead to business model conflicts in the future.