Demand Media's fall is good news and a warning for publishers concerned about quality

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.
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.

A little bit of Beijing right here at home

Microsoft is now censoring US-based blogs that might (OK, probably) offend the Chinese government.
MSN is censoring Michael Anti’s blog, which has been irritating Beijing for some time. Microsoft’s excuse–“Most countries have laws and practices that require companies to make the internet safe for local users”–doesn’t square with what they did. They are censoring Michael Anti not in China, not in packets bound for China, but in America for Americans.
The Internet has always lived under the shadow of corporate censorship. So far, it still possible to find spaces where we can be free. But the noose has also been tightening for some time. In this case, we have one of the largest corporations anticipating the needs of one of the world’s most repressive governments, and taking care of business before it’s even asked to do so.
The problem isn’t Microsoft, although they do seem to be pretty forward-thinking in this regard. The truth is that Google, despite its understandable desire not to be evil, will be confronted at some point in the not-too-distant future to perform an act of pure evil or its shareholders will find a management who will. You can take that to the bank. Literally.
Corporations are amoral. Corporations are made up of people, but they are not people. Their only imperative is to maximize shareholder value. That can be a pretty good system as long as you recognize its limitations and plan accordingly.

Knight-Ridder buys publisher of free papers in its home market

Knight-Ridder, publisher of the San Jose Mercury News, bought the company that publishes the San Mateo Daily News, and four other free papers in Burlingame, Redwood City, Palo Alto, and Los Gatos. This is a significant media shift, both in the Bay Area and nationwide.

The big monopoly metro dailies are facing death from a thousand paper cuts, from the Internet as well as from free dailies and weeklies. The NY Times just bought into a free paper that competes with its own Boston Globe. The SF Examiner has launched a new edition in Washington, DC. This probably marks the beginning of the end of big papers’ strategy of using zoned editions to compete in suburban markets.

In the corporate press release, Hilary Schneider, senior vice president/operations for Knight Ridder, said, “These newspapers are widely embraced by the communities they serve. They provide the kind of ‘micro-local’ coverage that larger metro dailies often do not, but that many consumers and small advertisers clearly seek.”

Significantly, the newly-acquired company will report to Hilary Schneider at the corporate home office and not the San Jose Mercury News. I expect to see KR provide the capital to expand this mini-chain throughout the Bay Area, both deepening their coverage in Santa Clara County, the Mercury News’ home market, and broadening it in San Mateo County, where the Chron and ANG (SM County Times, Pacifica Tribune) are dominant.

In northern California, KR also owns the Contra Costa Times and the Monterey Herald. I worked for the Mercury News in the mid-nineties, as one of the architects of their Web site.

Hallmark's Valentine's traffic exceeds their wildest expectations

I just received a note from Hallmark apologizing for the poor performance of their site on Valentine’s Day. Apparently, despite their best efforts to prepare, they got twice as much traffic as they expected.

This is good news for every in online publishing, but especially those of us who specialize in connecting people to one another. Soon, we may be hearing more about Metcalf’s Law than Moore’s Law.

We owe you an apology. First, the most important three words of this letter – WE ARE SORRY.

This Valentine’s Day, our site was up and down all day. For many of you, that meant frustration and wasted time when you were simply trying to send or retrieve an e-card.

We thought we were ready to handle a huge amount of traffic on Valentine’s Day. Obviously, we thought wrong. We were surprised by double the amount of traffic we expected. And we cringe at the disappointment we caused to some of you.

In short, we made promises to deliver that were not kept. And for those of you who experienced that disappointment, we are so sorry for any frustration we may have caused.

Rest assured this experience will serve as a lesson for us. We are now challenging our team to reevaluate every step we took to prepare for Valentine’s Day…because it wasn’t enough.

With our deepest apologies, The Team

Newspapers to WalMart: buy an ad, get free PR

The National Newspaper Association (the trade association for small-town newspapers) has some stern words for WalMart, which has mounted a public relations and advertising campaign to fend off its critics:

So why is it that community newspapers in America are good enough to help you fend off critics with free PR, but we’re not good enough for your paid advertising?

You can’t have it both ways.

Based on a number of previous conversations I’ve had with newspaper publishers and editors across America, I don’t think you will find very many who are willing to give you the requested free PR space to fend off attacks from your corporate critics.

In other words, if you want us to run your free PR, you have to be an advertiser. There is no other way to read this. They’re not saying, “We wouldn’t carry your puff pieces even if you were an advertiser.” They’re saying, “Take out an ad and then we can talk about communicating your message with a little free coverage on our news pages.”

Netflix has the worst Web site of any major ecommerce company

I love Netflix. Their service is remarkable. In my town, where there is no video store, I see their unmistakable red envelopes everywhere.
However, I was cheered to hear that Amazon might get in the market and would be prepared to switch tomorrow, given the opportunity. I’m sure I’m not alone.
After months of price increases, Netflix has announced that they’re lowering their price by nearly 20%. Amazon is already having a positive effect on Netflix customers.

“We started hearing rumors about two weeks ago, and we were able to confirm them,” [Netflix founder Reed] Hastings said in an interview. “We think we will compete successfully with them because we have great scale, we ship 3 million DVDs a week, and we have five years of experience in this market.

What I really want is a way to find movies. Netflix has the worst site of any major ecommerce player. Try to find movies by director. Try to get decent recommendations based on your past rentals. Try to find a list of recent releases that isn’t larded with garbage. Try to find critics’ recommendations that aren’t laundry lists of the greatest films ever made.
There’ is no question that I’m missing movies I really want to see because they aren’t top of mind when I’m on Netflix. I can’t wait for Amazon to get into this market with their recommendation software and with the Internet Movie Database.
I would pay $5 more per month just to not deal with Netflix’s crappy web site.

Jon Stewart draws your attention to the man behind the curtain on Crossfire

Friday, Jon Stewart broke through the curtain on CNN’s Crossfire. If you haven’t seen it already, you must view one of the streams of Stewart’s appearance.
He did something that no one approved for appearance on TV has been willing to do: he told the truth about the corrosive effect of cable TV news on our democracy. It was only a couple of minutes in 24 hours that day, but you could feel the refreshing breath of fresh air.
What’s amazing is that you don’t see this more often. Everyone’s a media critic and if you’re paying attention, you know this already. But if you’re not paying attention, you’re not getting this message.
To continue stating the obvious, to say that the Daily Show is the best show on TV is like saying that 30-year-old Talisker is the best way to get drunk.

Scott Peterson is famous for being well-known

Tim Porter asks if there is a name for news stories whose newsworthiness depends on what’s happening in the media, and not the event itself.

It is a news media story about alleged lies made to the news media by a man whose notoriety depends solely on the news media. Accompanying the story, is a picture of the news media (in the person of Diane Sawyer) interviewing Peterson. Calling rhetoricians: Is there a word for this type of circular coverage? I call it informational incest.

How about “meta-journalism”?

Despite Yahoo's push for fees, ads still drive its growth

Yahoo’s revenues are up to $356 million from $249 million. What’s especially interesting is that despite Yahoo’s stated desire to increase subscription and user fee revenue, advertising is driving this growth:

  • Marketing services grew 48 percent to $245 million.
  • Yahoo’s branded advertising sales grew 20 percent.
  • Fee revenue (e.g. personals, e-mail and Yahoo/SBC broadband access) grew 38 percent.
  • Listing fees rose 26 percent.

A lot of their fee revenue (personals and listing fees) should be considered advertising.

The WSJ says that the SBC/Yahoo Internet service is a success, but it’s unclear how much of that success is due to Yahoo’s fancy broadband portal and how much is due to good old fashioned competitive pricing and a greatly improved installation process:

With a joint venture called SBCYahoo, the two companies together offer a package of a DSL along with a customized Web portal, priced at $29.95 a month — and as little as $26.95 per month when part of a package with other SBC services — well below the monthly fees charged by rival cable broadband operators

In any event, it’s debatable whether the SBC revenue should be considered subscription revenue or a licensing fee, since SBC is doing the selling and Yahoo is doing the developing and branding.

That’s one problem with bundling, sometimes it’s hard to know if it’s the bundle or an individual component that is driving sales.

Comcast says email isn't part of the Internet

Comcast say that email is not included in its broadband Internet service, according to this item on Macintouch:

I am involved with the swing dance community, and periodically need to send out between 250 – 1000 emails, to let swing dancers know of upcoming events. I have been doing this for the past five years with no problem until now. I called Comcast, and was told that “ order to keep their servers from being used for sending spam, all residential accounts were now subject to a 10 message limit.”

Comcast gave no notice of this policy, and it cannot be found on their web site. They also told me that this was not really a change in service since “Comcast has never sold you email service. All we are selling you is connection to the internet. The email service has just been provided for free.”

The customer service person said I could get Comcast Business Service, which is unavailable in my area. Business service costs a minimum of $155. Today I was told that my only option was to buy an “Enhanced Messaging” package, which requires a $50 setup fee and costs $25 per month to be able to send 150 emails at a time.

Comcast classifies email with ten or more recipients as a business service requiring a much larger fee. To make this policy stick, they will have to either deny their users access to POP, or charge extra for it.

This is an excellent example of the kind of tiered service we can expect from the access duopolies if the FCC gets its way and declares Internet access is not a telecommunications service. Fortunately, the Supreme Court has put a temporary stop to Michael Powell’s sophistry.