
What’s Hiding in Demand Media’s Finances? - Cmccann7
http://www.wired.com/epicenter/2010/09/whats-hiding-in-demand-medias-finances/all/1
======
math
I spent a few months of full time work investigating the viability of an eHow
like site - trying to measure likely profit margins. I put the effort in
because of this Demand Media article in wired:
<http://www.wired.com/magazine/2009/10/ff_demandmedia/> and because it was the
opinion of some people whose opinion I value highly that such a site would be
profitable. The idea actually went against my own gut feel because I was wary
of all the SEO that goes on. Although typically localized in topic, I thought
in aggregate the global phrase space would be pretty densely covered by now.

Anyway...

I optimized on both the demand side (data from keyword search tool) and supply
side (number of results returned from searches, number of exact term matches,
and page rank of each site in the top ten). I did this for about 200k phrases
(yes, it was difficult to get the supply side data). I set up 3 separate test
sites to test the most promising search phrases.

I couldn't make the numbers work. I was actually nearly an order of magnitude
off being somewhere reasonable and even allowing for benefits of scale (which
are admittedly hard to quantify) I still couldn't rationalize that it would be
a good business.

So i'm quite happy to see this article in that it some what validates my own
findings. I for one will not be taking part in the IPO!

~~~
il
I briefly tried this too, data mining thousands of high-paying keywords and
looking for available exact match domains, so I didn't even have to worry
about SEO to get to #1.

I still couldn't make this profitable, even to cover domain/hosting costs,
much less my own time put into the project.

But you or I are not Demand Media, and that's why we're not making the big
bucks. The fact remains that they are INCREDIBLY good at acquiring and
monetizing low-quality traffic.

This has less to do with their SEO skills and more with the fact that, for
example, they can produce content that will hit the Digg front page 80% of the
time.

~~~
thafman
gaming the Digg FP for traffic ala Cracked.com is now (for better or worse)
basically over, I'm sure Cracked is seeing a massive loss of traffic.

------
nhebb
You have to ask yourself, what would Warren Buffet do? If you look at Demand
Media not as an IPO to speculate on, but as something to own because you
understand how they profit and you believe in what they do, then all I see is
a big red stop sign.

------
sperry
Queue patio11.

I remember Patrick commenting on this issue a few months back. His comment was
insightful and, from what I remember, he concluded that Demand Media was
indeed profitable.

His SEO knowledge lends his conclusion credibility.

~~~
nochiel
"His SEO knowledge lends his conclusion credibility."

No. What lends a conclusion of profitablity credibility is numbers that make
sense and not much else.

~~~
jplewicke
That's definitely true. The grandparent poster was referring to Patrick's top-
ranked comment on <http://news.ycombinator.com/item?id=1599181> , which dealt
mainly with how amortization of Demand Media's acquisitions requires them to
amortize each acquisition's costs as a quarterly charge over the next ten
years. A similar point is made by John Batelle in the Wired article, and is
another reason why non-GAAP measures like EBITDA that exclude amortization are
widely used.

This doesn't say very much about whether Demand Media is profitable once you
exclude amortization, but it is an important thing to consider.

