Why Demand Media (and similar models) will succeed

With Demand Media filing for their long-expected IPO last week, the discussion around scalable content generation platforms (or “content farms” as critics of those models prefer to call them) is back in full swing.

As an investor in Suite101 (the third-largest platform behind Demand Media and Yahoo’s Associated Content), I have been watching the space evolve over time and getting to understand and appreciate the business model behind these platforms. Since the Wired article on Demand Media last year a lot of the discussion in blogs has however solely focused on the algorithms versus humans topic with some people even calling for the “death of hand-crafted content“. 

What was discussed much less is the fact that these new content generation models provide crucial solutions for media companies in an Internet age characterized by fragmentation of audiences, high demand for long-tail content and increased performance-based monetization.  There are 5 key differences that make platforms like Demand Media, Associated Content or Suite101 superior to traditional media platforms for generating high-quality content in a scalable way:

• Distributed model: having access to thousands of contributors around the world (instead of dozens or hundreds in a traditional media model) increases the chances of having a true (and often very passionate) expert writing about the topic of choice

• Aligned incentives between platform and content creators: most content creators are being paid on a revenue-share basis (Demand Media also pays a fixed amount per piece but increasingly moves to revenue-share arrangements like Suite101 and Associated Content) which perfectly aligns incentives across all participants – you only get paid if the content you create generates revenues

• Demand-driven content creation: all platforms use content guidance systems that help contributors understand what readers actually want and take the guessing game out of deciding what content to publish

• Scalable editorial models: editorial oversight is being implemented based on scalable models that try to maximize efficiencies while guaranteeing the highest level of quality possible

• Performance-based monetization: a large percentage of the content is being monetized through performance advertising like Google AdSense

Content generation platforms are often seen as pure search engine plays. And while it is certainly true that they all get a significant share of their traffic from Google and Co., I would argue that the long-term vision of all those platforms is a much broader one: to build up the largest talent pool of passionate contributors that can create highly targeted, high quality media experiences in the most efficient and scalable way, delivering value for readers, advertisers and contributors alike.

I personally think that this is how media will be created in the Internet age.