Did Google Just Make the Demand Media IPO Less in Demand?

By Shira Ovide

Google said today in a blog post that it will continue to tweak its technology to weed out what the company says is too much unreliable or otherwise junky information that’s churned up by its online searches.

One of Google’s targets, it said, is so-called “content farms,” or websites that produce up to thousands of stories or online videos each day,  optimized to draw traffic from Google and other search engines.

“We hear the feedback from the web loud and clear: people are asking for even stronger action on content farms and sites that consist primarily of spammy or low-quality content,” wrote Google engineer Matt Cutts.

One content farm, Demand Media, is slated to go public as early as next week, and its business -– heavily dependent on Google — could be dinged by any changes the Internet giant makes in the quest for improved search results.

“Google completely understands the issue and how Demand Media and Associated Content and these content aggregators are polluting the Web,” said Vivek Wadhwa, a visiting scholar at the University of California at Berkeley, who recently wrote on TechCrunch about his difficulties with Google’s search results. Wadhwa said his meetings in recent weeks with Google executives left him believing the company is determined to tweak their search results to “beat Demand Media at their own game.”

Google makes changes all the time to its secret search sauce, and as usual, it wasn’t specific this time about what tweaks it has or will make in the future in response to the perceived problem of low-quality search results. And Demand Media isn’t singled out as the worst actor in a burgeoning field of content companies or just plain spammers that tailor their online articles to rank high in Google.

Still, Demand Media is so dependent on Google traffic and advertising, and so large –- 2 million articles and videos last year — that even if a small percentage of its content is considered improper and effectively cast aside by the Google search bots, it could hurt Demand Media’s business.

Demand Media acknowledges this risk in their IPO documents. “Internet search engines could decide that content on our owned and operated websites and on our customers’ websites, including content that is created by our freelance content creators, is unacceptable or violates their corporate policies,” Demand Media said. “Any reduction in the number of users directed to our owned and operated websites and to our customers’ websites would negatively affect our ability to earn revenue.”

So far, whatever changes Google has made to weed out low-quality content hasn’t slowed Demand Media’s soaring popularity. In November, Demand Media websites drew 64.8 million unique visitors, according to comScore, making it the 17th-most-popular Web property in the country.

Demand Media declined to comment, citing the quiet period rules for companies prepping an IPO. In its initial public offering, Demand Media is offering to sell 4.5 million shares at $14 to $16 each. The Journal has reported the IPO could value Demand Media at $1.5 billion.

Here’s how Demand Media works: Its computers scour the Web for what people are reading and searching for online. It then taps its stable of about 13,000 vetted freelancers and its copy editors to assemble how-to articles or online videos about a specific topic that its data and staff indicate will prove popular with Web users and advertisers, and can be produced cost effectively.

Searching Google for “how to make money clipping coupons,” for example, pulls up as the first result an article from eHow.com, one of the Demand Media sites. Demand Media’s content also is carried on third-party websites, such as those owned by USA Today and the National Football League.

Other companies, including Yahoo’s Associated Content, Answers.com and AOL’s Seed have similar business models. Critics say that while many of the stories and videos these sites churn out is helpful and well done, some of the content is cobbled together and unhelpful junk larded with keywords and other tricks to game a high placement in Google search. A prominent spot on Google effectively guarantees more Web traffic and more revenue.

“I can only hope that Google and other search engines find betters ways to surface quality content, for its own sake as well as ours,” wrote Richard MacManus, in a ReadWriteWeb piece to which Google’s Cutts linked in his corporate blog post. “Because right now Google is being infiltrated on a vast scale by content farms.”

A Google spokesman said the company’s “algorithms are not designed to target particular sites.” Rather the search giant is trying to home in on characteristics of low-quality content, including signs that an online story is a pastiche of work from others.

Any Google actions have high stakes for Demand Media. For the nine months ended Sept. 30, according to its IPO filing, Demand Media generated 28% of its revenue from “various advertising arrangements” with Google. Demand Media also disclosed that about 41% of its websites’ page views in the third quarter of 2010 came directly from referrals from search engines, the majority of which were Google.

Wadhwa, asked if he would buy stock in Demand Media’s IPO, said he would not. “In the long term, they’re fighting a losing battle,” he said. “For how much longer can they keep outsmarting Google?”