Web Quality Control: User-Generated Content An Issue for Demand Media

When the stories broke about Google tweaking its algorythms to penalize content farms, Demand Media was cited as a clear target. The strategic imperative for Google was to punish companies that could be seen as aggregators challenging Google's own status as the web's Uber-Aggregator.

Having just completed its own analysis, Demand's announcement about its response to the threat to its business (traffic down approximately 12% and profits down significantly)suggests that the quality of user-generated content may also have been an issue. This raises a larger question addressed in this space earlier; eg, does posting things on Twitter make you a journalist. The answer to that question was yes, but there is a qualifying issue. There does have to be a certain amount of quality in the writing and editing in order to attract an audience. John Letzing reports in the Wall Street Journal:

"Demand Media Inc. said it is shutting down a program for user-generated content on its eHow website and plans to commission longer, higher-quality feature articles and videos.

The website publisher, which focuses on short articles that it thinks will rank high in online searches, has come under fire for quality issues. Earlier this year, Google Inc. revamped its search-engine formula to weed out lower-quality sites.

Demand Media said some user-generated content will be removed from eHow, while other content will run through an editing and fact-checking process before being re-posted.

The company said it will also commission longer feature articles with more reporting for eHow and its other sites.

"This will have a positive impact," Demand Media Chief Executive Richard Rosenblatt said during a conference call Thursday to discuss quarterly results.

Mr. Rosenblatt acknowledged that two "major" search algorithm changes in February and April affected Demand Media's prominence online, resulting in a net decline in search-engine referrals for eHow of roughly 20%, and a 12% reduction in total page views.


"This was a real impact to our business, and we take it very seriously," Mr. Rosenblatt said, though he stressed that Demand Media isn't entirely dependent on search-engine traffic.

Mr. Rosenblatt said quality issues have provided the company with "opportunities for improvement."

The Santa Monica, Calif., company reported a first-quarter loss of $5.6 million, or 13 cents a share, compared with a loss of $4.1 million, or 94 cents a share, in the same period a year earlier.

The company, which went public in January, said revenue for the period ended March 31 rose 48% to $79.5 million.

"It was an unexpectedly strong quarter," Demand Media President Charles Hilliard said in an interview.

Shares of Demand Media have tumbled over 30% in the past month, amid concerns that its content is being penalized by Google's search engine due to quality concerns and made more difficult to obtain for Internet users.

Shares of Demand Media gained 8% to $17.60 in after-hours trading, following the company's earnings report. They rose 56 cents to $16.31 in
4 p.m. New York Stock Exchange composite trading Thursday.

Data published last month appeared to show a negative impact on Demand Media's visibility in Google, as a result of tweaks made by the search giant to its computer algorithms.

In addition to eHow.com, the company also publishes the comedy site Cracked.com and fitness site Livestrong.com.

On Thursday, Demand Media reported that page views of its owned and operated sites rose 32% in the first quarter, compared with the period a year earlier, while revenue per one thousand page views rose 46%.

Asked if the company's results should assuage investors concerned by the impact on the company of Google's quality measures, Hilliard said that, "I can't comment on investor psyche."

For its current, second quarter, Demand Media said it expects to report net revenue of between $70 million and $74 million, and it expects to report net revenue for the full year of $305 million to $315 million.