Inside the Mind of Demand Media's Richard Rosenblatt

If you’ve know who Richard Rosenblatt is, chances are you’ve already formed some strong opinions about the man — especially if you work in media. Thanks to his position as the founder and chief executive officer of Demand Media, a Los Angeles-based company that’s often labeled as content factory, he has become a divisive figure. Not a day passes when he is not criticized for paying writers infinitesimally small amounts of money.

However, when you meet Rosenblatt in person and listen to him with an open mind, the logic of his business quickly becomes clear. Much as Michael Dell made the just-in-time production of computers his forte, Rosenblatt has brought a mathematical rigor to the world of content. Demand-owned sites such as eHow get more than 100 million unique visitors a month — and the company is valued at over a billion dollars.

Demand got its start by buying little-known Internet properties. Rosenblatt, who in the past was the head of both Intermix Media and iMALL (which collectively fetched $1.4 billion when they were sold), was able to raise $320 million in funding from the likes of Goldman Sachs, 3i Group, Generation Partners, Oak Investment Partners and Spectrum Equity Investors. That big slug of cash has not only helped Demand grow and scale its business, but to build a proprietary back-end system that’s become its secret sauce.

How Demand Media Works

The system allows the company to calculate the average cost per click of a particular search query and multiply it by the likely traffic in order to figure out how many dollars it would bring in over a period of five years. That gross revenue is then divvied up amongst the people who work on the creation of a related piece of content, including those who write the copy, fact-check and copyedit it. Essentially, the data tells Demand what’s a good and valuable piece of content and what’s not. The revenue potential is an overriding factor when it comes to making content decisions.

Such a system, used in combination with a domain registration business its owns, means Demand Media is able to generate content based on what people are searching for on the web. So much so that others — such as the newly independent AOL — have started to imitate his business model.

This approach has come under heavy criticism. Michael Arrington recently wrote:

These models create a race to the bottom situation, where anyone who spends time and effort on their content is pushed out of business. We’re not there yet, but I see it coming. And just as old media is complaining about us, look for us to start complaining about the new jerks.

ReadWriteWeb’s Richard McManus was even more blunt:

I can’t help but think that the rapid rise of these two companies may be bad news for the Web. If a small number of companies come to dominate a content market, usually blandness and lowest common denominator fare follows. The network television and radio markets in almost any country in the world are evidence of that.

Last week, when interviewing him onstage at the Twiist-up conference in LA, I asked Rosenblatt about allegations that his company was flooding the Internet with unwanted content. He dismissed my question with a laugh, saying, “People actually want the information and we are providing it,” he said.

About 2.0

Demand Media, according to Rosenblatt, is not in the news business, but the information business. Think of it as the long-tail version of service journalism. “Did you know that every month 50,000 people search on ways to make detergent at home?” Rosenblatt said. “We create content to answer those [types of] questions.” Some 100,000 pieces of every month, in fact.

What Rosenblatt is doing isn’t anything new. About.com created a network of low-cost, human-curated/generated web sites in the late 1990s and grew to great heights before losing its way. One of the reasons why About.com lost its way (after being acquired by The New York Times) was because it never developed a way to bottle the search genie.

Yet the approach taken by About.com has only become more relevant as our world has become more complex. And rather than look to just our friends for answers to questions on everything from how to set up a TiVo to buying art to filing for bankruptcy, we ask Google, Facebook and Twitter. A lot of this information is not available via traditional media sources.

A Content Factory or Not?

Rosenblatt bristles at the idea that he’s running a content factory, noting the Demand works with over 5,000 writers –many of whom are old media reporters — and has about 650 copy editors. Such an arsenal is bigger, he claimed, than “the three biggest publishing companies,” adding that he was hiring at a time when big media companies have been laying off people.

Writers can make anywhere from $15 to $1,000 for a piece of content. While some have alleged that Demand pays its freelancers next to nothing, Rosenblatt said that the people who make very little money spend very little time creating that content.

Demand already has over 500 employees; it did sales of over $200 million last year and is profitable. And 2010 promises to be even better, thanks to the return of online advertising dollars. When I asked him if the company would go public in 2010, however, he dodged the question. But if the current growth rate of Demand continues, I wouldn’t be surprised to soon see it try to raise capital on the public markets.

Kill the Old News Business

In his opinion, the newspaper business as it stands today needs to die and the industry needs to re-invent itself as an Internet-centric one. “News that is 12-24 hours old just doesn’t make sense,” he said. “Consumers don’t want their content that way.” He dismissed The Los Angeles Times as “public service” and not “a business, because it cannot make money by doing what they are doing.” He thinks some billionaire should buy the paper and run it as a philanthropy. Ouch!

And what would he do with the LA Times, if given the chance? He was quick to answer: He would outsource most of the generic content creation to companies such as Demand Media, stop distributing the paper version of the publication and go all-digital. And he’d put in place an advertising strategy around content that people want. For instance, articles about hiking should attract an advertiser like REI. As for the truly important content — the news — he thinks that newspapers should focus all their resources on higher-end investigative journalism.

When I asked him what he thought of new devices such as the iPad and their impact on content, Rosenblatt said that “the iPad is symptomatic of what’s going on” because it shows that there are now even more new ways of consuming content. “Consumption on different devices is very exciting.”

Photo of Richard Rosenblatt by Jim Alden via Flickr.com/Techfrog

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