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Former Owner of eHow Says Demand Media Model Is Flawed

Demand Media (s dmd) has been getting a lot of attention since its initial public offering, which gave the company a market value of more than $1.5 billion. Much of that attention has been less than favorable, however, focusing on Demand’s status as a “content farm” that produces huge volumes of disposable, low-quality articles that are designed primarily to show up high in Google (s goog) searches. Josh Hannah has a unique view on Demand’s business model, since he’s one of the former owners of eHow, which makes up the core of the company’s web-content engine. In an interview earlier this week, Hannah said that Demand’s approach to the business has a number of significant flaws.

The story behind eHow is a fascinating one: The site was originally founded in the early years of the first web bubble, in 1998, and was financed by one of the top VC firms at the time, Hummer Winblad. The site raised a total of $36 million and hired more than 100 writers and editors, Hannah says, in an attempt to create a content portal very similar to what Yahoo and AOL have been doing more recently. But according to the former eHow owner, the costs of the operation spiraled out of control and it never made much revenue at all. “It was wildly unprofitable,” he says. “In 2000, which I think was their best year, they made about $800,000 — the cost base was just super high.”

After a couple of other incarnations and owners, Hannah and his partner Jack Herrick bought eHow for $100,000 in 2004. At that point, Hannah — who is now a partner at the venture capital firm Matrix Partners — was looking for something to do because he had sold his previous company, a UK-based online gambling operation called Betfair, and had moved back to Silicon Valley.

When Google Made Web Content King Again

The key to the turnaround of the site was the same insight that sparked Demand Media’s interest in buying eHow: namely, the realization that all of the content that had been created for it (much of which was higher quality than the more recent output, according to Hannah — something he has also written about on Quora) could become very valuable if it were tied to Google’s AdSense and showed up in search engines. Everyone is used to that idea now, says Hannah, but in 2004, people were still just figuring out what Google’s page-rank meant and how to use it to generate revenue.

The number one thing I thought was that content was going to be valuable again — there had been four years or so of no one creating any web content, because no one could make any money at it. But I knew if you could get it into Google’s algorithm, you could make money that way.

Ironically, the original owners of eHow had actually blocked Google’s search engine crawlers, because they wanted to try to monetize the site themselves through a landing page with offers from various advertisers. So Hannah and his partner opened up the site and optimized it for Google, and within two years, eHow had more than six million monthly uniques — without even creating any new content. Most of the articles were “evergreen” or “long tail” content about topics like how to tie a tie, or how to make guacamole. By 2006, when Demand Media bought it, the company had an annual revenue run-rate of about $4 million, up from virtually nothing.

Demand CEO Richard Rosenblatt

Is Passionate Content Better Than Paid Content?

The problem for Demand now, says Hannah, is two-fold: It can’t go on creating new content endlessly, because much of the “evergreen” content is already out there, and newer content about how to use an Android device, or how to burn DVDs, is going to be a lot more time-dependent and will lose value very quickly. “There’s going to be this declining value over time,” he says.

In addition, as we have pointed out here a number of times, Demand faces a very serious risk of Google simply devaluing its content by tweaking its algorithms to push down results from “content farms,” something Google staffer Matt Cutts suggested recently has become a focus for the search giant (although Demand CEO Richard Rosenblatt says this is not actually aimed at his company).

But the biggest issue, he says, is that Demand’s newer content is of lower quality than the original eHow content primarily because the company pays people tiny amounts of money to produce it. A site that Hannah is an investor in called WikiHow — which was actually spun off from eHow and is run by Jack Herrick — gets better quality results “because the articles are written by people who are just really passionate about the thing they are writing about,” which is very different from the “machine-like nature” of the content that Demand Media produces.

“I think Demand has a lot of challenges when it comes to making that work over the longer term,” the Matrix VC said.

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Post and thumbnail courtesy of Flickr user James Jordan

27 Responses to “Former Owner of eHow Says Demand Media Model Is Flawed”

    • Monkeys with laptops? LOL. That’s funny. Hey can you look up “vetted” for me. I don’t think that it means what you think it does. ME-OW! lol.
      P.S. Clever way to fit in your blog post into this conversation though. I am one monkey who is throughly impressed. I’m kidding of course, Pat.

      But seriously, what happened to this country. I’m not that old, but I do believe in taking some pride in what you do (funny how that may be considered a trait of a bygone era). Yes, I write for Demand. I take pride in the fact that all my articles do work. I finesse each aspect of these articles until I am happy with the result. What’s sad is that, I feel, some don’t. I assume those get weeded out in the process. I enjoy seeing my work on various sites, and enjoy the start I have gotten from this company. I have become more confident in my skills. Demand offered me a way to earn a living as I recovered from cancer, and I repay that with articles that are clear and work. I know that Demand has gotten a bad rap lately, and even if the company can’ t shake themselves free from the mud that has been tossed their way, I will forever say I worked for them. And I say this mainly because I take pride in my work, and the opportunities that I still have.

      With that said, I do appreciate the article. The title is spot on, but as it was stated before, Demand supplies articles to other sites that never seem to come up. To state that the content is lacking in one site would state that it would be lacking in another since it has the same source, would it not? On the other hand, I have seen articles that are like that old Steve Martin joke stated earlier. I figure that it is a new company, and the kinks are being worked out.

  1. I think the number one reason Demand’s business model is flawed is because of long-tail search result saturation. The article quotes Hannah saying, “It can’t go on creating new content endlessly, because much of the “evergreen” content is already out there..”

    For sustained growth Demand, WikiHow and other content farms need new “evergreen” keywords and phrases to write articles for and there are simply very few left that get much search traffic.

  2. The content that Demand Media Studios’s writers create is far superior to the user-generated content that existed beforehand. In fact, I would even go so far as to say that Demand Media Studios rescued eHow, and helped make it into a better. If you look at eHow, much of the poor articles are user-submitted whereas the better articles are from Contributing writers.

    Also, the content on WikiHow is no better than eHow’s content.

  3. Malcolm Cowan

    Had to wait till near the end of your article to find out that the ex owner of EHOW is really a competitor of DM now… your headline and main theme positions him as an ‘expert’ and insider’ who might have the real scoop on Demand Media.
    Articles like this do not inspire trust. I dont blame Jack
    promoting his model and downplaying DM’s, but where is your objectivity?

    • As I said above, as the former owner of eHow, I think Josh has an interesting perspective on what the company is doing now. It wasn’t Jack promoting his model — it was a conversation between Josh and I about different approaches to online content.

  4. Hannah is right about the quality — years ago, if I saw a Google result from eHow, I would always check it out because the answer would usually be rich with information. But as the articles have been become shorter and keyword dense, they’re almost comically bad. It reminds me of the old Steve Martin bit on how to get a million dollars and not pay taxes: “first, get a million dollars. Then, don’t pay taxes.” eHow has become very good at restating the quesiton and not very good at actually answering them.

  5. Don’t you think that Josh is just a wee bit biased, given that wikihow is a direct competitor to eHow? In fact, wikihow is still using (copying) the same “how to” format that has defined eHow. The only difference I see between the two sites is that Demand Media pays their authors, whereas wikihow keeps all of the money for themselves.

    This just sounds like a lame attempt for Josh to get some attention to wikihow, which is getting crushed by eHow.

  6. Honestly, Hannah has it dead wrong. I have been inside the content production (Demand Studios) and I have seen and produced content under DMS. Look at the quality of content produced under Demand vs the primarily horrendous user-generated content created before Demand bought eHow. It’s awful in comparison to the Demand content, which has a plethora of guidelines and QA measures to ensure strong content. Lots of people are talking, none of whom have actually been inside the content studios. Look at, USA Today Travel, Legal Zoom, The Nest, SF Gate, etc. That’s all Demand Media. It’s not just eHow. Before Om and others keep throwing around their rumor based criticisms, get your facts straight and don’t trash something you don’t know.

    • Well from one cog in the machine to another, I have to disagree with you James. I’ve been contributing to eHow both through the studio and directly to the site (a now defunct program) for over two years. The user generated content is less than 10% of the total eHow library, and much of the subpar user material was weeded out during their massive cleanup operation over a year ago. What little user-generated content is left is more or less indistinguishable from the studio pieces.

      The computer and tech section of eHow is rich is useless, confusing, and just plain wrong article–most of them written by Demand Studios writers, not old users. The eHow Money section has no user contributeed articles because it’s a recent addition to the site. Have your read eHow Money?? If you haven’t, don’t. It will make you lose 20 IQ points. The old users are a convenient scapegoat, but they’re long gone. The true problem is the current writers, editors, and title producers.

      The “plethora of guidelines and QA measures” don’t work well enough. Maybe it’s the low rate, the rigid guidelines, maybe it’s that DS just can’t attract good talent. I can’t believe you’re actually a writer at DS and thing the product is any good. It’s a joke, that’s why everyone uses a pseudonym.

    • ” Look at the quality of content produced under Demand vs the primarily horrendous user-generated content created before Demand bought eHow. It’s awful in comparison to the Demand content”

      There was no user generated content on eHow before Demand bought eHow. All user generated content that has ever been created on eHow was created under Demand Media’s ownership. I agree a lot of it is awful, but all that was early Demand content. I also think the quality of content created by Demand has been improving somewhat over time, so the new stuff is definitely a bit better than the older stuff.

  7. Jack Handy

    Don’t you think that maybe Jack is just a wee bit biased, given that they are competitors to eHow? In fact, wikihow is still using (copying) the same “how to” format that has defined eHow. The only difference I see between the two sites is that Demand Media pays their authors, whereas wikihow keeps all of the profits for themselves.

    This just sounds like a lame attempt for Jack to give more attention to wikihow, which is getting crushed by eHow.

    • Thanks for the comment. Jack may well be biased against eHow, but I didn’t talk to him, I talked to Josh Hannah — and while he is an investor in WikiHow, he has nothing to do with running the site. I wrote the post because I thought his observations were interesting, given the history of his involvement with eHow. And I think the question of whether you get better quality by paying people or not is a very interesting one.

    • Hi. Jack Herrick, founder of wikiHow and former co-owner of eHow here. Actually, I didn’t know anything about Josh Hannah doing this interview till I found this article on my Google alerts. So while I love wikiHow to get the attention, I can’t claim the credit.

      BTW wikiHow isn’t exactly getting “crushed” by eHow. According to Google Analytics, wikiHow just passed 30 million unique visitors this month. That’s up 50% from last December. Sure eHow gets about 3-4x more visitors, but wikiHow is a bootstrap funded company with just 9 employees! The fact that you can even put tiny wikiHow on the traffic same chart with a public traded company with 13,000 freelance writers and over $400 million of invested capital is the remarkable thing. Despite our small capitalization, we are a strong competitor of eHow because of to the strength of the wiki model.

    • There’s no question Demand Media has pursued a strategy with eHow that generates traffic at a faster clip than wikiHow’s approach. If that’s the measure of success — and it’s a fair one to use — then Demand has a winning strategy. For better or worse, I don’t think wikiHow is run as a profit-maximizing entity. Jack wants to create something really great with a community of passionate contributors. As a shareholder, I might prefer Demand Media-like returns, but on the other hand wikiHow is creating something Jack and I are super proud of. And money ain’t everything!

      To say that wikiHow copies eHow is not factually correct. As the inventors of wikiHow, and owners of eHow before Demand bought it, we created it — if you copy yourself is it still copying?

  8. Sites like eHow ultimately become the home of spammers and writers trying to push their own sites, thus the content is of low quality placed their by the writer just to get links & hits to their own site. This will always be the problem of “content farms.” The writers have no real stake in the site themselves and are generally using it for self-serving reasons.