The recent acquisition of The Huffington Post by AOL for $315 million has focused a lot of attention on AOL’s content strategy — a big part of which is the ongoing attempt to automate and standardize the creation of web content to attract search-related advertising. Companies that do this have come to be known — somewhat disparagingly — as “content farms” because of the low rates they pay the people producing their content and because of the factory-style atmosphere of some ventures. And while there are some clear benefits to this approach to content, there are also some significant disadvantages.
The key companies in this space are Demand Media, Associated Content, AOL (with Patch and Seed), About.com, HubPages, Examiner.com and Suite 101. The main benefit to their approach is a cost base that is dramatically lower than the typical offline content-production business delivered by newspapers, magazines and TV networks. Demand and its competitors save money on production and distribution costs, but they also spend far less on writers and editors than a traditional media company. In some cases, writers are paid as little as $5 for a 500-word article, something that a traditional newspaper or magazine would pay between $100 and $800 for.
In addition to sharply lower costs — not to mention time-to-publishing and raw volume — content farms can also generate higher revenue from their content than a typical media company. Since the content is chosen based on the potential advertising appeal of an article, each piece of content that is written (or photographed or filmed) is designed to produce the maximum amount of revenue possible. Much of the content that appears in newspapers and magazines is chosen for reasons that are only indirectly related to monetization potential, and therefore the revenue-generating ability is reduced. However, printed and televised media still commands much higher advertising rates than web-based content produced by Demand and similar companies.
But there are two main risks to the content farm model: search and saturation. To answer criticism of the quality of its search results, Google could change its algorithm to drive down the frequency with which results from these content farms appear. That would decrease — possibly dramatically — the amount of revenue these companies can generate. Google recently released an extension for its Chrome browser that enables individual users to block sites that produce search results they consider spam. That blocking info goes back to Google, where it could be incorporated as input into results ranking. It is unlikely Google would completely blacklist a site like eHow — though search startup Blekko does — since some of the content there is useful to many, perhaps less sophisticated, searchers. But Google could refine its source credibility rankings by topic.
The other main risk to advertising-driven content creation is that by flooding the web with hundreds of thousands of articles of relatively low quality, Demand and other companies are creating an oversupply. Impression- and keyword-based online ads already face pricing pressures due to the breadth of the Internet and the efficiency of ad networks and optimization. Adding more and more articles just ensures a greater supply of pages on which to advertise, driving down the price of advertising. This is a classic case of the “law of diminishing returns.”
The so-called content farm model is a risky business in its current incarnation, but it is evolving. To read more about how, and to see in-depth profiles of the aforementioned companies, check out a new research note at GigaOM Pro (subscription required).
Image courtesy of flickr user Klearchos Kapoutsis
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