Let’s set aside the eNom registrar side of the Demand Media business for a moment. We’ve already covered the types of customers that the eNom side of Demand Media’s business attracted. ENom appears to have cleaned up the topmost scum in their domain pool, perhaps in preparation for the DMD IPO.
Demand Media’s biggest customer on the content-side of the business is Google. Sure, Demand Media reports at least 375 other content customers. Livestrong.com is not one of them. Livestrong.com is actually wholly-owned by Demand, in some convoluted agreement that I won’t even try to unravel. Yes, there are the traditional media outlets, but despite a concerted effort to push growth in that direction, Revenues per Thousand (RPM) are actually slightly down there.
Content & Media revenue from our network of customer websites for the nine months ended September 30, 2010 increased by $6.1 million or 26% to $30.1 million, as compared to $24.0 million for the year ago period. The increase was due to growth in page views on our customer websites. Page views increased by 26%, from 7.4 billion page views in the nine months ended September 30, 2009 to 9.3 billion page views in the nine months ended September 30, 2010, driven primarily from growth in our social media customer base. RPMs remained relatively consistent from $3.25 in the nine months ended September 30, 2009 to $3.24 in the nine months ended September 30, 2010.
Keep in mind the relationship between DMD and GOOG when you read this quote from Richard Rosenblatt. It’s actually a decent tip, but perhaps Richie is so caught up in his own hubris that he doesn’t appreciate the irony of what he’s saying.
Make sure it’s a business that can stand on its own, that doesn’t need to be hooked to somebody else, ’cause you never know what they’re going to do.
Link to Video on Youtube
How much does Demand Media rely on Google for revenues? The company would have us believe it’s only 28% of total revenue. Erik Sherman dug in a bit deeper in his August analysis. I’ve updated the analysis to account for the recent S-1/A.
Given $106M in Content and Media revenue, 45% of that total came from Google. If you back out the revenue-sharing arrangements, Google accounted for just over 49% of Demand Media’s content-related revenue. Let’s just call it half. You think Google is critical to Demand Media’s business model? What was that advice Richie? “Make sure it’s a business that can stand on its own.” Gee Rich, is half of your content revenue from one customer anything akin to standing on your own?
Everyone’s favorite dreck merchant, eHow accounts for 23% of overall revenue for Demand Media. An astounding 66% of eHow’s page view traffic came from Google searches. Actually, it’s not that astounding, if you have ever read any of the pablum regurgitated onto the pages of eHow. Probably, it’s higher than that, but there is something of an accounting three-card monte game going on between the eNom and eHow sides of the business, so we’ll never really know. Does this sound like a well-diversified company?
With a company so beholden to one customer, investors in the DMD IPO should be just a little bit concerned. After all, as Richie said, “You never know what they’re going to do.” I mean, Google changes their search algorithms all the time. In fact, Google has driven other companies out of business in the past, simply by changing their algorithms. Take the sobering tale of Canadian venture-backed Geosign Corp. In 2008, they handed out envelopes containing geometric shapes to all employees in an all-hands meeting. Little did the employees know what those shapes signified. I won’t spoil it for you. Read the article, courtesy of the WayBack Machine.
One argument is that Google sees so much revenue from a vendor-cum-partner like Demand Media, that Google would never do anything to shoot themselves in the foot. This is the Internet we’re talking about. Change takes place in the blink of an eye. New collaborative search engines (Blekko, DuckDuckGo) have sprung up to deal with proliferation of SEO spam from content mills like eHow. Google has begun to hear a louder and louder drumbeat of complaints about the validity of their search results. Is Google Polluting the Internet? For Richie’s sake, let’s hope they don’t decide that it’s time to address these critics, at least not in the next year, right Richard? Of course, if he had followed his own advice, this wouldn’t be such an issue. “Make sure it’s a business [...] that doesn’t need to be hooked to somebody else, ’cause you never know what they’re going to do.”
Our Google cost-per-click agreement for our developed websites, such as eHow, expires in the second quarter of 2012 and our Google cost-per-click agreement for our undeveloped websites expires in the first quarter of 2011. In addition, we also engage Google’s DoubleClick ad-serving platform to deliver advertisements to our developed websites and have another revenue-sharing agreement with respect to revenue generated by our content posted on Google’s Youtube.com, both of which are currently on year to year terms that expire in the fourth quarter of 2010.
Are you starting to understand some of the urgency behind the DMD IPO? With a company so beholden to one customer, and agreements coming up for renewal in the near future, its time to monetize this little piggie.
