Demand Media, Inc.

Type	Public
Traded as	NYSE: DMD
Industry	Internet
Founded	Santa Monica, California (May 1, 2006)
Headquarters	1299 Ocean Avenue, 5th Floor Santa Monica, California, USA
Key people	Richard Rosenblatt, Co-Founder, Chairman and Chief Executive Officer Shawn Colo, Co-Founder and Head of M&A Charles Hilliard, President and CFO
Revenue	$325 million USD (2011)[1]
Employees	600 (2011)[2]
Website	demandmedia.com

Demand Media, Inc. is an American content and social media company ^[3] that operates online brands such as eHow, and Cracked, and is known for creating online content through its Demand Media Studios division based on a combination of measured consumer demand and predicted ROI. The company also provides social media platforms to existing large company websites and distributes content bundled with social media tools to outlets around the web.^[4][5] The company also owns eNom, the world’s second-largest domain registrar.^[6]

Demand Media was created in 2006 by a former private equity investor, Shawn Colo, and the former chairman of MySpace, Richard Rosenblatt.

The company employs an algorithm that identifies topics with high advertising potential, based on search engine query data and bids on advertising auctions. These topics are typically in the advice and how-to field. It then commissions freelancers to produce corresponding text or video content. The content is posted on a variety of sites, including YouTube and the company's own sites such as eHow, Livestrong.com, Trails.com, GolfLink.com, Mania.com, and Cracked.com.^[7][8]

History[link]

Demand Media was co-founded in May 2006 ^[9] by Richard Rosenblatt and Shawn Colo. Rosenblatt has a long history of building and selling Internet media companies. As CEO of Intermix Media and Chairman of MySpace.com, Rosenblatt was one of the innovators of Internet social networking.^[10] Colo is a financial acquisition specialist. He worked for 10 years in the private equity industry as a Principal with Spectrum Equity Investors specializing in media and communications companies.^[11]

Demand Media raised more than $355 million in financing over its first two years from investors such as Oak Investment Partners, Spectrum Equity Investors, Generation Partners and Goldman Sachs.^[12][13]

In June 2007 Demand Media hired Charles Hilliard, a former Morgan Stanley investment banker and United Online senior executive, as its President and CFO^[14] and acquired Byron Reese's how-to website, ExpertVillage.com of Austin, TX, for about $20 million. Reese became the company's Chief Innovation Officer and developed the algorithm that the company now uses to identify topics with high advertising potential.^[7] By 2008, Demand Media had acquired more than 30 domain name portfolios and owned 65 destination websites. Demand Media said that its 2009 revenue was nearly $200 million and that it was making a profit,^[15] but in fact the company had never been profitable.^[16]

In July 2008 it was widely reported that Yahoo! was interested in buying Demand Media for between $1.5 and $2 billion.^[17] Sources close to both companies said Yahoo! executives were attracted to Demand Media’s generation of advertising impressions and its ability to create niche social networks for media sites. Demand Media CEO Richard Rosenblatt later said that the company was not for sale.^[18] The deal never got past the talking stage. It was reported that Rosenblatt wanted a price closer to $3 billion for Demand Media.^[19]

Acquisitions[link]

Since 2006, Demand Media has acquired a collection of relatively unknown sites and relaunched them with social networking features and video capabilities that serve specific niche interests^[20] In the company’s first six months it made nine acquisitions, including the purchase of major registrars eNom and BulkRegister.^[21] On November 6, 2008, Demand Media Head of M & A Shawn Colo said the company would continue to buy niche, well-trafficked sites because the company is profitable and still has a lot of cash in the bank.^[22]

In 2008 Demand Media acquired Pluck, a company providing social networking and commenting solutions to other websites, for a reported $75 million in cash.^[23]

In August 2011 Demand Media announced acquisitions of IndieClick and RSS Graffiti.

Business model[link]

Demand Media executives say their websites are content-driven to attract visitors by showing up in multiword search-engine queries. The more words that are typed into a search engine, the more specific the search will be. This is called “the long tail”^[24] search. Demand Media attempts to get visitors to its websites with these long-tail searches. It then tries to retain visitors with related content and social media tools. Their social media platforms get 3 billion interactions per month for clients with already well established brands.^[25] Demand Media commissions specific website content that it then distributes to its own websites and others where they have advertising revenue sharing agreements.^[26] As of 2008 Demand Media owned 135,000 videos and 340,000 articles. It is the largest contributor to YouTube, uploading between 10,000 and 20,000 new videos per month, and gets about 1.5 million page views per day on YouTube.^[27]

Content is generated via a process in which Demand Media uses algorithms to generate titles, then posts the titles to a screened pool of freelance writers or video creators. The list of available titles used to be over 100,000 but was severely curtailed in the second half of 2011. Typically, writers can claim up to ten titles and then have a week to submit the articles. Format and length are dictated by guidelines. Submitted articles go to an editor (also a freelancer) who can either clean it up or request a rewrite. After writers submit a revised article it is either accepted or rejected. Payment via PayPal is twice a week.

Demand Media’s acquisition of Pluck.com in 2008 gave it the means to provide specialized content and social media platforms to any website.^[17] The content comes with advertising attached. The website owners get free content for their sites and split the advertising revenue with Demand Media. This hybrid Internet publishing model has been referred to as Curated Social Content.^[28] It is a combination of Enterprise Generated Media, such as newspapers, and consumer-generated media, such as blogs.

IPO[link]

As of second quarter 2010, Financial Times reported that Demand Media is planning on an initial public offering which would mean any acquisitions would be out of the question. IPO filing was completed in August 2010. Shares were initially expected to be offered in December 2010, in an offer that would give Demand Media a value of approximately $1.5 billion.^[29] However, due to a Securities and Exchange Commission investigation regarding the company's novel accounting for "long-lived content," the IPO pricing was delayed until January, 2011. On January 12, 2011, the company announced it would price its IPO between $14 and $16 per share giving it a valuation of approximately $1.3 billion.^[30] Some blogs have questioned Demand Media's claim to be profitable, given that its IPO filings show that has reported losses for the past several years. Additionally, several news sources claim that the company's accounting practices have recently been the subject of government examination.^{[31][32][33][34][35]}

Post-IPO the stock rose to the mid-20s, but by fall 2011 had plateaued under $7.00.

Criticism[link]

Demand Media has attracted criticism from Internet watchdogs for being one of the largest buyers of articles and videos,^[24] purchasing thousands of search engine-driven content from low-paid freelancers to use on its websites to attract advertisers, such as Google's AdSense.^[36][37] During autumn 2010 opportunities to write articles for $25 or $30 dwindled, leaving mostly $15 or $20 titles. New content volume also shrank, as Demand Media attempted a transition from "quantity to quality" postings.

Demand Media has also been criticized for its accounting methods, such as capitalizing the costs of content and amortizing them over five years, giving them the appearance of profitability.^[38]

See also[link]

• Associated Content
• eHow
• Examiner.com
• Helium.com
• HubPages
• Mahalo.com
• Squidoo.com

References[link]

External links[link]

• Official website
• Nieman Journalism Lab. "Demand Media". Encyclo: an Encyclopedia of the Future of News. http://www.niemanlab.org/encyclo/demand-media/. Retrieved 1 April 2012. 

Richard Rosenblatt (born 1969) is a serial entrepreneur and the Co-Founder, Chairman and CEO of Demand Media. He has built, operated, and sold over $1.3 billion of Internet media companies.^[1]

Early life[link]

Rosenblatt was born in Woodland Hills, CA on April 6, 1969. Raised in Southern California by his nuclear physicist dad and professor mom, Rosenblatt went on to earn a B.A. from UCLA, and a J.D. from University of Southern California Law School (class of 1994). After getting his law degree, Rosenblatt took a job at Brobeck, Phleger & Harrison, in Los Angeles, but quit after 6 months citing boredom.^[2][3]

Career[link]

In October 1994, Rosenblatt co-founded iMALL and served as head of internet media and web development. iMALL's products included a suite of tools to build e-commerce stores and transact commerce over the internet.^[3][4] Rosenblatt replaced one of the founders, Craig Pickering, as CEO in July 1996 and took on the additional role of Chairman of the Board in January 1997. Rosenblatt oversaw a restructuring and rebuilding of the business. In 1998, iMALL partnered up with First Data Merchant Services (FDMS) in a deal that provided access to roughly 2 million merchants and included a $14 million equity stake in iMALL.^[4] In April 1999, Verio, Inc. teamed up with iMALL and First Data to create VerioStore, a product selling e-commerce services.^[5][6] Later that same year, IBM bought iMALL and First Data’s technology for their e-commerce services.^[7] In July 1999, Rosenblatt negotiated the sale of iMALL to Excite@Home for $565 million. In 1999, iMALL and two of its founders were sued by the Federal Trade Commission, though Rosenblatt was not among those named in the suit.^[8] Rosenblatt became the Sr. VP of e-commerce for Excite@Home for a short period of time.^[3][9]

Following iMALL’s sale, Rosenblatt became the founding investor and vice chairman of Great Domains. The company became a leader in the secondary domain market and was acquired by VeriSign, Inc. in October 2000 for $100 million.^[1][3]

In August 2000, Rosenblatt became the interim CEO of the ailing DrKoop.com.^[2] His participation was part of a larger effort by investors to reconfigure the business into a hybrid online and offline venture that was structured to be less dependent on the erratic flow of advertising dollars.^[10] The turn-around was nearly complete when the Internet market collapsed and 9/11 occurred, causing the company to file for bankruptcy in December 2001.^[3][11]

Rosenblatt became CEO of Superdudes.net, an online gaming community where users created their own Superhero character and participated in global social networking in 2002. ^[1][12]

In February 2004, Rosenblatt became CEO of Intermix Media (formerly eUniverse, Inc.) where he led the growth of Myspace.com from an unknown web site to one of the most popular properties on the Internet. In 2005, Intermix was sold to News Corporation for $649 million, $580 million of which was cash, with an additional $69 million being paid to private shareholders.^{[3][5][13][14]} In 2005, former New York Attorney General Eliot Spitzer filed suit against Intermix. Rosenblatt was not among those named in the suit. Spitzer accused the company of installing advertising software without notifying unsuspecting consumers. Intermix acknowledged this was part of an outdated practice put in place by previous leadership, but insisted the company no longer installed software without first notifying a customer they were doing so.^[15] The case against Intermix was later settled for a monetary sum, though there was no admission of guilt. The founder and former CEO of Intermix Media Inc., Brad Greenspan, was fined $750,000 as part of an agreement with Spitzer to end the investigation against him.^[16] In 2006, Greenspan filed suit against Intermix, claiming the executives and directors, Rosenblatt among them, withheld key information to shareholders regarding the potential revenue generated by the sale of Intermix to News Corp. Greenspan specifically said the sale cheated shareholders by not including the growth potential of MySpace.com in the agreed upon sales figure.^[17][18] Critics pointed out that at the time of the sale News Corp’s purchase of Intermix was still considered a financially risky proposition. Further damaging his claims was the fact that Greenspan was asked to step down as CEO when the company had been under investigation by the SEC and the shares had dropped to an embarrassing low.^[16][19][20] The case was dismissed on Friday, October 6, 2006, when Judge Carolyn Kuhl determined that shareholders of Intermix Media, Inc. had been lawfully informed prior to voting on the transaction.^[21][22] On August 1, 2008, a judge ordered one count in the class action shareholder suit brought against the Intermix executives could go forward. The case is still pending.^[19][23]

Rosenblatt then co-founded Demand Media with private-equity executive, Shawn Colo. The company launched in May 2006 with $120 million in equity, and announced the acquisitions of eNom, Inc. and eHow.com. By March 2008, Demand Media raised the total amount of equity to $355 million.^[24][25] Demand Media owns many websites, including eHow and Golflink.com.^[3] In January 2008, Demand Media partnered with Lance Armstrong and his Foundation (LAF) to build out the daily health, lifestyle and fitness destination, LIVESTRONG.com. ^[25][26]

Rosenblatt is Chairman of the Board at iCrossing, Inc. and Demand Media, Inc. He is a member of the Board of Directors of FRS.^[6][25]

In addition to his internet ventures, Rosenblatt is the co-owner of several Southern California nightclubs named Air Conditioned. The first was established in 2002 in San Diego, while the other two are located in Venice and Santa Monica.^[3]

Lecturer[link]

Rosenblatt is a co-lecturer with Peter Guber under UCLA’s MBA program for the course, "New Media: The Convergence of the Poet and the Engineer.” ^[27] He was also recently named the USC Entrepreneur of the Year 2008.^[28]

Philanthropy[link]

Rosenblatt is a Gold Circle Member of the City of Hope Helford Clinical Research Hospital, a National Cancer Institute-designated Comprehensive Cancer Center. He is also active with the Lance Armstrong Foundation, LIVESTRONG.^[25]

Personal life[link]

Rosenblatt is married to his wife of 16 years, Lisa Rosenblatt. The couple has three children (two sons and a daughter) together and resides in Southern California.^[3]

References[link]