Demand Media Posts 50% Jump in Revenue

Google's Algorithm Change Dropped eHow Search Traffic 20%

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It turns out Google's change to its search algorithm hasn't hurt Demand Media too much.

The Santa Monica, Calif., content company banked profit of $5.1 million for the most recent quarter, more than doubling from the same period last year, on $76.3 million in adjusted revenue, a 50% increase over last year.

Still, observers and investors have been anxiously eyeing how Demand has responded to Google's recent change to its search software, internally known as "Panda." Google has embarked upon a mission to weed out what it deems poor content, which in some cases includes mass-produced articles from the likes of Yahoo's Associated Content and Demand Media's flagship site On an earnings call with analysts, Demand CEO Richard Rosenblatt said Google's recent alterations changes lowered eHow's search traffic as much as 20%.

"Let me be clear: We take this very seriously," Mr. Rosenblatt said. "But we see this as an opportunity to get better."

While he didn't explain which articles or types of content were getting lower traffic as a result of Google's changes, one answer may lie in a little-known legacy initiative known as the Writer's Compensation Program. At its inception, Demand's eHow accepted articles from anyone without any vetting, meaning those submissions didn't run through the company's well-documented editorial program, which edits, fact-checks and copy edits all articles. Even though that program stopped accepting submissions in April of last year, it accounted for almost 10% of eHow's overall traffic.

The company announced today it would now run all of that legacy content through its editorial process in an effort to weed out lower-performing articles.

Being so closely tied to Google's search is clearly a tenuous proposition, which has led Demand to adjust its content efforts to focus on building out categories, such as its Tyra Banks-fronted fashion channel TypeF, and its new food channel led by Rachael Ray. Cracked, its comedy content, is also another category driven that potentially appeals better to advertisers.

As evidence, Demand's owned and operated content sites saw a 32% increase in page views, resulting in $48.7 million, a 77% jump from last year. Aside from its content operations, the company also has a large domain-name-registration business, which was up around 18% to $27.7 million for the quarter.

Video has also been a big category for Demand, which it hopes to augment by working more closely with YouTube, according to Mr. Rosenblatt. "Video is a really large growth area for us this year," he said.

The company projects 2011 revenues between $305 million and $315 million.

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