Matthew Ingram writes on GigaOm that Google and Demand Media are headed for an inevitable showdown, as the search giant tries to keep its results from being overrun by the prolific content-for-profit machine. Writing on the heels of comments by Paul Kedrosky and Marco Arment on the spammy nature of Google search results, Ingram echos the sentiment that Google needs to do something to maintain the value of their search results—their cash cow—especially in the face of threats to their traffic and utility from Facebook and Bing. In a conversation on Twitter the night
before he published his article, Ingram had a brief exchange with Chris Dixon who posited that Google actually benefits from content-farm search results because visitors who hit these pages then click away from via AdSense units, of which Google gets a share.
Here is the exchange via Storify (if you can’t see it in reader, click through):
Dixon is quick to point out that Google of course cares about the user experience; but that inadvertently they’ve created a cottage industry of spammers that they in turn benefit from. It’s an intriguing argument, at least on the surface. Demand Media’s IPO filing states that the company generates 40% of their 550 million monthly page views via Google search.
The question becomes, then, how much money are we talking about?
Turns out it’s not that much, relatively speaking. Demand Media reports that it earned 18% of its revenue from Google in 2009 (and 26% from Google in the first 6 months of 2010.) On 2009 revenues of $198.45 million that works out to $35.72 million in revenue from Google. If we take Google’s stated AdSense revenue share numbers of 68% for the publisher/32% to Google, that puts the total revenue of Google-driven revenue at $52.5 million, leaving $16.8 million for Google. (Of course this could be different depending on the actual split of the Demand Media/Google agreement; but is probably in the right neighborhood.)
For Google, who’s 2009 annual revenue was $23.65 billion, this is a rounding error. And for a company who is willing to pull out of lucrative opportunities on principle alone (China, anyone?) it seems like eliminating or reducing the small monetary benefit that Demand Media generates for them in order to save their user experience is a no-brainer. So while the idea that Google actually “wants” Demand Media to stay around to drive revenues from AdSense is intriguing, it doesn’t really add up.
Whether Google devalues the Demand Media content in their search results I don’t think will ever be explicitly known. Google has to be careful about the implications of changes to the algorithm that reek of editorial governance. (SEO’s I know quipped that the DecorMyEyes fiasco just showed that all you need to get your competitor delisted from Google was a scathing PR hatchet job.) But clearly, as the chorus of influential users voice their dissatisfaction with search results, Google will be under more pressure to deliver cleaner, more valuable content or risk losing them altogether.
If Google does (and I believe they should) make this move Demand Media is in trouble. Looking at their IPO filing, the short of it is that without Google the business doesn’t have any real growth. And rather than being a unique content-on-demand business, their a incrementally growing domain registrar.
It will be interesting to see how this plays out; but one thing is for certain. Matthew Ingram is right—a showdown likely looms, either between Google and Demand Media or Google and it’s users, and there is a lot at stake for everyone.