What We Learned This Year About Creating Successful Media Properties Online

This week, we made some announcements about our achievements at Wetpaint, and it has prompted me to take a look back at 2011.  It’s easy to be proud of the 6.4 million unique visitor audience we have built at Wetpaint Entertainment monthly.  It is a significant accomplishment in just 15 months since we launched, and the Wetpaint team has worked passionately to get us here. But even a number like that is, well, just a number. The real value of what we did in 2011 lies in the all the learning we had about how to build, run and monetize a successful media property online.

And that learning makes me feel grateful – because as successful as we have been this year, it’s been against a context of upheaval in the industry.  Media is not easy.  Old formulas from print and broadcast are no longer working.  And even the just-minted generation of seemingly successful digital companies, from Demand Media to Zynga to Facebook itself, are having to constantly innovate to stay on top of the wave that they’re on as they hope to catch the next.

Clearly, the most important keys to financial success in media are building audience and monetizing that audience – and we’ve made significant progress on both here at Wetpaint.  Our greatest strength has been the data engine we’ve built to acquire, assimilate, and apply every possible insight about our audience.  We learned that smart and targeted analysis can improve everything we do; that lots of rapid experimentation is critical; and that social traffic is far more valuable than search.

We also learned more about the Kardashians and the people on the The Bachelor/Bachelorette than anyone in this world should.  Our editors did a bang-up job capturing the liveliness of the entertainment industry and they definitely deserve plenty of credit.

But while all our great content and social mojo would succeed in delighting audiences, it wouldn’t be enough to make a strong business without excellent monetization.  And so I’m equally excited to note that as we get ready for 2012, we’ve found that our formula of great content and social mojo is just as valuable to advertisers as it is to our audiences.  I’m pleased that we will be working with the team at Cambio Group via their joint venture between AOL, Jonas Group and MGX Lab.  Together, we will be  serving outstanding advertisers with some of the most innovative offerings around.

With this partnership in place, we are able to turn amazing traffic into amazing financial results. It will mean strength for our model and our company into 2012 and beyond.

But the implications are even broader for the industry, and that’s because we are setting a model that others can follow as well.  And that is what I’m most excited about:  What media needs most is a model that can be scaled and repeated – and our latest results make it clear we are on the right track to build it.

Demand Media + Google = Mutually Assured Destruction

This article was originally published as a guest post on Business Insider.

In my recent meetings with the leaders of top digital media organizations, executives have been unanimous in their bafflement over the impending Demand Media IPO.

Strategic thinkers know exactly what I mean: Demand Media’s “formula for success” is to select topics that only a statistician would love; produce low-quality content at absurdly low cost; and then drip spider-food pages into domains with a legacy of trust from Google built under prior ownership.

Once that’s done, Demand Media financially engineers its income statement to move what everyone else has called “cost of goods” below the line into depreciation; the intent here is to optically reduce expenses by spreading them over five years.

Reactions among media executives and entrepreneurs range from serious eye-rolling to violent throwing up. It’s instinctual rejection.

But why?

Because Demand Media violates the most basic definition of what “good” media is. Indeed, the formula that has built top media properties – from Disney to Glee to The New York Times – was simple: build a great brand on quality content, and then attract a loyal audience. And the formula worked for both analog and digital media, all the way up until the Age of Google.

But Google’s algorithm (Demand Media’s great ally) broke the formula by making every audience interaction with media separate and independent. Like Drew Barrymore in 50 First Dates, the Google algorithm has no memory of relationships; and for frustrated Adam Sandler publishers trying to build a loyal audience, the algorithm sets up an insurmountable amnesia.

Even worse, with every new Demand Media article, Google’s index gets more polluted, and the customer becomes even more underserved. It’s not an exaggeration, but Demand Media probably pollutes Google’s results more blatantly and thoroughly than the top black-hat spammers of the Web.

Then why doesn’t Google just downweight properties like this from its results?

There’s a good reason, and the catch is extraordinary.

Google’s network revenue, which includes its AdSense program – the advertising product that runs on affiliated publishers’ sites like Demand Media’s – accounted for $2.50 billion (30%) of total revenues in its most recently reported quarter.

So, if Google were to reduce the prominence of sites that use AdSense, its revenues and liquidity in the ad market would take a significant hit. And that would be intolerable.

On its side of the fence, Demand Media needs Google, too.

As Demand Media said in its recent S-1 filing:

“For the year ended December 31, 2009 and the six months ended June 30, 2010, we derived approximately 18% and 26%, respectively, of our total revenue from our advertising arrangements with Google … If any of our advertisers, but in particular Google, decided not to continue advertising on our owned and operated websites and on our network of customer websites, we could experience a rapid decline in our revenue over a relatively short period of time.”

The upshot here is that Demand Media is ruining Google’s search results; but Google, for its part, is actively perpetuating the rewards, encouraging Demand Media to keep its content just above a (very) low bar for high rankings.

I don’t blame Demand Media for being an opportunist and playing Google’s game.

But I certainly wouldn’t want to invest in Demand Media shares. The company is too precariously dependent for its lifeblood; and its spotty content quality has badly undermined its ability to earn brand loyalty. That’s a tough setup for a public company, and it makes for a very high-risk stock.

Google, on the other hand, bears more blame. As its quality of results goes down, so does its users’ quality of experience.

And the real competition isn’t just from Bing.

Earlier this month, a digital media executive told me that her 16-year-old niece prefers to search in

Facebook, since it prioritizes the content real people – i.e. her friends – like. Google’s results, she said, are useless and overwhelming. Facebook gives her the good stuff.

The unthinkable is actually happening to Google. Its algorithmic perfection is unraveling; and it has become the entrenched incumbent that is lagging in consumer experience.

And the challenge from Facebook is definitely coming.

The big question is how long Google can hold on to its revenues at the expense of its consumer experience.

Demand Media’s new shareholders will want to be the first to know. That way, they can get out front and sell.

USA Today Embraces Commodity Content with Demand Media

Commodity ContentNo publisher wants to believe that content is a commodity.  But by introducing a new web Travel Tips section powered by Demand Media, USA Today is taking the bold and necessary move in admitting just that.

It’s a turning point for the publishing industry to concede that not every column inch is vying for a Pulitzer, and to act accordingly.  Let’s face it:  certain types of content — in this case, detailed travel tips, deals, and the like — do not require nor merit the talents of their highly capable (and highly paid) editorial staff.

It’s also clear from Nat Ives’ report at AdAge that the new section is an opportunity for the USA Today brand to capitalize on search engine optimization (SEO) to capture prospective travelers who search for specific advice, such as “hotels with toddler pools in Maui”.   Demand Media will analyze search trends and engage writers in its content marketplace to address topics with the greatest commercial potential.  Meanwhile, USA Today lends their brand to the equation to generate new audiences from search engines and revenue for both parties.  For USA Today, this solves the problem of how to add more to their user experience and grow their audience, with little to no cost.

It also solves Demand Media’s problem:  they have a whole lot of content with no place to put it, and this deal opens up distribution for a broad new category.  Demand Media clearly has its sites on ‘movin’ on up’, and they are dating up a tier on the social ladder with this deal, as it helps them move upscale into a more premium environment under the halo of the USA Today brand name.  This provides further momentum on the heels of the news that CEO Richard Rosenblatt convinced online heavy-hitter Joanne Bradford to join Demand Media as chief revenue officer.

Will the content be up to the typical editorial standards of the USA Today?  Almost certainly not.  But travel tips don’t require particular expertise or training, so this category is an excellent candidate for commoditized content.  Moreover, it’s important to understand that the primary consumer quite likely is not a current USA Today enthusiast.  It is a web searcher who may or may not have any relationship with the brand.   And given the topic, the value-add of a highly paid writer could easily be lost.   One doesn’t need to wax poetically about a toddler pool after all.

Most publishers will turn their noses up at this as “farmed” content.  But to do so would be foolish.  This is a great example of a top brand recognizing where they do and do not make a difference, and focusing their investments where they matter.

For the USA Today online team, led by Jeff Webber, this is a smart move.  Now, other publishers need to do what people in other industries have done for decades:  focus on your core competencies and economize on those things that do not differentiate your product.    The publishing world has been all too slow to recognize this Econ-101 reality, and it’s time for a wake-up call.

What are your thoughts on low cost, commodity content?