Demand Media has a simple but highly effective formula: create a ton of niche, mostly uninspired content targeted to search engines, then make it viral through social software and make lots of money through ads. So how come its stock shot up 35% after its IPO yesterday?
In a clever post, Read Write Web blogger, Richard McManus, points out that the shady practices of content farms like Demand Media will eventually make search engines unreliable.
Consumers won't use search engines if they continue to be manipulated by cheap tricks to optimize their content for searches.
In other words, the search engines will have to do something to control the influence content farms are having on search or the search engines risk losing credibility.
Google earlier this week said it is changing its algorithm to cut abuses by content farms.
Yet McManus says Demand Media's capitalization is higher than The New York Times.'
"Personally I wouldn't invest in Demand Media," says McManus. "I don't like its accounting practice in regards to costs and I think it's too vulnerable to the whims of Google. Also I prefer reading content from The New York Times."
Advisors may want to keep on eye on this battle between search engines and content farms because it could affect search engine optimization strategy.