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Demand Media, an online content provider, has taken the first step towards an initial public offering. The company’s S-1 filing on Friday revealed details of the company’s business — semi-automated content production with an eye towards capturing users searching for popular topics online, with sites like eHow and Livestrong in its portfolio.
Demand, led by former MySpace chief Richard Rosenblatt, hopes to raise $125 million through its IPO.
According to Peter Kafka at MediaMemo, developing search-friendly content is big business, but does not yet appear to be profitable. On $114 million in revenues this year, it lost $22 million. The majority of the revenue comes from traffic and advertising from search engines like Yahoo and Google.
Some call Demand’s model a “content mill” — cheap, disposable content meant to trick searchers. Or, at best, critics say, Rosenblatt is performing “search arbitrage” — attracting users from Google’s search engine, and then getting a cut of the keyword-related advertising Google places on its pages. But Federated Media CEO John Battelle, the author of The Search, a book on Google and the search business, made the case on his blog that the model is working and isn’t solely dependent on search to generate revenue. Rather, the company is climbing the content food chain. Battelle writes:
The question remains if Demand will be seen by investors as more than a secondary search arbitrage play – it is dependent on Google for a large portion of its revenues, at least for now. But CEO Richard Rosenblatt … has steered the company higher up the content food chain – creating and purchasing brands such as eHow, Livestrong.com, and others, and fostering content partnerships with respected brands like USA Today and Hearst.
Investment banks Goldman Sachs and Morgan Stanley will lead the IPO. Demand Media’s investors include Oak Investment Partners, Spectrum Equity Investors, W Capital Partners and Rosenblatt.
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