From Wired, a fascinating and undoubtedly more-expensive-than-necessary article about Demand Media, which produces how-to videos and other instructionals. The trick is Demand's precise recipe for coming up with content that has popular appeal, draws advertisers, and doesn't cost more to create than it brings in:
[Byron] Reese is a tall Texan who serves as Demand's chief innovation officer and who created the idea-spawning algorithm that lies at the heart of Demand's process. To determine what articles to assign, his formula analyzes three chunks of information. First, to find out what terms users are searching for, it parses bulk data purchased from search engines, ISPs, and Internet marketing firms (as well as Demand's own traffic logs). Then the algorithm crunches keyword rates to calculate how much advertisers will pay to appear on pages that include those terms. (A portion of Demand's revenue comes from Google, which allows businesses to bid on phrases that they would like to advertise against.) Third, the formula checks to see how many Web pages already include those terms. It doesn't make sense to commission an article that will be buried on the fifth page of Google results. Finally, the algorithm, like a drunken prophet, starts spitting out phrase after phrase: "butterfly cake," "shin splints," "Harley-Davidson belt buckles."
But that's just the start. Armed with those key words, another algorithm, called the Knowledge Engine, dives back into the data to figure out exactly what people want to know about the term. If the original algorithm divines "2009 Chevy Corvette" as a profitable title, the Knowledge Engine will return with "cost of 2009 Corvette"; for "shin splint" it might come back with "equine treatment shin splints." The second algorithm also looks at how well past titles with similar words have performed in terms of ad revenue. Demand has learned, for instance, that "best" and "how to" bring in traffic or high clickthrough rates, while "history of" is ad poison. At the end of the process, the company has a topic and a dollar amount — the term's "lifetime value," or LTV — that Demand expects to generate from any resulting content….
When asked for the most valuable topic in Demand's arsenal, [Reese] replies instantly: "'Where can I donate a car in Dallas?' One, you have a certain number of people searching for it. Two, the bid term 'donate a car' is in the double-digit dollars, like $15 or $20 per click. People have a propensity — 17 percent — to click on an ad when they see the word car. There's very little competition. And the article will retain its value for a long time." So why Dallas? He has no idea: "Dallas just happens to be the location where we know people are searching for how to donate a car."
Without laying it on too thick, author Daniel Roth frames Demand's business model as a frightening glimpse of the future of content creation and Demand owner Richard Rosenblatt as a crass vulgarian with a "long, pinched nose." And if, like me, you have still not figured out how to exit the getting-paid-by-the-word/frame business, the figures Demand pays are pretty daunting. How does $20 for a 60-second video grab you, or a tenspot for a several-hundred-word article?
Is that deflationary? After all, a few years ago, nobody was paying anything for one-minute web videos on how to fold a shirt. Rivals of Demand's eHow.com say the company produces a lower-quality product, and sure enough, in this eHow video featuring a lovely woman's advice on how to pack for Spain, you get instructed to bring an ugly Mary Poppins-sized umbrella that obviously won't fit in the suitcase provided. The article has one to-be-sure sentence, wherein Rosenblatt claims to be planning to aim higher in the future.
That's the key. Because there's no real need for Demand to be paying for content at all. The performance of question-search sites (about.com, askjeeves, etc) has been so unimpressive that you could automate the entire answer process and still come up with something serviceable. I suspect Rosenblatt is in the content business for the same reason as everybody else in the content business—down to the nameless writer of the cautionary material on a pack of batteries: He's a romantic. In a few weeks, James Cameron will release the first movie that literarally cost a bazillion dollars. This is the weird paradox of content creation: It's a business with no future, which will still be around in the future, at which time it will still have no future.