A fatal flaw in the (stock)photography business model?

From the early days of this website I have been following Demand Media with great interest. In fact, one of the first articles I wrote was about this company. Demand Media has just announced it may go public soon at an estimated valuation of  $1,5 million at revenues of $200 million a year. This is a great opportunity to share some insight into this company that everyone who thinks going into video is the next big thing should watch closely. Demand Media has been in video for some time. In fact, they are producing 4.000 video’s and articles every day on an unimaginable broad range of subjects.

And this is what they pay contributors: $15 per contribution. Most of these contributions are ‘how to’ instructions that find their way to sites like ehow.com, one of the many sites built by Demand Media around interest groups. The company is also one of the biggest contributors to YouTube and fills content gaps in partnership with the video giant.

The key strength is in how the company knows what to produce. Demand Media uses complex algorithms that determine what people are searching for on the web. And on top of that, it matches this with information on what type of information delivers the most advertising revenue online. Critics have called the company a content ‘farm’ or ‘mill’ that churns out low quality content with no value. Richard Rosenblatt, the companies founder, doesn’t agree. In a 2009 Wired magazine article he said:

“Most media companies are trying hard to… boost the value of their online content until it matches the amount of money it costs to produce. But Rosenblatt thinks they have it exactly backward. Instead of trying to raise the market value of online content to match the cost of producing it — perhaps an impossible proposition — the secret is to cut costs until they match the market value.”

This attitude is key to a business model that is not fighting the markets demand but works with it by lowering costs. While this may lead to marginal content for a small niches (how to glean a wooden floor with a window cleaner)  it has also led to a 4 year old, $200 million company that is profitable. The company could use its algorithms beyond ‘how to’ video’s and expand to different types of content if it wanted to. The reason it hasn’t done so is probably more of an indication that they don’t see a viable model in, for example, stock video at the moment. So is the ‘traditional’ stock photography industry close to matching the market value? probably not.

Rosenblatt was interviewed  by Jay Rosen on Readwriteweb where he says:

“We have algorithms that tell us what search visitors want. And algorithms that tell us what YouTube visitors prefer. And we’re working on new algorithms that tell us what social network users desire. And we’re pretty sure the needs of mobile users will be different than all of the above – so we’ll tune our approach for them too.”

He also says he respects journalists and is open to enabling them to create a more viable business model:

“We respect journalists very much. We think they need to use technology to help them figure out what audiences want and how to get value from their content more effectively. And there are big opportunities for them to increase quality by removing inefficiencies in the process of content creation. We would love to partner with as many publishers and media outlets as we can”

For anyone in the content business it is worth following Demand Media and similar companies and read articles about the model and plan. Not only does it shed a light on the future (whether that’s a bright one or not for some) it may also prevent some to invest in content creation that could easily be swallowed by ‘Content Mills’ in the very near future. The question that keeps ringing in my head is: ‘Are we determining the value of our content on the production or the market value’? And a second, perhaps more philosophical one, is: ‘Can we still have an impact on the market value’?

Marco | Editor

Editor at large and founder of a bunch of stockphoto businesses

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