Demand Studios’ IPO Reveals More Reasons Writers Should be Wary

Carol Tice

Demand Studios IPO means freelance writers should be wary. Makealivingwriting.comIn case you haven’t yet heard, content farm Demand Studios is planning a $125 million initial public offering. This was not unexpected. We’ve already got the drill down — content mills pay freelance writers peanuts, and then go public or get acquired for $100 million-plus.

But there’s a difference here from Associated Content’s recent acquisition by Yahoo! An IPO requires a hefty public filing, in which the company has to disclose tons of facts about their business. (Since Yahoo is so big and AC so relatively small, Yahoo didn’t have to disclose much about the acquisition to its shareholders.) The IPO filing, known as an S-1, is long. But here in brief are a few important things the filing reveals about Demand Studios’ business that writers should know:

DS is losing money. That’s right, they pay you only $15 for an article, and they still haven’t figured out how to make a profit off you! Can you believe it? They’ve got 10,000 writers creating 5,700 pieces of content a day, but that apparently isn’t enough critical mass to make a profitable business model.

If I were staking my income on what DS does, I’d be seriously worried about that. Unprofitable companies eventually go bust, for the most part. Essentially, DS needs the IPO money to stay afloat! After all their executive talk about how they’re the new media model that’s going to flatten traditional media. Yeah, we’ll see about that. A lot of print publications are still making money, you know.

DS’s markup is 260 percent. DS pays you $15, and the filing reveals they make an average of $54 per article. Yet, they are still hemorrhaging cash. The company lost $14.2 million on $170 million of revenue in 2008; in 2009, it was a $22 million loss on nearly $200 million in income. They seem to have improved a bit in the first half this year, only losing $6 million on $114 million. Wow, I bet if you put content up on your own site and sold ads against it, you could figure out how to make a profit…and you could keep all the profit for yourself!

I’d love to know, with what DS pays editors, where the fat is in this business model that’s making it unprofitable. It’s kind of stunning that they’re trying an IPO with this profitability record, but surprisingly, about 40 percent of companies trying the public markets right now aren’t in the black. Sort of a weird return to the dot-com days going on.

DS is in danger of being branded spam by Google. They disclose this in the section on the possible competitive threats to their business. Hmm, if that happens and Google decides to screen DS out, poof! No more Demand! A lot of Internet-watchers believe at some point Google has to find a way to screen out these sites or users are going to turn to other search engines in their search for better-quality content.

DS makes much of its money from domain-selling and domain-squatting. Turns out more than 40 percent of its revenue is from eNom, not even from the content mill. People buy domain names from eNom, and eNom runs Google ads on empty Web sites to get revenue. Weird, huh?

DS’s timing shows it’s desperate. The IPO market has perked up a bit this year from its dead stop last year, but most IPOs aren’t doing very well. The majority have gone down after issue, which is bad news for company founders and backers. The down market means only companies that HAVE to get some money right now are trying an IPO. DS could no doubt get more money if they waited a year or two. But apparently they can’t wait.

The upside here — founders and investors may not end up with much. They have to wait three months after the IPO before they can cash any of their shares, and the way the market’s been going, they may not do very well.

As many people know, I have never written for DS or any of their ilk. But I still think it’ll be pretty sweet if we can watch the folks who perpetrate this crime against fair wages get hosed on their big IPO payday.

The other thing to know is just because a company’s filed an IPO doesn’t mean it’ll go — they still have to get enough big investors interested to price it and make it go. We’ll see, given its unprofitability, if DS can sell investors on the deal.

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  1. Lou Diffee

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  2. Virginia

    I am a bit confused about how writers can generate, as one comment posted, 5 articles an hour. This would mean the writer would have to be an expert on every topic they developed, and on every article they grabbed. Even then, I still have more questions. The article selection, in my experience as a writer at DS, often limits my article grabs to titles that require extensive research for my article to get accepted. Since I am in the history/political science field, it is rare that I get the opportunity to write on topics related to such areas. If I want to write, I grab unfamiliar or seemingly familiar titles that require extensive research to write a well developed article; there are limited titles available in my area of expertise. When I get an article that is in my field, then, I still take over an hour to write one article because the copy editors are extremely conflicting. I once was advised only to provide one reference with articles related to my expertise, but that soon changed as history/political science related articles were being sent back for a rewrite due to a need for more references. It’s not as if I can just throw in references. I have to incorporate such information from the reference in my article, so the copy editor can see my reference information noted in my article. It is great to provide references, but it seems as if the copy editors wax and wane too much for solid writing consistency. It is extremely confusing when I have questions and there is not a solid feedback system with the editors for clarification. I have had editors take out chunks of information, only to indicate my article requires more information to further clarify; when the information they eliminated added to the article’s clarification. At least, in my opinion. It would have been nice to be able to ask the editor about such dilemma. I have had several copy editors reword my articles, accept them, only for the articles to get published with several typos, or misspellings. I used to write as a legal writer, and I was expected to turn out 4-5 page legal briefs twice per day. My pay was better as a legal writer and there was consistency with my proofreader. Writing for Demand Studios is precarious, at best. At least, in my 1 year experience with the studio. Using them on my resume is laughable, as potential employers have advised.

    • Carol Tice

      My sense is the people who can crank those huge volumes are former contractors, lawyers, etc writing off their own knowledge, and usually promoting their main business. The low pay makes sense for them because they’re really selling another, higher-paid service.

      For writers, where this skill is our whole income, it seems to not pencil out well for most.

      Sounds like you have a great specialized niche with legal…I’d consider revisiting it. I’ve done well with legal-related work as well.

  3. Carla

    I write for major publications and sometimes only make a few hundred dollars for hours of work and revisions. Meanwhile, I can write an article for Demand Studios in 40 minutes and take on as many assignments as I want. I can easily clear 1k a month when needed.

    Yes, it can be mind numbing sometimes. And I certainly don’t do it when I don’t need to.

    I agree with all the complaints here. They value quantity over quality, and their system drives away quality writers. I would also never use my real name on any of my DS work. I don’t see it as real writing work or even a quality outlet, it’s just a way to pay the bills.

    At my last staff job, they made hundreds of dollars off of me an hour consulting clients, but I only got paid 50k a year. It’s a similar concept here. Do I like it? Not particularly. But I use Demand Studios to meet my needs and get my bills paid so I can work from home and focus most of my time on ‘real’ writing work.

    • Carol Tice

      If you can live on $1,000 a month and are happy doing work you describe as not “real writing,” that you are so ashamed of you won’t even put your name to it, then you’re all set. Lots of the folks I hear from are pretty motivated to kick the DS habit and move up to where they can earn a better hourly rate…and they’re doing it. There’s a lot of opportunity out there now if you’re willing to do a little marketing. Wish you’d been on the call today with Peter Bowerman of The Well-Fed Writer fame…he had great comments on how to earn well today.

    • Carla

      I hear you and agree with the sentiment behind your comment, though it was unnecessarily snarky. I never said I can live off of 1k a month. But I live in NYC, sometimes I need the extra 1k in combination of my other income to survive here.

      I use DS as interim income when needed. As a freelancer, some of my clients only pay every 60 days, and occasionally I need extra money to make ends meet. My priority is still finding high paying clients, marketing myself, and developing my craft. I see DS as a way to keep my writing work going. Otherwise I would need a staff job right now and I prefer to stay home and write and develop a business.

      I guess I could go find a part-time job on the side to make ends meet when needed, but I’d rather be able to source extra income as needed so my schedule stays flexible.

    • James

      One thing I learned with freelance writing online is that goals differ from writer to writer. Some support themselves via full-time writing, yet others are WAHM’s who aren’t looking to be a six-figure writer, and are perfectly happy writing articles for ten or fifteen bucks because that money isn’t supporting them 100%. Sure the difference is obvious to us, but it can be frustrating dealing with clients who don’t understand the different kinds of content.


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