Google to crack down on “content farms”?

Bad news for domain developers? Bad news for Demand Media?
Google is to take another look at how its search engine ranks “content farms”, according to a new blog post by principal engineer Matt Cutts.
In a discussion about search quality and web spam, Cutts wrote:

As “pure webspam” has decreased over time, attention has shifted instead to “content farms,” which are sites with shallow or low-quality content. In 2010, we launched two major algorithmic changes focused on low-quality sites. Nonetheless, we hear the feedback from the web loud and clear: people are asking for even stronger action on content farms and sites that consist primarily of spammy or low-quality content.

The post does not get into any details about what hearing feedback “loud and clear” means, but it certainly suggests that Google will rethink how low-quality content sites are ranked.
This could be problematic Demand Media, which generates a lot of its revenue from “content mill” sites such as eHow, which is widely derided but ranks highly for many searches.
Demand Media is on the verge of going public.
It might also not be great news for domain investors who choose to develop their domains with low-quality content, although I suspect that kind of site would be harder to detect than a large mill.

eNom named “worst” for badware

Demand Media-owned eNom has been fingered as the worst company when it comes to hosting “badware”, according to the latest quarterly report from HostExploit.
The report puts eNom at number three in its overall league table of hosts involved (albeit generally unwittingly) in supporting malicious activity online, up from seven in the third quarter.
HostExploit conducts meta-research, looking at a number of factors (such as phishing and spam) normalizing and weighting data provided by a wide variety of sources.
eNom’s position on the list is based almost entirely on its ranking under the “badware” metric, which uses data supplied by StopBadware.org members Google, Sunbelt Software and Team Cymru.
Broken down by category, eNom scored 944 out of 1,000 in the fourth quarter, using HostExploit’s scoring system for badware. The network ranked second scored only 594.
What is badware? The report says:

Badware fundamentally disregards how users might choose to employ their own computer. Examples of such software include spyware, malware, rogues, and deceptive adware. It commonly appears in the form of free screensavers that surreptitiously generate advertisements, malicious web browser toolbars that take browsers to unexpected web pages and keylogger programs that transmit personal data to malicious third parties.

Other major domain name companies also rank in the top 50 worst hosts; 1&1, Oversee.net and Go Daddy occupy positions #35, #36 and #37. Google is at #28.
The HostExploit report appears to have been funded by the Nominet Trust.

Vertical integration – bad news for domainers?

ICANN’s decision to allow domain name registrars to operate registries is a game changer on many fronts, but what impact could it have on domain investors?
For the first time, registrars will be able apply for and run new top-level domains, giving them unprecedented insight into registry-level data.
If they also act as registries, registrars will, for example, be able to see what non-existent domains in their TLD get the most type-in traffic.
They will also be able to see how much traffic expiring domains get, even if the registrant does not use the registrar’s own name servers.
As claimed by some participants in ICANN’s vertical integration working group, this data could be used to “harm” registrants; harms that could be especially noticeable to domainers.
There was a concern from some in the WG that combined registry-registrar entities (we’re going to need a name for these) could use registry data to, for example, identify and withhold high-value names, increasing prices to potential registrants.
The possibility of an increase in “domain tasting” and “front-running” – practices generally frowned upon nowadays – was also raised.
However, some registrars are already owned by companies that register large numbers of traffic domains for themselves, even without access to registry data.
Demand Media subsidiary eNom, the second-largest gTLD registrar, is a good example.
As DomainNameWire reported in August, the company already uses domain name lookups to decide what names to register for itself (though it told DNW it does not “front-run”), saying in SEC filings:

These queries and look-ups provide insight into what consumers may be seeking online and represent a proprietary and valuable source of relevant information for our platform’s title generation algorithms and the algorithms we use to acquire undeveloped websites for our portfolio.

Demand also said that it acquires eNom customers’ expiring domains if they are attractive enough:

Domain names not renewed by their prior registrants that meet certain of our criteria are acquired by us to augment our portfolio of undeveloped owned and operated websites.

Access to registry data could prove invaluable in refining this model, and eNom has, unsurprisingly. long indicated its desire to apply for and operate new TLDs.
But will registries be allowed to exploit this data to line their own pockets?
ICANN indicated today that it plans to introduce a code of conduct for registries, to prevent “misuse of data”, and will likely step up its compliance activities as a result.
What this code of conduct will look like remains to be seen, but I expect we’re looking at “Chinese wall” provisions similar to those self-imposed by VeriSign when it still owned Network Solutions.
It should be pointed out, of course, that standalone registries already have the ability to register domains to themselves, based on their own registry data, and I’m not aware of a great many incidents where this has been abused to the harm of registrants.

Demand Media to invest up to $75m in content

Demand Media plans to invest between $50 million and $75 million in content in 2011, according to the company’s latest IPO filing.
The company, which owns number two registrar eNom, has also disclosed that it plans to list itself on the New York Stock Exchange under the ticker symbol DMD.
Under “Use of Proceeds” in its latest amended S-1 registration form (huge HTML file), filed today with the Securities and Exchange Commission, Demand says:

We currently anticipate that our aggregate investments in content during the year ending December 31, 2011 will range from $50 million to $75 million.

Demand Media’s main business is the advertising it sells against the thousands of freelance articles it publishes every day. It had about $102 million in current assets on its balance sheet on June 30 this year.
Previous text talking about about using the proceeds of the IPO to “acquire or invest in complementary technologies, solutions or businesses” has been dropped.
The amended S-1 spends quite a lot of time talking about a reverse stock split that it is carrying out prior to its public offering.

eNom to crack down on fake pharma sites

Demand Media is to tighten security at its domain registrar arm, eNom, after bad press blighted its recent IPO announcement.
The company has signed a deal with fake pharmacy watchdog LegitScript, following allegations that eNom sometimes turns a blind eye to illegal activity on its customers’ domains.
The news emerged in the company’s amended S-1 registration statement (large HTML file), filed with the US Securities and Exchange Commission yesterday. New text reads:

We recently entered into an agreement with LegitScript, LLC, an Internet pharmacy verification and monitoring service recognized by the National Association of Boards of Pharmacy, to assist us in identifying customers who are violating our terms of service by operating online pharmacies in violation of U.S. state or federal law.

LegitScript will provide eNom with a regularly updated list of domain names selling fake pharma, so the registrar can more efficiently turn them off. The companies have also agreed to work together on research into illegal online pharmacies.
Surrounding text has also been modified to clarify that eNom is not required, under ICANN rules, to turn off domains that are being used to conduct illegal activity.
This is a bit of a PR win for the small security outfits KnuJon and HostExploit, firms which had used the occasion of Demand’s S-1 filing to give eNom a good kicking in the tech and financial press.
HostExploit reported last month that eNom was statistically the “worst” registrar as far as illegal content goes.
ICANN executives are reportedly going to be hauled to Washington DC at the end of the month to explain the problem of fake pharma to the White House.
Registries and registrars have also been invited, and I’d be surprised if eNom is not among them.

Will Go Daddy be the next domain name IPO?

It was four years ago this week, August 8, 2006, when Bob Parsons unexpectedly canceled Go Daddy’s planned IPO at the eleventh hour.
But with its closest competitor, eNom parent Demand Media, ready to go public, eyes inevitably turn to Scottsdale to see if the market leader is ready to follow suit.
I’ve no doubt Go Daddy will be watching Demand’s IPO carefully, but there are some reasons to believe a me-too offering is not a short-term certainty.
Bob Parsons owns Go Daddy
First, and most importantly, Bob Parsons owns Go Daddy. At the time of the 2006 S-1, he was the company’s sole investor, and I believe that’s still the case.
Unlike Demand Media, which raised about $355 million in financing in its early days, Go Daddy doesn’t have a gang of institutional investors clamoring for a return on their investments.
The flip-side of this argument is that it does have is a loyal senior management team holding share options they’re not yet able to cash in on the public markets.
The fact that Parsons is still in charge may cause some investor nerves, given the trust hit he will have taken on Wall Street four years ago, but I don’t think that’s a massive consideration.
The IPO market is still poor
The first attempt at an IPO was canceled mainly due to poor market conditions, according to Parsons’ blog post at the time.
It had only been a few months since Vonage’s catastrophic offering, which saw early-mover investors lose millions, and there was little appetite for tech IPOs.
A lot has changed in the last four years, but the current tech IPO market is still struggling, with many companies recently under-pricing their offerings or losing value since.
According to VentureDeal stats reported at GigaOm, of the 21 tech IPOs in the first half of this year, only five were trading above their IPO price at the end of July. Most had seen double-digit declines.
While some analysts think the upcoming Skype and Demand Media IPOs could breathe life into the market, it’s far from a certainty.
Go Daddy is a cash cow
Go Daddy’s financial statements will look a lot healthier today that back in 2006.
Parsons said he yanked the IPO in part because there was too much focus on Go Daddy’s performance under Generally Accepted Accounting Principles.
Under GAAP, Go Daddy was a loss-making company, due to the way that revenue from domain names has to be recognized over the course of the registration while the associated costs are incurred up-front.
This meant that Go Daddy was a cash machine – with something like $95 million of deferred revenue on its balance sheet at the time of the 2006 filing – but technically unprofitable.
Whether this has changed or not, I don’t know; Go Daddy is still growing. But it’s a lot larger now than it was in 2006, and its cashflow and balance sheets will certainly look impressive even if its income statement does not.
I’m guessing a lot will depend on how Demand performs over the coming months as to whether Go Daddy follows its lead.
But Parsons said four years ago that the firm would revisit the public markets again, and I’m sure we won’t have too long to wait until it does.

eNom called world’s most “abusive” registrar

A small security firm has singled out eNom as the domain name registrar and web host with the most criminal activity on its network.
HostExploit released a report today claiming the concentration of “badware” on the network belonging to eNom and its soon-to-be-public parent Demand Media is “exceptionally high”.
The claim is based on the proportion of dodgy sites on eNom’s network relative to its size, rather than the actual quantity.
The report says the Demand-owned autonomous system AS21740 has the fifth-highest amount of badware and the sixth-highest number of botnet command and control servers.
It goes on to say that the four or five AS’s with larger amounts of malware are themselves between 10 and 7,500 larger than eNom, as measured by address space.
The report, which I’m guessing HostExploit released to coincide with the hype around Demand Media’s upcoming IPO, draws heavily on existing research, such as this recent KnuJon registrar report (pdf).
It also uses stats from Google-backed StopBadware.org to demonstrate that eNom hosts a disproportionately large number of malware-serving URLs.
According to StopBadware, Go Daddy actually hosts more bad URLs than eNom – 10,797 versus 7,429 – but Go Daddy’s market share is of course over three times larger.
According to WebHosting.info, eNom currently has 9.5 million domains under management, compared to Go Daddy’s 35.2 million.
In Demand Media’s IPO registration statement, filed last Friday, the company acknowledges that it sometimes gets bad publicity but says it’s caught between a rock and a hard place.

We do not monitor or review the appropriateness of the domain names we register for our customers or the content of our network of customer websites, and we have no control over the activities in which our customers engage.
While we have policies in place to terminate domain names if presented with a court order or governmental injunction, we have in the past been publicly criticized for not being more proactive in this area by consumer watchdogs and we may encounter similar criticism in the future. This criticism could harm our reputation.
Conversely, were we to terminate a domain name registration in the absence of legal compulsion, we could be criticized for prematurely and improperly terminating a domain name registered by a customer.

Digging for dirt in the Demand Media IPO – roundup

Demand Media, parent of second-largest domain name registrar eNom, has filed to go public, and the publication of its S-1 registration document has given an unprecedented glimpse inside the company.
Unsurprisingly, the “content mill” part of Demand’s operation, which accounts for more than half of its revenue, has garnered the most media coverage over the weekend.
Demand says that the fact that is “transforming traditional content creation models” and is “frequently the subject of unflattering reports in the media about our business and our model.”
Reports of its IPO are no exception.
This report in DailyFinance.com observes that the key difference between Demand and traditional media is that Demand does it “at scale”, with some 10,000 writers producing 5,700 articles per day.
DaniWeb notes that Demand’s freelancers are “working for wages often well below industry standard to churn out content” and said the company is subject to “redundancies, inefficiencies and the reliance on trying to game Google”.
Others are more direct: “wtf: this is why the Internet is full of unreadable junk”
CNNMoney.com reports that Demand is “notorious” for paying as little as $15 per article, and that it can make a 58% return on a month’s articles over seven quarters.
As a freelancer reporter, I don’t like Demand’s model either. I think it devalues the profession. The S-1 reveals that the company is well aware that it’s also quite exploitative:

We believe that over the past two years our ability to attract and retain freelance content creators has benefited from the weak overall labor market and from the difficulties and resulting layoffs occurring in traditional media, particularly newspapers. We believe that this combination of circumstances is unlikely to continue and any change to the economy or the media jobs market may make it more difficult for us to attract and retain freelance content creators.

On the domain name side of the business, DomainNameWire was quickest off the mark, digging out the fact that eNom uses look-ups by prospective registrants to decide what articles might be profitable and what web sites it could develop.
The S-1 says:

These queries and look-ups provide insight into what consumers may be seeking online and represent a proprietary and valuable source of relevant information for our platform’s title generation algorithms and the algorithms we use to acquire undeveloped websites for our portfolio.

eNom has already said that this should NOT be interpreted as “front-running”. (apologies, the first version of this article accidentally omitted the word “not”)
Also found in the S-1, and already known from eNom’s registration agreement Ts & Cs, the company keeps some customers’ expired domain names for itself, if they have value.
I can remember a time not too many years ago when this kind of behavior was frowned upon.
DNW also points to the list of Demand’s subsidiaries. There are 146 of them, at least 100 of which are shells for ICANN registrar accreditations.
Others, such as Acquire This Name, which KnuJon had beef with (pdf) a year ago, act as eNom resellers.
Looking at the financials, All Things Digital gently mocks the company’s reliance on non-standard “Adjusted OIBDA” numbers in its S-1 to make the company appear profitable.
Meanwhile, Mike Berkens at TheDomains is incredulous looking at the amount of money Demand has lost since its inception: some $52 million.

Demand Media gets pre-IPO board boost

Demand Media has added two big names to its board of directors, a move certain to feed the rumors that the company is preparing for an IPO this year.
Joining the board is Peter Guber, CEO and chairman of Mandalay Entertainment, a TV and movie production company that also has its fingers in the sports and digital media pies.
Josh James also takes a seat. He co-founded web analytics firm Omniture, now part of Adobe, and took it public during the dot-com boom.
“The experience they bring from two different ends of the spectrum – creative arts and web analytics – will be invaluable as Demand Media continues to focus on creating the content that consumers want,” Demand CEO Richard Rosenblatt said.
Demand Media, which owns domain name registrars eNom and BulkRegister, is mainly in the mass-market, search-driven content business.
It was reported last week that the company has hired Goldman Sachs to help it prepare for a public listing later this year.
Bulking up the board is one of the things companies do before they head to the stockmarket.

Demand Media in rumored IPO

Demand Media, which owns number-two domain registrar eNom, could file to go public this summer, the Financial Times has reported.
Widely thought of as a “content mill”, Demand is in the business of mining search and domain data and pumping out content which it can sell ads against.
The FT, using anonymous sources, reports that an IPO, which could happen by November, would value the firm at $1.5 billion. Revenue is estimated to be around $250 million a year.
While selling domain names does not appear to be Demand’s core business, other domain name registrars have a rocky record when it comes to public listings.
Register.com, which used its early-mover advantage to IPO at the tail end of the dot-com boom, ended up going private after low-cost registrars like Go Daddy started eating its lunch.
Go Daddy itself gave the world a glimpse at its finances when it filed its S-1 back in 2006, but CEO Bob Parsons yanked the IPO at the eleventh hour, citing poor market conditions and his inability to keep his mouth shut during the traditional pre-offering Quiet Period.
Parsons said at the time that it’s hard to show a profit under GAAP as a growing registrar, due to the way registrations are accounted for.
Tucows, meanwhile, has managed to tick along quietly with a listing on the small-cap markets for years.