Analysts like Demand Media. Its writers? Not so much

November 11, 2011: 1:24 PM ET

The company turned in solid quarterly results that analysts cheered. But the site's writers are telling a very different story.

ehow_demand_mediaFORTUNE -- Demand Media's much-watched transformation continues. Analysts have been encouraged by the Santa Monica, California-based company's recent results. Its freelancers paint a very different picture, though.

Started in 2006, Demand (DMD) was a front-runner in the wave of companies that rushed to find ways of creating Web content on a massive scale. Using algorithms, it generated and assigned freelance writing assignments based on what Internet users were searching for. "It was amazing. They literally wrote 2 million articles in a year," says Patrick Walravens, an analyst for JMP Securities. Demand's model of milling out tens of thousands of assignments to hungry freelancers each day worked well, he says, generating $253 million in revenues last year.

The problem? For every useful wedding shower how-to, there were just as many odd ones, like how to put on a Speedo. That led critics to label the company a "content farm." Demand's moment of reckoning arrived when Google (GOOG) rolled out a significant update to its search algorithm, codenamed "Panda," last February. It elevated higher quality content in search results, pushing stories like many of the ones Demand specialized in further down. Traffic plummeted. The company reported that search referrals fell 20% and eHow, its most popular site, saw page views sink 12%.

Needless to say, investors were spooked. Since the company's IPO last January, when it debuted at a $1 billion-plus valuation, shares have plummeted nearly 69%. That's despite the fact that Demand's third quarter revenues climbed to $78 million from $65 million the same time last year. Analysts are cautiously optimistic about the company's prospects. Evercore Managing Director Douglas Arthur says Demand's game plan now includes "taking a long look at their content production studio, what kind of content they're doing, cutting down on the amount of content and focusing on the quality of the content." According to Arthur, the company is performing to expectations.

The freelance writers Fortune spoke with feel differently. Before, Demand usually served up tens of thousands of assignments per day: one day last year, it had a backlog of 150,000 available assignments for writers, editors and videographers. Freelancers claim that, over the last two weeks, the number of assignments offered is much lower, down to 500 daily and sometimes as few as 150. If that is the case, suddenly, there is only enough work for a tiny fraction of Demand's thousands of freelancers. (Each freelancer is usually allowed to claim a maximum of 10 assignments at any given time.)

Freelancers told Fortune they're unhappy with the changes. "Writing for Demand, you're an independent contractor," admits one former writer, who declined to be named. "I have no qualms or bitterness about that. But it seemed like there was a real lack of honesty and transparency. They could have said those changes will affect us and those of you who depend on us shouldn't depend on us anymore. Instead, they kept pretending everything was fine while titles were drying up." He now writes for other outlets.

Another freelance writer, a former newspaper editor, looked to Demand to make extra money. As recently as six months ago, she was satisfied with the extra income Demand assignments provided. "The pay wasn't great, but it was reliable," she says. Demand pays freelancers twice a week, between $15 and $20 per story on average.

Then in early October, Demand sent its writers and editors a memo stating it was cutting down on eHow assignments for the "foreseeable future." What she didn't know at the time was by how much. According to some reports, new eHow titles have been reduced by more than 50%. Now, she gets up at midnight each day, waiting for hours at her computer hoping that new titles or expired ones -- assignments the previous writer didn't satisfactorily complete -- become available.

The severe downturn in assignments has left the disgruntled writers Fortune spoke with searching elsewhere for freelance jobs. "I'm hitting refresh until a title comes up, and if a title does come up, I just select it as fast as I can -- I don't even look at it," she confesses. Story prompts include how to build a continuous electrical generator and how to build a ripstop airplane. Naturally, freelancers believe this bodes poorly for Demand's future.

Perhaps this was to be expected, though. The company has repeatedly claimed it is pivoting from a mass producer of cheap content to a generator of quality web stories. (Demand did not respond to a request for comment on this story.) But in turning away from its once-innovative model, Demand is also leaving behind a lot of unhappy former freelancers.

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About This Author
JP Mangalindan
JP Mangalindan
Writer, Fortune

JP Mangalindan is a San Francisco-based writer at Fortune, covering Silicon Valley. Since joining in 2010, he has written on a wide array of topics, from the turnaround of eBay to the evolution of net neutrality. A graduate of Fordham University, Mangalindan has also written for GQ, Popular Science, and Entertainment Weekly.

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