Demand Media's Planet of the Algorithms

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How Demand Media uses algorithms to determine whether creating content around a particular search topic will be profitable

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The assignments are generated via proprietary black-box technology, which sifts through data on what people are typing into search engines, compares the search queries with keyword advertising rates, and then analyzes how many websites are already serving that particular market. If after mining the data the algorithm determines that a certain headline for a specific topic, no matter how obscure, will be profitable, it pushes the idea into the pipeline. Last year, Demand Media executives told Wired magazine that the mechanized assignments generate 4.9 times more revenue than ideas generated by humans.

In the spring of 2007, a few months before selling PageWise to Rosenblatt, Reese delivered a lecture at Austin's annual South by Southwest festival. His topic: how to start an Internet business for $100.

That afternoon, Reese recommended the crowd get into Web publishing. "The Internet has six billion pages on it right now," Reese said. "Believe it or not, it needs a whole lot more. There's a huge, huge, huge shortage on the Internet of the kind of information that people are actually searching for." The key, he said, was to keep costs low. If possible, don't pay for the intellectual content. Look for material, he urged, on which the copyright has expired. Any book published in the U.S. before 1923 was available.

He said he was in the process of turning vanloads of old books into websites. With a few hours of labor, for example, you could take a turn-of-the-century Creole cookbook and transform it into the definitive site for vintage Creole recipes. Google's AdSense program would then load the thing up with ads for shrimp and cooking pots and spices and direct people looking for shrimp recipes to your website. Every time someone clicked on an ad, you got a cut of the resulting revenue. On a click-by-click basis, those payouts were likely to be minuscule. Don't scan one book. Scan a thousand.

Reese said that years earlier he had created a site called Essortment.com. Over the years the cheaply constructed nonperishable articles stayed more or less the same, while fresh Google ads kept pouring in. "To this day, Google sends me over a hundred thousand dollars a month off this one site," said Reese. "It's like the Energizer Bunny. It goes up to $200,000. It drops off to $70,000. But it never fluctuates out of that range. Year after year after year."

Demand Media executives hope the same is true for their growing library of videos and articles—an ageless future, supported in perpetuity by Google paychecks. They are not the Terminator. They are a pink, fuzzy, hardworking bunny.

As he wound down his talk in Austin, Reese explained the key to success on the Web. He told the crowd of conventioneers to have a bias toward action and not to try to be too smart. "Be as agnostic as possible," he said. "Don't be a true believer in anything."

Gillette is a staff writer for Bloomberg Businessweek in New York.