As consumers, techies and the media trade some of their infatuation with
Google for the latest crop of super-hot web upstarts like Facebook, the
world’s most dominant search engine is finding that more and more
people are pointing out its flaws.

The quality of Google’s SERPs have increasingly come under question,
with some complaining that Google isn’t doing enough to weed out web
spam and low-quality content that ranks well but doesn’t offer consumers
much value. I am one of those who have been highly critical of Google’s
capabilities in these areas.

There may be good news, however: Google is listening to what people are saying, and it’s trying to send the message that it hasn’t lost focus on search. In a blog post on Friday, Google’s Matt Cutts argued that the company does take web spam seriously, and that it actually does a relatively good job of fighting it. But it now acknowledges that it may not be doing enough to filter out low-quality content, and is thus turning some of its attention to “content farms” which pump out search engine-friendly content:

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. We take pride in Google search and strive to make each and every search perfect. The fact is that we’re not perfect, and combined with users’ skyrocketing expectations of Google, these imperfections get magnified in perception. However, we can and should do better.

If Google starts taking a harder line on content farms, one of the companies which may be impacted the most is Demand Media. Its strategy, which some observers have criticized heavily — perhaps even too heavily — is based in large part on feeding search engines delicious fast-food content that ranks well for terms that can be monetized by advertising.

The threat of a Google algorithm change that would make it harder for Demand Media’s content to rise to the top of the SERPs couldn’t come at a worse time, as Demand Media is set to go public this week.

Going public has been an uphill battle for the company, and one of the reasons has to do with how Demand Media expenses one of its largest costs: content production. Instead of expensing the costs of content production, which consists primarily of the fees it pays its army of freelancers, when they’re realized, it amortizes them over five years. Critics have argued that this accounting practice makes Demand Media’s bottom line look healthier than it may really be.

Demand Media has vigorously defended its accounting by claiming that its content is evergreen, and therefore an appreciating, not depreciating, asset. In one of its SEC filings, it explained its rationale:

Capitalized media content is amortized on a straight-line basis over five years, representing the Company’s estimate of the pattern that the underlying economic benefits are expected to be realized and based on its estimates of the projected cash flows from advertising revenues expected to be generated by the deployment of its content. These estimates are based on the Company’s plans and projections, comparison of the economic returns generated by its content of comparable quality and an analysis of historical cash flows generated by that content to date.

Is it possible that Demand Media’s content is evergreen and really will generate revenue fairly evenly over time? Perhaps. But even if one assumes that there’s nothing wrong with Demand Media’s accounting today, Google’s move highlights perhaps the biggest flaw in Demand Media’s strategy: when your content is designed to attract organic traffic through Google SERPs and Google changes its algorithm, the value of your content can effectively plunge overnight.

Obviously, it remains to be seen how big an impact Google’s web spam crackdown will actually have on Demand Media. It would be surprising, for instance, to see Google arbitrarily penalize all of Demand Media’s properties just to prove a point. And it probably shouldn’t. While some of Demand Media’s content is of debatable quality, there are subjects on which you don’t need to hire a modern-day Shakespeare to write.

But the mere threat that Google may have content farms in its sights sends a strong message to Demand Media and companies employing a similar strategy: focusing your content creation on search engines, and not real people, will always be a risky strategy, even if it sometimes pays off.

Photo credit: Public Domain Photos via Flickr.