NEW YORK ( IPOfinancial) -- Demand Media began operations back in 2006, with its business split into two operating segments: content and media, and registrar. The majority of the company's revenue is derived from the content and media side and is characterized as a "new Internet-based model" that focuses on creating content that responds to actual consumer demand.

However, while creating and distributing articles and videos may sound rather simplistic its the actual technological process that is used to evaluate the monetary benefit derived from each content piece produced that sets this business model apart from its competition. Specifically, the company is focused on creating "long-lived media content" that will create a "predicted economic" return above a minimum threshold, the company says. At the root of this strategy are the technologies and processes that have been created to monetize and tie together both ends of the business.

  • Demand Media -- DMD
  • Lead underwriter -- Goldman Sachs
  • 7.5 million common shares
  • Current price range -- $14 to $16
  • Deal size to the mid-range -- $112.5 million
  • Week Due -- Jan. 24, 2011
  • Sector -- Multimedia

On the content and media side, Demand Media has developed specific algorithms to utilize data in helping to determine what content consumers are seeking. Moreover, its monetization tools allow it to "optimize revenue" yield across its distribution channels by implementing contextual matching algorithms that place advertisements based on Web site content, yield optimization systems, evaluating the performance of advertisements on Web sites to "maximize revenue and ad management infrastructures," Demand Media says.

On the registrar side, the company examines its customer interactions to determine what consumers may be looking for online. Suffice to say, Demand Media has created a technological niche that is difficult to duplicate and remains innovative in its business approach while the future growth potential is significant. The emergence of Facebook and Twitter, along with the potential that arises from the expansion of Web traffic and the increased demand for mobile apps, will serve as a constant reboot for media consumption by consumers.

Recent comScore stats note the significant rise in the number of typed-in search queries, from 39 billion in 2006 to 134 billion as of September 2010. This in and of itself serves as a convincing argument in support of additional growth opportunities for Demand Media. The one missing link for the company is its financials which have produced net losses since inception as high service costs have impeded profitability. Nevertheless, increased revenue within the content and media segment should help to bridge the gap as service costs as a percentage of total revenue are expected to decrease.
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