There is wave of panic rolling across the freelance Web writing world right now because of the news that Demand Media isn't actually profitable. Multiple stories have come out touting the company's lack of profits, as announced during the company's IPO, as a sign that they will fail any day and that the entire business model is obviously an unprofitable one. Here's why they're wrong.
Profits Often Happen Years Down the Road
It's not at all unusual for a company to make no profits in its first few years, or even longer. Amazon showed no profit for its first 10 years. Now? Not so much. During the last quarter, its profits were $207 million. NetFlix, now a giant in the movie rental industry, showed no profits for its first six years- a year after it's IPO. What do they have in common? They're both large, online companies that grew quickly and expanded into new areas of their industries. Sound familiar?
They Don't Actually Need Profits Right Now
If this was a mom-and-pop operation, they would need profits immediately to stay in business. But it isn't mom and pop running Demand- it's a large company with scores of investors who have pumped hundreds of millions into the business. Even if they never make a dime, they have enough to stay in business for at least the next 10 years and even longer if the IPO generates the $125 million they're seeking.
It's Losses Are Shrinking
The gap between what they make and what they need to make isn't growing- it's rapidly shrinking. According to Daily Finance, during the first half of 2009, Demand lost $13.9 million. During the first half of 2010, it lost $6.05 million. At this rate, they could be profitable within a year.
So, are Demand Media and I best friends? No. They're dead useful, but they definitely have issues, as anyone who has ever worked for them knows. But, the sky is not falling. It remains in place just in case you need it.