Google Cracks Down

You probably heard all the hoo-ha a few weeks ago about Demand Media’s (DMD) IPO. While the company has a technically impressive operation, it just might be built upon quicksand. And if you bought the stock of the company that brought us the “How to Pour a Glass of Water” page, then you just might find yourself under water soon.

“Instructions: Turn on a kitchen or bathroom faucet if you wish to drink tap water. Usually you may choose from two different temperatures of water: hot or cold.”

That quote is not a joke. That’s what Demand Media does. If you don’t know why a company would create a page explaining how to pour water, see if you can figure it out before I give you the answer below.

Initially, Demand Media dodged Google’s content-farm crackdown bullet. But now it seems that Google has reloaded with a heat-seeking missile. See the chart here.

Google’s “Panda” algorithm update is mauling content-farms like Demand’s And not only that, Google is encouraging the masses to rat them out. If you use Google’s Chrome browser, you can install their Personal Blocklist plugin. With one click, you can make all the eHow pages go away. And Google watches who you vote off the island. If you don’t like it, Google probably doesn’t like it either.

I don’t know if Demand Media will survive or not. What I do know is that Google will fight tooth-and-claw to protect its SERPs (search engine result pages) because that is their content. Anybody who thinks they can game the system on a sustained basis is living in a dream world.

And even if the army of idiots which is flooding the world with “how to drink water” pages were to ultimately succeed, and overrun Google, they would still perish because everybody would quit using search engines to find things.

There are laws against email spam. There are laws against idiots calling you on the phone all day. Will there one day be a law against web spam? I don’t know, but it might be the only way to save search engines in the long run.

If you are a stock-picker who does fundamental analysis, you now have another metric to evaluate: how much of the company’s revenue is derived from black-hat SEO? Because it is only a matter of time before Google comes for them.

The reason why eHow wrote a “how to pour water” page was to attract bottled-water ads from Google AdSense. Look down at the bottom of that page and you will see them, assuming that you are not running AdBlock. Profit margins on water products are high, and I wouldn’t be surprised if those advertisers are spending a lot on those ads. eHow gets paid every time somebody clicks on one. OK, the page may not attract a lot of traffic, but the whole point of a content farm is to make a million such pages so that the revenue ads up to something substantial.

And that is indeed clever. But not from Google’s perspective. In fact, when Google sees a page like that, smoke starts to come out of its ears as it reaches for the laser canon. Google always talks about their algorithms, and how an impartial robot is trying to build the best SERPs. But I guarantee you that in addition to that, the actual people at Google take it very personally.

Any algorithm can be gamed if you know how it works. When a company like Demand Media games the algos, it is a direct threat to Google’s bread and butter. Google will crush them because it has no choice.

Personally, I wouldn’t hold the stock of a company like Demand Media if you put a gun to my head. And I wouldn’t be the least bit surprised if it went to zero, never having turned a profit. No doubt they are very smart people, and they may figure out a way to survive. But Google only wants to list links to quality content, and if Demand has to spend more money to bring up its quality, that would certainly eat into any future profits.

36 thoughts on “Google Cracks Down

  1. H&S developed on SP500?

    John Lansing, of, says that a “Bullish Trend Reversal Pattern” is in play similar to several previously that have propelled the market for the following +6mos forward. He says that the last one was in November, 2010.

    He doesn’t mention this possible H&S pattern as the “Green Light”, but I thought I’d try to see if I could find what he was looking at. Of course, for $595 yearly subscription, you can find the answer (hey, be appreciative because that’s a $500 savings off the regular price). gawd

  2. “Even worse” is when the S&P gives a warning shot across the bow that we need to get our deficit spending in order before downgrading our debt. As G would say…Got shorts? Yup! 🙂

    G, hope you are doing ok from the “God made natural disasters” over the weekend. Hope all is well and gets back to normal ASAP.

  3. p

    Tks for the info. Sad, but anyone sending me something from Investor Place gets deleted immediately. I say sad because there are probably some of the advisors/traders that are good.

  4. Sold half of late last week’s “massive” short ETF for a nice profit in the first 10 minutes of trading. Holding remainder for more downside or taking more profits if the gap starts to back and fill. Another “no lose” kinda trade now that a profit stop has been placed. Off to work out, get ready for work, and then I’ll whistle all day a HAPPY tune even when I’m buried elbow deep in emergencies! GLTA.

  5. 2th

    waiting patiently for usa debt to be downgraded

    i am waiting with lots o cash to buy a nice crash

  6. g

    i clicked on the link and it didnt show the lansing review

    anyway i think 16 out of 27 said his forecasts were horrible

  7. p

    Years back, I was a 3-month member to 123. I wasn’t impressed at all. He got long in a stock and rode that thing down to whale poop, all the while saying the “pattern” sez it is going higher.

  8. g

    wave 3 of C wave down in force as i forecasted weeks ago to 1222 region where my truck is parked

    will have to see lots of panic to load truck

    looks like june peak may just be a retrace rally and last chance to get out of DODGE CITY

  9. p

    Tks for the link. This is getting to be better volatility like when there would be $5-$20 moves in the ETFs. Not there yet.

  10. g

    got lucky in slv premarket bought dip

    for some reason it shot up almost a dollar

    of course i sold but now its crashing below where i bought..

    im not anxious to buy silver now

    we could have just seen the peak

  11. “buy the dip” (for mutual funds, not me) at 10:08 didn’t work as we have almost revisited it. Still holding the shorts for Phil’s panic low. 🙂 workout in, time to get on with the workday.

  12. 2th,

    RE: “Hope all is well and gets back to normal ASAP.” Thanks.

    My homes escaped the fury. I was at Lowe’s waiting out one of the squaw storms and witnessed a blast of wind uproot Lowes’ storage buildings, their Garden Center roof, then it turned into a small tornado on the other side of the building and did some more damage. Some vehicles in the adjacent Wal-Mart parking lot got damaged.

    I took this photo:

  13. Whoa nelly, that is some damage you were near! Glad you are okay G.

    Just got back from a trip and missed Monday’s trading, did I miss anything? 😉 just kidding….

  14. You only missed a few gaps 2th. All have been filled faithfully. SPY is filling its gap from yesterday now.

  15. More gap-filling tomorrow. The financials have a long way to go to fill its gap.

    I’ll help it tomorrow again. 🙂

  16. My joke reminds me of the flash crash last year–if I hadn’t SEEN it myself on my computer, I *never* would have believed it happened! Most people didn’t, so it was a “non-event” other than the scariness factor.

    Grabbed a mild short in the AH when the /ES popped up to touch the cash equivalent of the 50-day MA of SPX. Bulls live above the 50-day, bears live below it. Plus, Tuesday’s EOD SPX close was the 61.8% retrace of the 1322.79 to 1294.70 move down on Monday.

    Good night all…

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