Demand Media Is Afraid That Google is Going to Compete With It

In the “risk factors” section of its IPO filing on Friday, content-creation company Demand Media raises an interesting possibility: that Google (s goog) — which Demand said it relies on for about a quarter of its revenue, via cost-per-click keyword advertising — could decide to use its own expertise in keyword search trends to compete with the algorithm-driven content company, whose initial public offering is planned for later this year. Specifically, Demand says that the search giant’s access to the data from billions of searches could give it a “significant competitive advantage” over the soon-to-be-public startup.

Demand’s main business consists of creating content — text, photos and videos — that matches what Internet users are looking for, which also happens to be what advertisers are willing to pay the most for, in terms of keyword-related ads. So if Demand’s algorithm determines that the hot trend is looking for high-end digital cameras, it will pay writers and photographers to create content that matches that interest, and then try to maximize the revenue it gets from keyword-related advertising through Google. As the company that sees search trends in real time and buys and sells ads around those searches, Google is perfectly placed to take advantage of that, Demand notes in its SEC filing:

Google’s access to more comprehensive data regarding user search queries through its search algorithms would give it a significant competitive advantage over everyone in the industry, including us. If this data is used competitively by Google, sold to online publishers or given away for free, our business may face increased competition from companies, including Google, with substantially greater resources, brand recognition and established market presence.

But Google doesn’t create content, right? That’s true, for the most part. But the giant web company does handle a lot of user-generated content, including videos uploaded to YouTube and photos posted on Picasa (and subsequently attached to locations on Google Maps) — as well as millions of blog posts published through Blogger. It’s a bit of a stretch to assume that Google will suddenly turn into a content-creation company, but it’s not out of the realm of possibility. And there have been some interesting signs that the search giant might be considering the idea, including a patent that Google was awarded involving a process that would “identify inadequate search content.”

The patent — whose listed inventors include Google’s Chief Economist Hal Varian and the head of Google’s Webspam Team, Matt Cutts — describes using a search engine’s statistics about search queries and the relevance and quality of the pages that show up in response to detect when there are “underserved” topics, i.e. topics where there aren’t many good search results. Google then describes how this information could be passed on to publishers and content creators as a suggestion for what content they might want to create in order to show up in Google’s results.

This could be done either for free, the patent says, or publishers could be charged a fee for the information or be required to show related ads (two options that are specifically referred to in Demand’s regulatory filing), or Google could create a topic marketplace, where publishers could see what topics were underserved. Andm the patent describes how a search engine with such information could provide an “automated content-generation system” that aggregates information related to queries and topics that have inadequate results, or could even be used to create “stub” articles on wiki sites such as Wikipedia.

It’s worth noting that the “risk factors” section of an IPO filing is designed to lay out every possible threat to a company, no matter how small or unlikely. So the simple fact that Demand refers to Google competing with it is no guarantee that this will actually come to pass — and even if Google does decide to follow through on what it describes in the patent, it could decide to work with Demand rather than going into direct competition with it. It’s also true that Google has plenty of other ways of causing trouble for Demand, including devaluing the company’s commodity content by tweaking its algorithms.

All that said, however, the prospect of Google using its dominance in search trends to take a controlling interest in the new marketplace for auto-generated content is certainly an interesting one.

Related content from GigaOM Pro (sub req’d): Will Games Help Google Figure Out How to Be Social?

Post and thumbnail photos courtesy of Flickr user Abysim