Left: I met much of the founding team of Demand Media last week in SF at the Web 2.0 expo.

A few days ago, I had lunch with Richard Rosenblat, CEO of 2.5 year old Demand Media (who recently purchased Pluck) to learn about his unique business model which sits in between self-publishing and mainstream media. This company has been pretty tight lipped but after Richard’s presentation at Web 2.0 Expo and an interview with Kara Swisher, he was interested in briefing an analyst. If you’re familiar with the long tail concept you’d be aware of the large head, long tail –and fat neck. Overused metaphors, but visually it helps to explain this concept.

1) Enterprise Generated Media
Mainstream media publishing existing content (TV, Newspaper, Magazine) or spending quite a bit of resources or high quality created content like Funny or Die. This content is easy to spot, it’s highly refined, quality is often high, and is expensive to create.
Content: Refined
Cost: Expensive
Model: Broadcast, Large Head

2) Consumer Generated media
The second model is everyone who is self-publishing from their own blogs, websites, podcasts and videos, they’ll often create their own content, find advertising revenue opportunities and may band together forming blog networks like B5, Glam, BlogHer, and Federated Media.
Content: Varies, but can be low
Cost: Inexpensive
Model: Social, Long Tail

3) Curated Social Content (CSC)
This model is unique as it scoops up the best of CGM and serves it up to EGM sites who need it. Here’s how Demand Media is doing it:

1) SCC company finds EGM “passion verticals” where there’s a strong desire for content –but they don’t have resources to create it all. For example: Lance Armstrong wants to launch a health site.

2) The CSC company issues a request for consumer experts to write articles, they get paid (Richard of Demand Media told me it often starts at $15) in which they buy and own the content. For Example: Demand asks Health experts to submit articles, a team of editors will determine which article will get paid.

3) Content is posted on the EGM site and attracts visitors, as well as boost SEO. Advertising generates revenue. For Example: Lance’s health site will have a regular influx of new content from industry experts, content hungry people will visit the site, and then interact

4) Both parties have revenue share from advertisements and the CSC company, like Demand Media, takes a cut. For example: Lance’s health site will generate clicks through advertisements (or other revenue opportunities) as new members are attracted to the site.

Impacts to mainstream media sites: In times of economic downturn this could be a model that purchases media on demand for a large base of creators, content that is often customized. This could reduce the full-time staff at a publishing company. The upside is the increased content created by the crowd, yet reducing the risk of unqualified content. The risk? Media companies still need a strategy, editorial guidance and need to ensure quality and consistent content is provided to the site.

Impacts to content creators: If you’re an expert at a topic and already blog about a topic, now there’s an opportunity to get compensated for it. This plays to the future of ‘everyone can be a freelancer’ using the distributed web. The risk? While your content will now be featured on mainstream sites, the content is now legally owned by Demand Media, you don’t have direct ownership of the content. Also, not everyone will be able to be a publisher, as you have to demonstrate expertise in your arena. This seems competitive to companies like Wikia, Mahalo, and other curated website content, as well as blog networks I mentioned earlier like B5, Federated Media, and others.

Talk Back:

Is this a viable content strategy for mainstream media companies?

Will community experts embrace this way of monetizing their knowledge?

During an economic downturn will this be a cost effective way for both publisher and creator to generate revenues?