CASE STUDY 8
Demand Media: Creating a Transformative
Business
SUMMARY AND AUTHOR’S NOTE
Forbes Magazine once wrote that if you attached a cable to Richard Rosenblatt, you could power
a small town. Rosenblatt is a high-powered serial entrepreneur and a creative force in the New
Media Industry. In the short space of about 3.5 years, Demand Media has grown to over 550
employees with locations in North America and Europe, and Rosenblatt has managed to raise
more than $350 million in investor capital to fund Demand’s acquisitions.
For the next few years following the dot com crash, money dried up, and Rosenblatt started a
small venture fund to do some small investments of his own. His original investor told him he
wouldn’t invest any more money until Rosenblatt failed. His venture with Dr. Koop turned out to
be his only failure to date. With a promising business model but no access to capital, Rosenblatt
took the company into bankruptcy in 2002.
In June, 2006, Rosenblatt and his partner, Shawn Colo, launched Santa Monica-based Demand
Media. They immediately bought back the core social networking platform they had sold with
Intermix to News Corp. That became the foundation for a diverse portfolio of companies and
websites. Demand Media is “a leader in a new Internet-based model for the professional creation
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of high-quality, commercially valuable content at scale.” Demand Media identifies, creates,
distributes, and monetizes in-demand content through two distinct offerings: content and media,
and domain registrar. The competitive advantages they claim are that they claim are (1)
WHERE TO USE THIS CASE
• Chapter 3: Use to discuss the process and strategic advantage of creativity and innovation.
• Chapter 4: Use to discuss the development of a successful business model.
• Chapter 9: Use to discuss the elements of a successful business plan and pitch
• Chapter 16: Use to discuss the process of raising capital and an IPO.
• Chapter 17: Use to discuss growth strategies, particularly innovation and global expansion.
CASE ANALYSIS
This case addresses a number of issues surrounding innovation, new industry formation, and
raising capital. You might begin with an overview of Rosenblatt’s life and success as a serial
entrepreneur. What conclusions can students draw about the nature of entrepreneurship from
Rosenblatt’s career?
Innovation
For Rosenblatt, the ability to think creatively and to innovate is a significant competitive
advantage. Ask students to identify examples of innovation throughout Rosenblatt’s career. This
Case 8: Demand Media 112
Raising Capital
The discussion of innovation leads naturally to a discussion on the role of the business model in
raising capital. Rosenblatt’s ability to innovate to create an industry, new business models, and
new products all contributed to his ability to raise large amounts of capital. Ask students to
consider the kind of pitch an entrepreneur like Rosenblatt might make. What would characterize
Success and Failure
While success contributed significantly to Rosenblatt’s ability to raise capital, failure also played
a significant role. Remind students that many entrepreneurial ventures fail and reinforce the
DISCUSSION QUESTIONS
1. What do you believe led to Richard Rosenblatt becoming a serial entrepreneur?
Rosenblatt’s personality, energy, ability as a thinker, business sense and education all
2. Would you have made the decision Rosenblatt made to take Dr. Koop into bankruptcy?
Answers will vary, but students should be able to identify the wisdom in Rosenblatt’s
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3. What is Demand Media’s business model and competitive advantage?
Demand Media is “a leader in a new Internet-based model for the professional creation of
4. How does Demand Media justify doing a public offering when it is not yet profitable under
GAAP rules?
Demand Media originally slated its IPO for early fall 2010, but the company filed an