What is SEO?

Google this week announced (via Matt Cutts blog) that they have setup a system for webmasters to report any sites that they believe are involved in buying and selling links. This is an attempt to prevent distortions in the search engine results and provide a better service to users of the google search engine, they say.

Sounds good? Well at first glance it looks like a good idea. If I am selling, say, ‘cheap software’ and can be first in the google results for that phrase, I will get a lot of customers. If I can only be first in the results by buying links on 50 other high ranking software sites I might be inclined to do it. Perhaps I can pay $1,000 per month for those links and make an extra $10,000 a month in profits. Of course I will rush to buy the links, who wouldn’t?

This article is not about the practicalities of such an idea, which probably make it impossible to implement. Instead let’s take a little step into the murky world of economics. I can’t go into every detail of economics here but the following should get you thinking.

There are two important aspects to consider:

1) In the example above I paid $1,000 to make $10,000. Market forces are such that the next company to come along will be happy to pay $2,000 to make the same amont of profit, and in no time at all they will be above me in the rankings. Company number 3 will pay $3,000, and I will start paying $4,000 to keep my position at number one in the SERPS.

You get the idea. Sooner or later market forces will mean that someone is happy to pay $9,500 per month for that extra $10,000 of profit, perhaps even more. I might decide it’s not worth the effort and stop my software business. But the result is that the price of the links will approach the profit that can be made from those links.

And here’s the important part - the only companies that will be able to pay these high rates are those that are actually selling cheap software, and lots of it. If I buy my way to number one in the charts for cheap software, but my software really isn’t very cheap, I will be spending a fortune on links and making very little income. So the company that ends up at the top of the SERPS will tend to be the one that is actually best at selling cheap software.

And that’s exactly what we, and google, want to see - I think.

2. Adwords. We all know that google make their money from adwords, the ads that appear above and to the side of the search results. At a basic level these work in a simple way. You pay to appear in the advertised listings, and the more you pay the higher your results appear. So if I want to pay for my ‘cheap software’ advert to appear first in the ads I might need to pay $4 per visitor (sorry, I don’t actually sell cheap software and have no idea of the actual charge).

I find this works for me, so I pay the $4. OK, here comes company B again, and offers $4.50. They get first place and sell more software than me. See a trend emerging in these stories? Eventually someone might be paying $10 per visitor sent from the adverts.The price a company will pay per visitor will rise until they are only making small profits or perhaps just breaking-even.

The main difference between this example and the one above is that this time it is google who are getting the cash, not other websites.

Now let’s assume I can get to the top of the ‘real’ results by spending $5,000 or I can get the same number of sales by paying for adwords, but that costs me $10,000. Which will I do I wonder? And this is the big problem for google. If a company can get to the top of the ‘real’ results for a lower price than by advertising with adwords, they are going to do it.

Worse, we have seen in example 1 above that a company will pay an amount to be first in the SERPS that approaches the profit they can make. So if adwords is a more expensive way to attract customers the company simply can’t afford to pay that price. And if adwords is cheaper the company would be using it in the first place.

So I believe that attempting to control the SERPS by restricting paid links, in an attempt to boost adwords revenue, is doomed to failure. And that market forces will allow the SERPS to naturally show the best results, regardless of paid links, as explained above.

Hence the policy of banning paid links is a distraction of the time and energy - it will neither improve their normal search results or increase adwords spending - that google should focus on other areas that are currently in need of improvement , such as eliminating Made For Adsense sites from the index, which would cause a much greater improvement in the results. But that’s another story.