Search Resources: Building a Better Economic Model
Even though study after study shows that more eyeballs go to organic listings, pay-per-click is often the advertiser default because the business model is easy to track and understand. Richard Zwicky moderates this panel, with thoughts from Rand Fishkin of SEOmoz, John Marshall of Market Motive and Andrew Goodman of Page Zero Media. Some of my thoughts on the session are in italics.
Rand starts with a presentation on how to scale an SEO business, but the advice could apply to any service based business or consultancy. Readers of SEOmoz will know that over the last few years, the mozzers have gone from focusing on client work to a subscription model that focuses on search tools, training and support.
His view is that the typical consultant model doesn't scale. The number of clients and volume of work requires an increase in people and human hours. Additionally, the exit/sale price multipliers max at 1.5x revenue for consultancies, 4x for ad revenue based businesses, 8x for product revenue businesses and up to 100x for technology. For someone looking to take their SEO business further financially, the technology model is the path to take when it comes to outside investment or acquisition.
Pay for performance as a model for organic search is an option, but has downfalls and is volatile. Stock/share compensation is more frustrating because factors outside of the consultants control can interfere.
"Productizing" SEO is a way to leverage a product/service/technology that increases in revenue without increasing in human resources. The product can be an event, subscription based, research based or technology based model.
These all scale better than models that require an increase in human resources as revenue increases - the typical consultant model.
While this presentation was geared towards search marketers, it's not difficult to imagine that a product model can make more sense to an advertiser. Products have a clear end result. Using WordTracker or Trellian will give a few hundred keywords, along with popularity statistics. $xx/month or year guarantees xxx keywords. Paying a consultant can turn up keywords that may not be included with standard synonym generators, from a wider variety of sources, but how do you quantify the benefit? Some organizations can't.
I'm a strong believer that technology is only as good as the people who use it, but for "bottom line" advertisers, purchasing a product rather than purchasing expertise may make sense. Additionally, the market for products is generally larger than the market for expertise due to wide price points. SEOmoz offers consulting services at $1000/hr, while subscriptions to their tools start at $79/month.
Next up is Andrew Goodman, who's discussing Paid Search and Organic SEO Agency models. It's easy to assign a performance model to paid search since clicks, leads and conversions can be measured mere hours after they take place. Why not assign a performance to organic search?
Even the most basic analytics packages will let you know what percentage of site traffic is coming from search engines. Andrew's found that small, medium and big business each have different criteria. Companies will always outsource at some point. When it comes to walk the line between advice and implementation, these will be the factors that go into selection of agency vs. in-house.
Performance based payments lack transparency on both sides. Not all business models match with CPA (cost per action). Think high ticket items with long sales cycles, and sites where part of the sales process occurs offline or beyond a payment or form submission.
With attribution being a gray area, most professional organizations don't want to encourage the risk associated with pay for performance. Who would decide if a publisher is underreporting results, or an agency is overestimating them?
Beyond paying for performance on specific SERPs, it's clear that there are too many problems associated with pay for performance to make it a standard for search agencies or service providers to adopt. It requires a high level of trust on both sides, but even with that there are problems. If traffic from branded searches rise after organic optimization, does the SEO get to take responsibility for this? When it comes to revenue, should the agency settle for a one time payment when the benefits from higher rankings and search traffic could last for months or years?
John Marshall from Market Motive continues to examine the problem with trying to assign the PPC model to organic search. The biggest problem is that ROI attribution from traditional analytics isn't always simple, and gets shakier with the more marketing you do. As touchpoints increase, reliability decreases.
What does that mean? There could be several latent conversion that show up in analytics as search conversions. Someone might see a display ad for your product, visit your site and leave. They may also remember your product and search for it, visit your site, add the product to your shopping cart then leave. If they've bookmarked the product page, come back to it, order and pay, the conversion is attributed to direct traffic.
Most analytics packages don't track this type of conversion out of the box, and for some it's not possibe at all. The problem with attributing conversions to the most recent referrer is that consumers typically begin searching on broad categories, later narrow things down to specific products, then specific names/IDs. Broad categories may not get the credit they deserve for influencing a decision before the final conversion.
A hack for Google Analytics is to modify the standard GA JavaScript so that it
•Grabs referrer and stuffs it into a special cookie
•Later the GA referrer cookie data gets overridden with a new referrer
•Restores original referrer from special cookie and replaces overwritten one
•Ugly, but apparently it works
Hacks aside, you often need several tools to fully measure a conversion and give proper attribution.
When it comes to revenue, it's easy to see how this could create a problem. If traffic from search accounts for 35% of sales, can an agency rightfully agree to a split of that revenue if some of the searches came as the result of a display campaign? There have been studies that have shown that presence in the paid and organic listings can increase clickthrough in both places. If the presence of a paid listing increases the clickthrough and conversion on an organic result, should the paid search team get a portion of the final revenue? Conversely, even if there are other ads present, if the organic listing is the one that captured the sale, should it be divided?
It may not be perfect, but the current model of payment for time and set services seems to be the one that works best for agencies and advertisers. Add to the attribution problems that organic search just isn't the same as paid search. With paid search, you can test an infinite amount of ad copy and landing pages for their effect on clickthrough and conversion. Organic requires satisfying a search engine's cues that a page deserves the top position for a term, in addition to the human requirements. Swap the page that satisfies Google (or Yahoo, or MSN) for the one that converts better with humans, and you may find yourself a few positions lower, which can in turn reduce traffic and actions further.
I think there a large changes occurring across the board right now for many different industries. Nobody is immune but with clients comes a def. need for more man hours.
Posted by: Nick Stamoulis | February 23, 2009 at 03:25 PM
The number of clients and volume of work requires an increase in people and human hours.For someone looking to take their SEO business further financially, the technology model is the path to take when it comes to outside investment or acquisition.
-faith-
Posted by: Los Angeles seo company | March 24, 2009 at 12:17 AM