Fixed Business Costs, Market Passion, & Profit Potential

When creating a content based website you can't just look at how big a market is and say thats a lot of money I am gonna go get some of it. You have to evaluate the profit potential of the market, and how easy it is for you to access it.

Biotechnology Blows:

Lets say I heard that biotechnology was a fast growing field and the market can not keep up with the demand, and I wanted to ride that wave. There are multiple problems with profiting from that market though:

  • lots of authority in that market: you are going to need many links to compete in the SERPs

  • lots of passion in that market: it is going to be hard to accumulate links as fast as the best channels
  • hard to write about: you can't just pay any old work at home writer to research and write about biotechnology the way they could write about something like personal finance
  • science and government: lots of high authority sites clogging up the search results
  • ad blindness: outside of children who do not yet understand advertising, most people studying science are less likely to click ads than the average person

Bad Markets:

The above bullet points are examples of things to look out for. Some markets that are generally tough to profit from (on an ROI perspective)

  • anything related to computers and the Internet

  • insurance or anything with heavy government interests
  • fields where everyone has the same duplicate content
  • science or other fields with lots of trusted links
  • high priced commodities in fields that are heavily marginalized and in decline

Good Ways to Play Bad Markets:

Zillow does well in real estate because they have a unique way of displaying information. If you have a new format / angle / niche you can do well in even the most competitive markets.

Non-competitive Markets that are Claimed to be Competitive:

Many markets that are allegedly competitive have a bunch of thin sites all doing the same stuff.

  • The Forex market has almost no editorial, and the channels that have editorial tend to be so technical in nature that they are hard to cite.

  • How many useful original ringtone sites are there? How hard would it be for someone who had a useful ringtone site to get 50,000 visitors a day?
  • How many markets are there where half of the top results are obviously written by Indians who barely know English?

Choosing a Profitable Market:

No matter what category you are competing in, you are going to have some minimum baseline writing, design, research, link building, and marketing costs. It is likely more profitable to be an established unique site in a field of sites all offering the same thing than it is try to be a market leader in a market with low search volume and virtually no commercial intent.

Published: April 3, 2007

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Comments

April 4, 2007 - 7:51am

Aaron,

I think its worth looking at profit potential in a bit more detail. Agreed, investing in SEM/SEO to support an AdSense profit model in a market such as biotech is going to be really tough going.

But if your lifetime customer value is high (perhaps thousands or tens of thousands of dollars per customer), then its a different situation. Many small businesses already have this type of product - so 'market entry' (or market expansion) costs relate more to online marketing than product development.

The example of the biotech market is interesting. If your business is about selling, servicing or otherwise adding value around centrifuges, then understanding and assessing SEM (and the Long Tail) should be a marketing priority. If you aren't already in the centrifuge market, yes there are significant barriers to entry.

When your business is already built around centrifuges, you are already in the biotechnology market. But you don't need to be #1 on 'biotechnology' serps to benefit from SEM - there are going to be lots of niche serps that better reflect search intents that are definitely of commercial value for your products/services. Volume of traffic matters far less than quality here. Its quite different when you profit from any old thousand impressions, rather than profiting from one impression that might lead to a large and highly profitable sale.

SEM matters a lot in this type of niche market, but its quite distinct from the style of SEM as practised around highly competitive search terms. Niche search has of course been discussed a lot. What I like about your post is that it highlights that the profit potential of the market is a key consideration when looking at SEM.

Patrick
April 4, 2007 - 8:46pm

'How many useful original ringtone sites are there? How hard would it be for someone who had a useful ringtone site to get 50,000 visitors a day? '

That makes it sound as if ringtones are a highly profitable niche-market, as all you have to do is put up a useful ringtone site...but then again I think the catch is: how could you make a ringtonesite into something useful?lol

I mean there might be ways, but in some areas its just way harder to come up with a truly useful site in the first place.

April 4, 2007 - 8:56pm

I think the issue people are missing is that they are just thinking about ringtones, not about music. Think Yahoo! Music, think Last.fm, think songmeanings.net, etc etc etc. and then add pages about ringtones to those sorts of sites.

April 3, 2007 - 4:27am

I think the main issue your driving at is what is called "barriers to entry".

Every business has barriers to entry and some more than others. For example, if you wanted to start an oil company, the barriers to entry are quite high, because you would have to invest in huge start up costs such as billions of dollars worth of property, plant and equipment (i.e. Oil refineries, drilling equipment, technology for finding oil, Tankers, etc...) So the barrier to entry for an oil company is quite high.

Now look at the internet. There are very very few barriers to entry, which is what makes it such an attractive marketing medium for people on low to no budgets. And since the web is a global digital network, it creates a truely even playing field. Mom's website blog can be listed right along side CocaCola's official website in search engines and directories.

Barriers to entry for a web business are:

1) Technology: (most of which today is readily available such as database drivin content management systems, free blogging platforms, open source operating systems such as Linux, and Open Source web servers such as Apache etc..) There are a few examples of companies that have unique or original technology that gives them a competitive edge (google in search algorythems, Amazon for 1 click buying etc...) However most of these technologies can and are easily replicated once someone does it first (take Digg for example).

2) Content: the second element of a web business is your content, which could be in the form of text, video, audio, database, and or products/services offered. How a web company presents their content and the perceived quality of the content is what gives them a competitive advantage and create a small barrier to entry.

3) Brand and Brand Awareness: A stong brand can be a huge barrier to entry. For example, now that the word "Google" has become a verb in the english language meaning to search online for something, how difficult do you think it will be for a competing search engine to draw traffic away from that brand?

4) People and social networking: A company can have people assets that give it a compeitive advantage in the form of being able to easily raise venture capital (or not), being able to create strategic partnerships (or not), and being able to evangelize the site.

There are others, but you get the idea.

Basically the web is a level playing field that breaks down the traditional barriers to entry that one would encounter in trying to start a "brick and mortar" business. So that makes Google's job a lot harder in trying to sort through good from bad, or relavant from not relevant.

Dabo
April 3, 2007 - 7:12am

Aaron - I had a little chuckle at your expense. You have the line "...top results are obviously written by Indians who barely know English?", and the very next word you have - "Chosing" - is misspelled, and is in the heading in huge bold letters!

I know you've admitted in the past that your writing is not the greatest, but this is something that would have been flagged by a spellchecker. And not only that, the fact that you did that *right after* criticizing others for their English makes it a classic!...

Too funny.

April 3, 2007 - 10:32am

A big company looking to enter a mature, competitive market should have the leverage necessary to create equity in their site - especially if they have established brands to play off.

What the small start-up ventures often fail to realise is that although the barriers to entry are lower on the internet (hey! A blog is free, right?), the costs of achieving presence online are edging towards traditional 'real world' costs - unless they're blessed with great content producers in-house.

So your advice is sound. The problem is, if you're working agency-side, how do you put that to clients? The message they want to hear is: "All I need to do is some technical stuff to your site - for say £50 - and you'll start to shoot up the rankings."

There's some serious lack of business education out there...

April 3, 2007 - 3:53pm

VERY interesting. I would agree that Biotech is an tough area and it "blows". "Computers and Internet" as well.

Freddie
April 3, 2007 - 4:01pm

Good article. I think your "Good Ways to Play Bad Markets" point, really applies to all markets. You really have to differentiate yourself and stand out from the crowd to get noticed these days.

I agree with Carps. Most clients just don't get this. I had a client purchase a domain name for his new company in a very niche market. We put his logo as a placeholder on the index until we could meet to work on the site. We met a week later and he demonstrates on his laptop that when he searches for keywords in Google, he can't find his site (a placeholder page with a gif on it) in the search results. I explained that after we actually set up a site with content, there are many other steps required to attempt to rise to the front page of Google. I even mentioned some of the ideas in this post. He looks at me and says, "Well, that sounds good. But, that all takes a lot of time and effort." --Yes, it does! LOL

April 3, 2007 - 4:19pm

A couple of other points: My climate change blog is a terrible business proposition. Why? Because people reading a blog like that aren't buyers and there aren't compelling products they will buy or click on impulse.
On the other hand I have a kitchen design site. Virtually every visitor is there because of a purchasing decision- should I buy an XXX brand restaurant range? Where can I find European cabinets? This makes it an ideal affiliate subject and the Adsense payout is a respectable $18/1000 impressions.
The formula is provide high value information to someone in purchasing mode. Biotech people don't buy anything you can monetize- what are you gonna do? Sell'em a centrifuge?

Lukas Rathswohl
April 3, 2007 - 5:40pm

Hi Aaron,

Interesting food for thought, especially the Non-competitive Markets part. What would a useful ringtones site contain, in your opinion?

April 3, 2007 - 6:36pm

Aaron very interesting article, it really makes you think of ways to analyze a market before considering to enter in it. Right now I'm in the process on learning, I built my own blog at wordpress and am thinking of moving it to my own host, this is a whole, exciting, learning experience.

April 3, 2007 - 8:18pm

Well I know what you mean with the biotechnology bit!
I'm a scientist and so the first site I made was science based. My main search term has about 60,000,000 results, and universities have whole departments devoted to the subject, and the less said about journals the better.
That was a good learning curve!
But to get top 10 on google and to be ranked higher for a subject than the university that you work for is very satisfying :)

Chris Martin
April 3, 2007 - 8:30pm

In regards to the "bad writing" references::

You would be crazy to criticize your writing skills. I love the way you write. Each sentence easily flows into the next and you hardly ever wonder off topic. I frequent this site all the time and thoroughly enjoy each entry. You or anyone hammering your writing skills is beyond ridiculous.

(btw - I write novels so my opinion here isn't completely worthless.)

April 3, 2007 - 8:45pm

Thanks Chris
I guess I am too hard on myself sometimes.

deviantgirl
April 3, 2007 - 8:47pm

some people rank for the word "aaron." is that a good market or a bad market?

Rick
April 3, 2007 - 10:11pm

Aaron, this is too funny:

"lots of high authority sites clogging up the search results"

Only a search marketer would see highly relevant SERPs from leading authorities in the field as "clogging" the results!

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