How To Start You Own Search Marketing Business

Jan 14th
posted in

Start your own business

Had enough of the day job?

A common new years resolution is “quit the rat race and be your own boss”. In this article we’ll take a look at what is involved in starting up your own search marketing business, the opportunities you could grab, and the pitfalls you should avoid.

But first , why are people leaving SEO?

Is SEO Dead?

There’s no question Google makes life difficult for SEOs. Between rolling Pandas, Top Heavies, Penquins, Pirates, EMDs and whatever updates and filters they come up with next, the job of the SEO isn’t easy. SEO is a fast moving, challenging environment.

In the face of such challenges, many SEOs have given up and moved on. Here’s a rather eloquent take on some reasons why.

It’s true that SEO isn’t as easy as it once was. You used to be able to follow a script: incorporate this title tag, put this keyword on your page, repeat it a few times, get links with the keyword in the link text, get even more links with keywords in the link text, and when you’ve finished doing that - get a lot more links with keywords in the link text.

A top ten position was likely yours!

Try that script in 2013, and.....your mileage may vary.

There are plenty of examples of sites that follow Google’s exhaustive rules and get absolutely nowhere.

But let’s say you’ve figured out how to rank well. Your skills are valuable, because top ten rankings are valuable. Another bonus, given Google is making life more difficult, is that it creates a barrier to entry. There will be less threat from newcomers who have just bought a book on How To SEO.

For those with the skills, the outlook remains positive.

Many in the industry are reporting skills shortages:

We do struggle to fill some of our positions, with SEO being a particularly tough one to find good people that have relevant experience,” said Chris Johnson, CEO of Terralever in Tempe.
Consultants in SEO and marketing in general have seen a huge uptick in job openings in the past few years. An October study by CNNMoney and PayScale.com place marketing consultants, which include SEO specialists, as the second-best positions in the U.S. based on pay and industry growth. According to the survey, they comprise more than 282,000 jobs with a 41.2 percent growth rate over the past 10 years.

SEMPOs 2012 report projects the search industry to grow to 26.8 billion in 2013, up from 22.9 billion in 2011.

So, the demand is escalating, SEO/SEM is getting more challenging, yet more people than ever seem to be throwing in the towel.

The nature of SEO is changing. Trends for 2013 - which are also highlighted in the SEMPO report - show that whilst lead generation and traffic acquisition are still favoured, areas such as brand awareness and reputation management are on the rise:

Survey responses show a drop in the blunt objective of driving traffic, but it remains a key goal for search engine optimization (SEO). Perhaps more interesting is the doubled number of agencies citing brand/reputation as a goal, up from 5% in 2011 to over 11% in this year's survey

These might be niche areas worth exploring.

One sad trend is that the small business owner is being squeezed out. SEO used to be a way for small business to out-compete big brands, but that door is being closed.

What can we learn from all this?

SEO for the larger businesses appears to be where the game is moving. The advantages of business scale and brand reputation in the search engine results pages are not to be underestimated.

The SEO approach for smaller businesses needs to be about a lot more than just SEO, it needs to be more about SEM - with strong emphasis on the “M” (arketing) in order to avoid the fate outlined in the link above. Google looks deficient if people can’t find the big brand names, but few will notice if a small, generic operator falls out of the index as another relative unknown will take their place.

Of course, gaps in the algorithms will always exist, and this is the territory of aggressive SEO, but this is getting increasingly difficult to apply to legitimate sites that can’t afford to burn and replace sites.

The SEO these days needs to think about the fundamental value that SEO has always delivered - qualified prospects, leads, and positioning in the buyers minds. That might mean approaching what was once a technical exercise from a more holistic marketing angle.

Why Work In Search?

Search remains a very interesting business.

John Wanamaker, a merchant in the 1860’s was quoted as saying “Half the money I spend on advertising is wasted; the trouble is I don't know which half!”. I think he would have liked the search marketing business, as it allows you to do three very important things: get inside the mind of the customer, only talk to the people who are interested in what you offer and track what they do next.

Using search, you know where 100% of your budget is going. It won’t be wasted so long as you target correctly. Targeting is what search marketing does so well. If you enjoy figuring out what people want, matching them up with a page that allows them to do that thing, and beat your competition at doing so, then search marketing is a good game to be in. Whether you do that using SEO, PPC, social media, or likely a mix of all three, the demand for qualified visitors will always exist.

The next question is whether you want to do it for someone else, or do it for yourself. There are obviously pluses and minuses for both options, so let’s compare them.

Work For Someone Else Or Work For yourself?

Some people feel frustrated working for someone else and not being the master of your own destiny, especially if the boss is an idiot. Then again, some people like the routine and predictability of working for others, and they might be lucky enough to have a great boss who nurtures and respects them.

So, what type of person are you?

If you like a regular routine, regular hours, and task specialization, then looking for a SEM job within an established search marketing firm might be the way to go. If you prefer a high degree of control, variety and the knowledge that all the rewards will flow to you for the successful work you undertake, then starting your own business might be a good way forward.

Only you know for sure, but it pays to spend a bit of time taking a good look at yourself, your existing skills and what you really like doing before you decide if “working for someone else” or “working for yourself” is the right answer.

You should also establish your goals.

Be specific. If your reward is monetary, set a measurable goal i.e. I want to make $X per month in the first year, $X per month in the second, and $X per month in the third. Being specific about measurable goals will help you construct a viable business plan, which I’ll cover shortly.

Your goals need not be monetary. It could be argued the greatest rewards from a job or business aren't monetary reward, but the satisfaction you derive from the work.

When it comes to working for yourself, it’s hard to underestimate the freedom of picking your own areas of working to your own timetable. These are real benefits. If your goals align more closely with a job i.e. a regular income and a regular time schedule, then you might decide that getting a job with an employer will suit you best. If you value autonomy, then running your own business might suit you better.

Split your goals into short term, medium term and long term. Where do you see yourself in five years time? How about this time next year? In the case of search marketing, who knows if it will be around in five years time, and if so, in what form?

Your one year plan might be focused on SEO, but your five year plan might be to provide the very same things SEO provides today - qualified visitor traffic - no matter what form the source of that traffic will take in five years time. The value proposition to the client, will be much the same. So, your five year plan might include learning about general marketing concepts and studying new digital marketing channels as they arise.

Being clear about what you like doing and your objectives will make your decision about whether to get a job or strike out on your own much easier.

Another way to think about it is to consider doing search marketing part time, at first. It may prove to be a lucrative second income if you already have a job. One of the biggest factors in running your own business is the risk, and having a steady income reduces this risk significantly. It also means you can start slow and build up without the pressure of having to hit regular targets. The disadvantage is that you don’t have as much time to devote to it, and working two jobs might tire you out to the point you’re not doing both well. You’re also unlikely to be available to clients during business hours when they need you.

Of course, be careful not to compete with your existing employer and check out the non-compete clauses in your contract.

Another thing to think about if you're cash rich but time poor, especially with many people leaving the SEO game, is to buy an existing SEO business. You’re buying existing contracts and/or a client list, and you may be able to pick up some skilled employees, too. Buying a business is a topic in itself and outside the scope of this article, however it’s an avenue to think about especially if you are capital rich and time poor. You may be able to manage such a business part time, as you have less pressure to develop new business from scratch and the existing employees can handle the work at the coal face and deal with clients during the day.

Business Plan

Few business plans ever survive contact with the real world as the real world is constantly moving.

But this doesn't mean you shouldn't write one.

It’s essential to have a plan, just as you need directions to get to a travel destination. You could wing it without a map, and you might arrive in your destination, but chances are you won’t. You’ll most likely get lost. A business plan helps you assess where you are, and remind you where you’re going.

Having said that, a business plan is always subject to change, because as you encounter the real world - the rapidly fluctuating market - you will start to see opportunities and pitfalls you could never see whilst you were creating an abstract plan in your head. The plan needs to change with you, not lock you into a rigid framework. Treat it as a living document subject to change.

Entire books have been written about business plans, but unless you’re chasing bank financing and/or need to present formally to an external agency, it pays to keep business plans brief, clear and simple.

Crafting a business plan also enforces an intellectual rigour that will help test and challenge your ideas. In crafting your business plan, various questions will occur to you. How many clients do you need to get in order to meet your financial goals? How many staff members can you afford based on those goals? If you allocate all your time to existing clients, how will have time to acquire new clients? Do you have a marketing budget to get new clients?

These type of questions are addressed by the business plan.

A typical business plan covers the following:

  • Business Concept - describes what the business will do, discusses the search marketing industry in general, and shows how you’ll make the business work.
  • The Market - identifies your likely customers, and your competitors. Explains how you’ll get these customers, and how you’ll beat the existing competition.
  • Finances - shows how much it will cost to do what you plan to do, and how much money you plan to make from doing it.

Break these sections down as follows:

1. Introduction

What is your current position? What is your background? What is the purpose of your business? What is your competitive advantage? Who are your competitors? How will you exploit their weaknesses, and counter their strengths? How will you increase capability and capacity? How do you plan to grow?

Describe the search marketing industry. If you’re unaware of the trends, refer to industry reports from the likes of SEMPO, Market Research.com and Nielsen.

Identify your target market and show how you will reach them. Describe what your search marketing service will do and highlight any areas where you have a clear advantage over competitors.

2. Business Strategy

Define the market you’re targeting. How big is it? What are the growth prospects? What is the market potential? How does your business fit into this market? What are your sales goals? What is your unique selling proposition?

Be specific about your objectives and goals i.e. make $x profit in the first year, as opposed to “be profitable”. They must be measurable, so you can see exactly how you’re doing.

Outline your pricing strategy. Here are a few ideas on how to price without engaging in a race to the bottom. Outline how you’re going to sell. What sort of advertising and marketing will you do? Outline your core values. What do you believe? What are your principles? Outline the factors most critical to your success. What are the things you must do in order to succeed?

3. Marketing

Prepare a brief SWOT analysis. It sounds convoluted, but SWOT simply means strengths, Weaknesses,Opportunities, and Threats in terms of marketing.

Include any Market research you have done. Outline your distribution channels. Outline any strategic alliances you have. Outline your promotion plan. Prepare a Marketing budget. How will you appear credible in the eyes of your target market?

4. Management Structure

Who is involved and what are their skills? Do you plan to hire more staff? At what milestones? What plans do you have for training and retention? You need not solve this problem in house, of course. Your plan could involve using contractors as and when required.

Who are your advisors? i.e. your accountant, lawyer, mentor and financial planner, if applicable. This section is especially important if you’re seeking financing as banks will want to see that you’re operating with professional guidance.

Describe any staff management systems you plan to implement.

5. Financial Budgets And Forecasts

Ideally, you should include:


These can be hard to estimate, so calculate a best case scenario, a worst case scenario, and something in the middle. This gives you a range to think about, and how you might deal with various outcomes should they arise.

Cashflow is by far the most important consideration. You can have customers lined up, they are buying what you have, they are placing more orders, but if you can’t meet your bills, then your business will crash. Consider what line of credit you may need in order to maintain cashflow.

6. Summary

Restate the main aspects of your plan, highlighting where you are now and where you’re going to take the business. As business plans are always up for review, make a note of when you’ll review it next.

You might think a business plan is tedious and not worth the effort. However, it can save you a lot of time, effort and money if it shows you that your business won’t fly. It’s great to model a business on paper before you sink real money into it as there is no risk at this point, yet it will be clear from the business plan if the business has a chance of making money and growing. If the numbers don’t add up on the plan, they won’t do so in real life, either.

Branding

Your good name.

It’s worth spending time and possibly money investing in a great name as you’ll likely live and breathe it for the lifetime of the business

What do you want people to think of when they think of your company? Your name must create an immediate impression.

One of the problems with a crowded industry, like search marketing, is that generic, descriptive names won’t stand out. “Search Marketing Agency” may describe what you do, but such a name makes it difficult to differentiate yourself. A quirky name, like “RedFrog”, make be memorable, but may do little to convey what you’re about.

You'll also need a name that doesn't stomp on anyone else's registered trademark, else you’ll likely get into legal trouble. It also helps if the exact match domain name is available. If you get stuck, there are plenty of branding experts who can help you out, although they do tend to be expensive.

Keep in mind that is easy to rank for a unique brand name. If it’s unique, it tends to be memorable. So my two cents for anyone in a crowded industry is to go for the unique over the generic and descriptive. You can also tack on a byline to the end of your name to remove any uncertainty.

And get a great logo! Check out 99designs. Keep in mind that a logo should work for both on-screen color display and print, which might be in black and white.

Search Business Models

There are a few different search marketing models on which to base a business.

The Consultant

Perhaps the most obvious search marketing model is that of the consultant whereby you help other businesses with their search marketing efforts. Think about the demand for external consultants and where that demand may come from.

Large companies tend to want to deal with large agencies. Large companies may have their own internal search team. There comes a point where it is cheaper to hire someone full time that hire an external consultant, and that point is the average full time salary plus employment costs.

Larger companies will hire one-man bands or small consultancies if they need what you have and what you have is difficult for them to get elsewhere. A lot of search marketing consultants won’t fill this brief, although some are brought in to help train and mentor their internal search teams.

A lot of the demand for external consultants comes from smaller businesses who don’t have the expertise in house and their low level usage of search marketing wouldn't make it financially viable.

One of the great upsides of the consultancy model is you get to see how other people run their businesses.

Affiliate/Display Advertiser

The affiliate positions a site in the top ten results, gathers leads and traffic, and then sells them to someone else. The display advertiser publishes content in order to provide space for advertising, and typically makes money on the click-thrus.

Keep in mind that the competition can be fierce as any lucrative niche will likely already have many competitors. Also keep in mind that Google is likely gunning for you, as there have been clampdowns on thin-affiliates in recent years i.e. affiliates who don’t provide a great deal of unique and useful content.

The downside is that unless you’re diversified, your income could dry up overnight if Google decides to flick their tail in your direction. And to be truly diversified, you need diversification across markets AND strategies. Without that, there is a good chance you’ll then have to start from scratch at some point. Algorithm shifts tend to be great for consultants with deeper levels of client engagement, as the change can create new demand for their consultancy services. For consultants who sell low margin consulting across a large number of clients, the algorithmic updates can actually be worse than they are for affiliates, because you may suddenly have a lot of angry customers all at once & unlike an affiliate who prioritizes a couple key projects while ignoring many others, it is not practical to ignore most clients when things go astray. To each & every client their project is the most important thing you are working on, & rightfully so.

Some search marketers mix up their affiliate with consulting to even out the risk, provide greater variety, and deal with the inevitable slack that comes with many consulting-based business models.

Tools Vendor

There is a huge community of search professionals. They need software tools, data, advice and other services. Obviously, SEOBook follows a hybrid of this model. We provide premium tools, while also engaging in consulting through our community forums. Those who don't value their time are not a good fit. But those who do value their time can get a lot out of the community in short order, without the noise that dominates so many other forums. The barrier to entry is a feature which guarantees that the members are either a) already successful, or b) deeply understand the value of SEO, which in turn increases the level of discourse.

Think about areas that are a pain for you in your current search marketing work. These areas are likely a pain for other people, too. If you can make these pain points easier, then that is worth money. The search community tends to be generous about getting the word out when truly useful tools and services spring up. The hard part is when more service providers enter a niche it becomes harder to maintain a sustained advantage in your feature set. As that happens, you need to focus on points of differentiation in your marketing strategy.

Integrated Model

A lot of SEOs/SEMs do a mix of work.

PPC and SEO fit quite nicely together. It’s all search traffic. The skills are pretty similar in terms of choosing keywords and tracking performance. They differ in terms of technical execution.

Affiliate and display advertising can balance out client work, providing income from a variety of different sources, which lowers risk.

The main benefit of an integrated model is you get to see a lot of different areas. Many people in the search industry talk the talk, but if their primary purpose is to sell, they're less likely to have the chops. If you’ve got your own sites, and you win/lose based on how well they do, then you’ll likely have an understanding of algorithms that a lot of sales-oriented talking heads will never have. The downside is that you might spread yourself too thin over a number of projects, and thus become a master of none.

Clearly Defined Niche

The trick with any of these approaches is to find a niche, preferably one that is growing quickly. Okay, the SEO consultant market is swamped due to low barriers to entry, but perhaps the SEO provider market in your home town isn't.

Perhaps there are web design companies who can’t afford a full time SEO, but would like to offer the service to their clients. Get three or four of these agencies as “clients” and you’ll likely create one full time job for yourself. This is a particularly good model if you don’t like sales, or don’t have time to do a lot of sales work. The design agency will do the selling for you, and they already have a customer base to whom they can sell.

Design agencies often like such arrangements because they get to add an additional service without having the overhead of another staff member. They also get to click the ticket on your services. Your billing is also more streamlined, as you’re likely be billing the agency itself.

Be very specific when choosing a niche. Who would you really like to work for? What, specifically, would you really like to do? “Search marketing” is perhaps a too wide of a niche these days, but how about exclusive search marketing for tourism businesses?

It doesn't pay to try and be all things to all people, especially when you’re a small operation. In fact, the advantage of being small is that you can target very specific areas that aren't viable for bigger marketing companies who run high overheads. Consider your own interests and hobbies and see if there’s a fit. Do companies in your area of interest do their search marketing well? If not, you've got a huge advantage pitching to them as you already speak their language.

Keep the customer firmly in mind. What problem do they have that they desperately need solving? Perhaps the restaurant doesn't really need their website ranking well, but they do need more people phoning up and making a reservation. So how about running a restaurant reservation site in your town, using SEO and PPC to drive leads, providing customers copies of each restaurant's menu? Charge the restaurant for placement and/or on leads delivered basis.

Trip Advisor started with a similar idea.

Doing The Deals

One of the biggest transitions from a regular job to running your own business, if you’re not used to working in sales, is that you will need to negotiate deals. Those working 9-5, especially in technical roles, don’t tend to negotiate directly, at least not with prospective clients and suppliers.

Negotiation is a game. The buyer is trying to get the best price out of you, and you’re trying to land more business.

Possibly the single most important thing to understand about negotiating is that negotiations should be win-win ie. both sides need to get something out of it and not feel cheated. This is especially important in search marketing consulting as you’ll be working with your clients over a period of time and you need them on your side in order to make the changes necessary.

It’s easy to assume the buyer has all the power, but this isn’t true. If they’re talking to you, they have already indicated they want what you have. You are offering something that grows their business.

However, you need to understand your relative positions in order to negotiate well. If you’re offering a generic search marketing service and there are ten other similar providers bidding for the job, then your position is likely very weak unless you’re the preferred supplier. Personally, I’d avoid any bidding situation where I’m not the preferred supplier.

This is where niche identification is important. If you have clearly identified a niche in which there isn’t a great deal of competition, you have a clearly articulated unique selling point and you know what buyers want, then your position in negotiation is stronger. This is why it’s important to have addressed these aspects in your business plan. Failure to do so means you’re very vulnerable on price, because if you’re up against very similar competitors, then your last resort is to undercut them.

Price cutting is not the way to run a sustainable business, unless you’re operating a WalMart style model at scale.

You need to set a clear bottom line and walk away if you don’t get it. This can be very difficult to do, especially if you’re just starting out. The exception is if you’re simply trying to get a few names and references on your books, and don’t care so much about the price at this point. In this case, you should always price high but say you’re offering a special discount at this point in time. Failure to do so means they’ll just perceive you as being cheap all the time.

Start any negotiation by letting the customer state what they want. then you state what you want. If you both agree, great! Win-win. Chances are, however, you’ll agree on some points, and disagree on others. Fine. Those points you agree on are put off to one side, and you’re focus on trying to find win-win positions on the points you disagree with. Keep going until you find a package that both meets you needs.

Summary

Starting your own business is a thrill. It’s liberating. However, in order for it to work, you must approach it with the same rigor and planning you do with your search marketing campaigns. Keep in mind you’re swapping one boss for many bosses.

Perhaps the best piece of advice is to dive in. A lot about running your own business isn’t knowable until you do it. so if one of your new years resolutions was to quit the day job and strike out on your own, then go for it!

Best of luck, and I hope this article has given you a few useful ideas:)

Getting Your Pricing Right

Jan 2nd
posted in

How do you best determine the price to charge customers?

Do you look at the competition and price the same as they do? Undercut them a little? What happens if you do undercut them, then the customer still demands further discounts?

Pricing can be difficult to get right. We don’t know exactly how much the other party is prepared to pay, but we need customers in order to sustain and grow our businesses. So how do we ensure money is not left on the table, yet we still make the sale?

This guide looks at a few fundamental pricing techniques, ideas and strategies. We'll look at how to avoid getting caught in the “race to the bottom” scenario of endless price cutting.

Market Price

Many people believe that when the buyer and seller agree on a price, then the market has arrived at the optimal price.

This is not strictly true.

What it means is the buyer and seller agreed on a price at a point in time. The seller might be desperate to land the next deal simply to make payroll for one more month. He almost feels sick when he accepted such a low offer, but he’ll worry about the fact he’s running into the red next month. Things will be better by then. Hopefully.

Meanwhile, the buyer now has an expectation she can always get discounts if she pushes hard enough. She makes a note to go even harder on price next month. After all, she got the distinct impression the seller had even more room to move.

Getting pricing right is about more than two parties agreeing on a price at a point in time. Pricing is also strategic. Pricing is about the long-term sustainability of a company.

But ultimately, pricing is about value.

What Do Your Customers Value?

Business is about providing and creating value.

You provide a valuable service or product the buyer can’t provide themselves. They then use your product or service, from which they derive, or add, value, and on-sell that value to their customers.

In order to set appropriate prices, you need to understand what your customers value.

How does one restaurant charge more than another in the same area? Why is that one restaurant always packed? It’s probably because they understand what people value. It might be the type of food they serve, or how they serve it, or they have a great view of the sea. Perhaps they do all three well. Their competitors do not.

They probably couldn’t charge what they do if they were two blocks back and overlooked a parking lot. The restaurant that is two blocks back with a view of the parking lot better figure out something else customers will value, or they are out of business.

The first step in determining pricing is to find out what your customers value, then adjust your service, where necessary, to provide that value. In this way, pricing can be seen as intrinsically linked to your positioning strategy. Perhaps customers value a free and easy returns policy (convenience) over price. Perhaps they want individual items packaged together (individual commodity tools packaged together in a stylish box becomes a toolbox gift idea). Perhaps they didn’t want to buy a handbag at all, they just wanted to rent one (bagborroworsteal.com).

The aim of value based pricing is to shift the focus from price to questions of value.

Move To Value Based Pricing

Value based pricing means pricing based on the value you deliver to a customer.

You figure out the value of your product to to the customer, then take a slice of that value to arrive at your price. Your production cost might be $10 per unit, but if each unit provides $1000 worth of value to your customer, then $500 might be a fair price to charge.

In order to price based on value, you need to understand exactly what your customer values and your point of differentiation to your competitors. Your value proposition combined with your price point must be differentiated. After all, it would be difficult to price at $500 if your competitors were pricing at $300, and both provide the same value to the customer.

The Problem With Cost-Plus Pricing

Cost-plus pricing is when you figure out your total costs, then add a percentage, which is your profit.

It may cost you $X to produce and sell a service and make a profit, but if buyers don’t value what you offer, then your price will always be too high. Also, if you use cost-plus pricing and your customer derives considerable value from what you offer, then the customer may love you, but you’re leaving a lot of money on the table. You could be making more profit and using that to invest in your business.

Commodity

But what if you’re selling the same stuff as everyone else?

The internet can be a hostile place for commodity sellers as price comparisons are only a click away. This type of environment works well for big players who can compete on price when selling commodity items, yet still make money off thin margins and fat volume.

Low-volume competitors would be wise to consider a shift of focus to value-added services, such as higher service levels, if they can’t compete on price.

Best Interests Of The Customer

It might be in the best interests of your customer to pay higher prices if this means the value they seek can be reliably delivered on an on-going basis. If an industry is run into the ground due to price cutting, then where will the customers get the services they really do value in future?

Part of the process of getting pricing right is customer education i.e. ensure they can see the value. Demonstrate what is involved in arriving at your price points. For example, who pays $70 for an ipad cover when you can get them for $10?

People do if it’s a DODOcase.

DODOcase demonstrate what goes into producing their cases. They’re selling the experience and craft values as much as they are selling the product itself, so this is also a way to differentiate the product. Their customers value the idea of supporting artisan crafts, which is part of the value they’re paying for, but this wouldn’t be obvious if their customers were comparing one case against another on price alone. DodoCase have shifted the debate away from price and made it about value. Well, values.

So, customers like to see what goes into the product. It helps them determine value. Transparency is a big part of pricing, particularly high-end pricing. To be credible and survive scrutiny, high end pricing has to to be accountable and make sense.

Knowing what price to set is knowing what the customer values, or can be made to see value where previously they saw none. Always ask questions and refine your offer based on the answers. Do you need to change how you present your existing offers in order to demonstrate value? Do you need to change your offerings to meet the market?

Pricing Strategies

Let’s look at three of the most common pricing strategies.

Skim Pricing

Skim pricing is when you set a higher price than your competitors.

In order to set pricing in this way, your customers need to perceive that your offer provides them with greater benefits than they will find elsewhere. Apple use skim pricing.

Customers perceive that Apple products are superior to the competitors, so it is therefore worth paying a premium. Whether this is objectively true or not is irrelevant - so long as the customers perceive that value, then it exists. This justifies the higher price. It could be argued the customer also gains social value by paying a high price, as they have something exclusive.

In order to skim price, you need to offer something the customer can’t easily get elsewhere. The customer must place a high value upon your service.

Consultants with proven reputations can use skim pricing, although maintaining a reputation over and above everyone else in crowded, maturing markets can be difficult. Where there are high margins, competitors will soon enter the space offering similar value.

The benefit of skim pricing is that you get to pick off the price-insensitive top-of-the-market clients. Who wouldn’t want this situation?

The downside is that other competitors can move into the price gap, slightly beneath the skim level, then bump up the value they offer in order to challenge the skim price competitor. They may create greater efficiencies, which means their profit margins are the same, if not higher. The value proposition to the customer remains strong, yet they undercut the leader on price.

It is only so long before the leader is forced to drop prices, refine their value proposition, or collapse. Skim market pricing can lead to a rapid erosion of market share if the leader does not stay well ahead of the market in terms of providing value. This happened to Apple in the 1980’s, and we might be seeing this again on tablet devices.

Analysts expressed concerns that Apple risked losing ground to Nokia smartphones in China, while failing to keep pace with Google in the tablets market.....Traders were also spooked by a report from research firm IDC forecasting that Apple’s share of the tablet market will slip to 53.8pc this year from 56.3pc in 2011, while Google’s share will increase to 42.7pc from 39.8pc.
It added that Apple’s tablet share will slip below 50pc by 2016, as total global tablet sales more than double to nearly 283m units in four years as consumers increasingly opt for them rather than personal computers

Apple could skim price when they were early to market with a product no one else had i.e. iphones and iPads. However, as competitors catch up, and make similar products at lower prices, then Apple’s current pricing strategy may hit problems. Apple get around this, to some extent, by using versioning.

Neutral Pricing

Neutral pricing is when you set your pricing at a comparable level to your competitors.

You’d use this pricing method if you want customers to consider other aspects, besides price, when they contemplate a purchase i.e. they can get SEO software tools from company X, but compay Y offers the same tools but with extra support. Neither company wants to engage in a price war, so they will keep layering on more value in order to make their offer more compelling.

If these companies started cutting prices in order to compete, then they’ve got a “race to the bottom” problem. If customers don’t want to pay for the services they provide, that’s fine, but the customer is unlikely to get them somewhere else, so long as these services cost a certain amount to provide. In so doing, this market sector retains value for all players, so long as they deliver genuine value to customers.

This is an especially good pricing model to use if you want your customers to focus on the features of the offer. If you offer more features for the same price, you will likely win.

Penetration Pricing

Penetration pricing is when you set a relatively low initial entry price, hoping people will switch from a higher priced vendor.

Companies looking to gain market share tend to use penetration pricing. Penetration pricing has been a popular pricing model for internet companies, reasoning if they build the audience, they’ll figure out how to make money later. So long as customers place some value on the service, then the company should build their customer base quickly.

There are obvious problems with acquiring customers on a low-price basis. The customers you land are price-sensitive and will likely become non-customers the minute someone else lowers their price, or you increase your price.

You’re still vulnerable to competitors who offer something better, who are more efficient, or have more venture capital to blow through. Even if you set a low price, they can still undercut you.

There’s More To Price Than Price

Some buyers accept that buying on price alone may be a poor strategy.

In the example I gave earlier, the buyer is screwing down the vulnerable vendor to the point where he may go out of business. Let’s say she derives significant value from his company that she can’t readily get somewhere else. Perhaps he’s been a supplier to the firm at which she works for a few years and he really knows their systems. Any new supplier will have to spend time coming up to speed, and this could affect the productivity of our buyer.

The buyer likely has a switching cost.

As a seller, he should have made more effort to understand his value to the buyer, and be able to articulate it in such a way that she saw it, too. A buyer who understands long-term value is less likely to focus exclusively on price. It is to their advantage to nurture the relationship for mutual benefit.

Many buyers crave highly functional partnerships with vendors. If a search marketing vendor invests significant effort to add value to the company to which they supply services, then it is less likely they’ll be replaced on price alone. The longer the vendor works with the company, and the more success they bring to that company, the less likely they are to be replaced.

Sometimes, these customers will still try to play you. They will try to get a lower price. They know they need what you’ve got, they’re happy with the relationship, but they still want to see if they can get you to move on price. They may say they are reviewing arrangements. They may put you up against other suppliers in the form of a, RFP. Some of those suppliers will bid low amounts, which the buyer will then put pressure on you to match.

The way to counter this is to know your value relative to the competition. You can always match with a lower price, just so long as the customer accepts that you will be reducing your features to match those on offer from your competitors. The buyer will either go for it it, meaning price really was an issue, or accept your higher price, meaning value was the main issue. More on this shortly.

You must also understand your bottom line and stick to it. Some customers simply aren’t worth having. If you land them, and make little money or even a loss, with hopes you’ll raise prices later - what happens? The minute you raise prices they go back out to tender again. They’ll just find another low-priced bid.

This is what happens to vendors who can’t differentiate on value.

Make Your Offering More Flexible

If we don’t offer what the market values, then pricing strategies won’t help much.

Businesses must innovate in order to capture new markets and meet demand. Create new products and services. Relying on price increases alone to drive growth is unlikely to work unless people can’t get what you offer anywhere else, and what you’re offering remains in high demand.

One solution is to provide multiple products or service levels. If some buyers are genuinely price oriented, that’s fine, but they get the lower service level. Contrary to popular opinion, most buyers are actually value oriented, and will choose higher value services, so long as they perceive genuine value, or can be shown that by using you then profitability will be increased.

The "Choice Of Three" Strategy

One price methodology involves creating three levels. One low priced offer, one mid priced offer, and one high priced offer. Many buyers, when faced with the “choice of three” will pick the middle offer.

Appliance stores often price this way. They’ll stock two or three very high end, expensive refrigerators. They’ll also stock some basic, cheap refrigerators. Most customers will use those two points as price guides, and buy somewhere in the middle. If the store didn’t carry the high end refrigerators for the purposes of comparison, then the mid-range refrigerators become the highest price offering, and people’s price expectations will adjust - downwards - accordingly. The middle is seen as the “sensible” choice.

So, try pricing your top level offering at skim pricing levels. Include all the bells-and-whistles. Most people won’t pay this price, but between this and the lowest price offer, it helps set buyer expectations. The middle bundle is actually your full price offering, possibly neutrally priced vs competitors, but buyers may see it as the sensible middle ground compromise. Funnily enough, you’ll be surprised at how many people still go for the bells-and-whistle option!

Getting Differentiation Right

Differentiation between bundles (product or service levels) also helps you identify price buyers and value buyers. For this to work, you need to create clear and logical demarcation between offerings, otherwise customers may try to pay the low price, but get you to include high price features.

In service businesses, one way of preventing a customer from trying to get the expensive bundle for the low-cost price is to be transparent about your pricing. Yes, they can have the extras, but they involve X more hours. How many of those hours do they wish to purchase? This is transparent. It makes logical sense. There is no arguing with this position, as everyone understands that time is money.

However you do it, ensure that the transition between price points makes sense. The transition can’t appear arbitrary. The more expensive bundle is more expensive because it has more input costs, demonstrably delivers more value, or both.

Companies who get this wrong typically create arbitrary price settings between bundles. There isn’t a lot of distinction in terms of value between the jumps, or the core offering is not included at the low level.

Companies typically put their core offerings in every package, and add “nice-to-have” features at higher price levels. All customers will want the core offering. Price sensitive customers will settle for the core offering and nothing else. Value customers will likely add the nice-to-haves so long as these extras provide the value they seek.

Once a customer is on board at the low-value level, then they may wish to add extras later, once value has been demonstrated. Many software-as-a-service companies use this pricing strategy. The core product, if it is commodity, is often free. This hooks you into using it, but doesn’t cost the company much to deliver. It’s a loss leader sales-tool.

If you want to use it more - say, add more people or use advanced features - then you move up the scale to higher price points. It’s very difficult for competitors to compete with this strategy, because the core offering is free and the switching cost, whilst possibly not high, still exists. In order to compete, competitors must offer better services or more features, and probably lower prices. This is also the reason the first-mover needs to constantly innovate i.e. add and enhance services in order to stay ahead of the game.

One way to make the middle tier offering even more compelling is to load it with features vs the entry-price option.

The low price offering provides the core product and nothing else. The mid-priced offering, however, is packed full of features. The buyer may not even use many of the features, but they reason that there appears to be a lot more value at that level than the entry level, so opt for the higher price. This is most effective when the low-price option and mid-price option are reasonably close. You often see this approach used with “but wait, there’s more!” offers. They keep loading on the features, so the buyer perceives more and more value.

Pricing Strategies For Software & Information Products

The very first copy of a Windows release costs billions. The customer pays around $40 for that first copy.

Most of the costs in software development and information products are upfront, but the advantage of these types of businesses is that the cost of producing each additional copy is marginal. Microsoft can produce many millions of copies for a few cents each. How does a software business, or information product, go about pricing a product?

Typically, these companies set a low price in order to build momentum, thus adopting a penetration approach. Once the user is hooked in, they then add additional higher value services on top. A good example of this type of strategy is used by the likes of WordPress and Silverstripe. The core product is free, but if customers want enterprise hosting, support of custom development, then they pay a fee.

Negotiating

It can be pretty difficult to stick to your guns, especially if you really need the business.

However, pricing is really a question of value. So long as you’re certain you provide the customer with value they can’t get elsewhere, then you’re in a strong negotiating position.

Know what the customer values. If the customer values the same things from another competitor, and you can provide no added value, then you are vulnerable on price. However, if you can identify something you have the buyer values over the others, then that is your trump card.

You demonstrate your value to the customer. If the customer still refuses to see it, and still screws you down on price, then you can play your trump card. Sure, they can have the lower price, but they can’t have the high value aspects of your service. They can have the basic core service. You could still make the sale, but you should remove valuable features.

For example, service level agreements tend to be structured at various levels and price points. If the customer wants immediate attention 24/7, then they pay top dollar. If they don’t care about receiving immediate attention, that’s fine - they pay the lower price. Give the customer options, demarcated by obvious value, and they can decide for themselves. If you know they really need high value service X, and can’t get it from somewhere else, then you’ll force them to buy on value and drop their low price demand.

As customers, we value sellers differently, unless we’re buying pure commodity. Yet your customers might try to convey the idea that sellers are all the same to them, it’s only about price.

It seldom is. Find out what they value most.

Be Flexible

If your primary purpose is to gain exposure in a market, it will be useful to acquire customers who can help spread your message. I know of one SEO service provider who started out by providing five large companies free search marketing services for a year simply so the SEO service provider could be associated with those companies, thereby gaining credibility in the market as a “leading supplier”. They then skim priced for 2-nd tier companies, which were their real targets. The twist here is that the seller places a value on the buyer.

Pricing changes can depend on where in the product life-cycle you are, and what your competitors are doing. If you are the market leader, and using skim pricing, but you competitors overtake you, and offer more value, then it might be time to rethink your pricing. A shift to neutral pricing might be in order, as well as a revision of the offer to match competitors.

If new entrants move into the market and offer low prices, then adopting a penetration strategy might be useful in order to get rid of them i.e. make part of your offering low cost or free. This is a strategy that has been used by airlines facing threats from low-cost competitors. They start up their own subsidiaries and use these to starve the competitors out of the market as a rear-guard pricing strategy.

Know Your Relative Value

Ensure you’re differentiated. List all the products, services and activities you offer. Make a note of what your value is to the customer next to each product or service.

Next, identify your competitors. Identify those who are similar, those who are better and those who are worse. Evaluate their offerings. What are their value propositions? If you can, find out their price points. Where would a customer see value in their offering?

List your offerings in terms of value i.e. High value, medium, and low value. Then grade the level of differentiation when compared with your competitors. i.e. high differentiated, similar, or weaker. Anything high value and differentiated can likely be skim priced, anything similar can be neutrally priced, and anything low consider penetration pricing, or dropping.

Review your margins. Is it even worth offering low priced services? Should you be focusing on delivering more features at a higher pricing level? Should you be moving to a highly differentiated offering? Only you know the answer to these questions, but it's a quick strategic pricing assessment well worth doing.

But what, after all is said and done, the customer still wants a lower price?

Fire Customers

But what if the customer still wants to pay the lowest price, even after you’ve made certain they value what you provide?

Some customers simply aren’t profitable. What is worse, they take up your time, meaning you’ve got less time to dedicate to your profitable customers.

So cut them loose.

There is a rule called the 20-255 rule. It’s a revision of the 80-20 rule, and it goes like this:

In an article published in the Harvard Business Review, Cooper and Kaplan reported the astonishing case of a heating wire company which analyzed its customer profitability and discovered that the famous 20 - 80 rule, which would suggest that 80% of profits came from 20% of customers, had to be revised: "A 20 - 225 rule was actually operating: 20% of customers were generating 225% of profits. The middle 70% of customers were hovering around the break-even point, and 10% of customers were losing 125% of profits

Make a list of your customers from most profitable to least. Contact the least profitable clients and try to renegotiate terms. Some will agree to this, others won’t.

Cut those who don’t. This instantly increases your profits and serves as a reminder not to sell to people in future who don’t adequately value what you do.

I hope this article has provided some food for thought on pricing strategy. Pricing is a huge topic, so can't be covered in one article, so if you've got some pricing strategies and philosophies you've found useful, please add them to the comments!

References & Further Reading:

Manage Your Reputation

Dec 5th
posted in

How much value do you place on your good reputation?

If we looked at it purely from a financial point of view, our reputations help us get work, make money, and be more influential. On a personal level, a good name is something of which you can be proud. It is something tangible that makes you feel good.

You're Everywhere

As it becomes increasingly easy for people to make their feelings known and published far and wide, many businesses are implementing reputation management strategies to help protect their good name.

This area used to be the domain of big business, who employed teams of PR and legal specialists to nurture, defend and promote established brands. Unlike small business, which didn’t have to worry about what someone on the other side of the country might have said about them as it didn’t affect business in their locality, larger entities were exposed nationally, and often internationally. It was also difficult for an individual to spread their grievance, unless it was picked up by mainstream media.

These days, everything is instant and international. Those with a grievance can be heard far and wide, without the need to get media involved. We hear about problems with brands across the other side of the country, or the world, just as easily as we hear about them in our own regions, or market niches. If someone is getting hammered in the search industry, you and I probably both hear about it, at roughly the same time. And so will everyone else.

Media stories don’t even have to be true, of course. False information travels just as fast, if not faster, than truth. Given the potential, it’s a wonder reputation problems don’t occur more often that they do.

This is why reputation management is becoming increasingly important for smaller firms and individuals. No matter how good you are at what you do, it’s impossible to please everyone all the time, so it’s quite possible someone could damage your good name at some point.

Much of the reputation management area is obvious and common sense, but certainly worth taking time to consider, especially if you haven’t looked at reputation issues up until now. When people search on your name, do they find an accurate representation of who you are and what you’re about? Is the information outdated? Are you seen in the same places as you competition? How does their reputation compare to yours?

Also, some marketers offer reputation monitoring and management as an add-one service to clients so it can be a potential new revenue stream for those offering consultancy services.

The Indelible Nature Of The Internet

In some respects, I’m glad the internet - as we know it - wasn’t around when I was at school. There were far too many regrettable nights that, these days, would be recorded from various angles on smartphones and uploaded to YouTube before anyone can say “that isn’t mine, officer!”

You’ve got to feel sorry for some of the kids today. Kids being kids, they sometimes do stupid things, but these days a record of stupidity is likely to hang around “forever”. Perhaps their grand-kids will get a laugh one day. Perhaps the recruiter won’t.

Something similar could happen to you, or your firm. One careless employee saying the wrong thing and the record could show up in search engines for a long time. If you’re building a brand, whether personal or related to a business, you need to look after it, nurture it, and defend it, if need be. We’ll look at a few practical ways to do so.

On the flip side, of course, the internet can help establish and spread your good reputation very quickly. We’ll also look at ways to push your good reputation.

Modern Media Is A Conversation

People talk.

These days, no matter how big a firm is, they can’t hide behind PR and receptionists. If they don’t want to join the conversation, so be it - it will go on all around them, regardless. If they aren’t part of it, then they risk the conversation being dictated by others.

So a big part of online reputation management is about getting involved in the conversation, and framing it, where possible i.e. have the conversation on your terms.

Be Proactive

Most us haven’t got time to constantly monitor everything that might be said about us or our brands. One of the most cost-effective ways to manage reputation is to get out in front of problems before they arise. If there is enough good things said about you, then the occasional critical voice won’t carry as much weight by comparison.

The first step is to audit your current position. Search on your name and/or brand. What do you see in the top ten? Do the results reflect what you’re about? Is there anything negative showing up? If so, can you respond to it by way of a comment section? This is the exact same information your customers will see, of course, when they look you up.

If you’re not seeing accurate content, you may need to update or publish more appropriate content on your own sites, and those sites that come up in the top ten, where possible. More aggressive SEO approaches involve flooding the SERPs with positive content in an attempt to push down any negative stories below the fold so they are less likely to be seen. This is probably not quite as effective as addressing the underlying issues that caused the negative press in the first place, unless the criticisms were malicious, in which case, game on.

Next, conduct the same set of searches on your competitors. How does their reputation compare? Are they being seen in places you aren't? Are they getting positive press mentions that you could get, too? How does your reputation stack up, relatively speaking?

Listen

You can monitor mentions using services such as Google Alerts, Hootsuite, Tweetdeck, and various other tools. There’s another big list of tools here. Google runs "Me On The Web" as part of the Google Dashboard.

Monitor trends related to your industry. Get involved in fast breaking, popular trends and discussions. Be seen where potential customers would expect to see you. The more other people see you engaged on important issues, in a positive light, the more credibility you’re banking for the future. If you build up a high volume of “good stuff”, any occasional critical voice will likely get lost in the noise, rather than stand out. A lot of reputation management has to do with building positive PR ahead of any negatives that may arise later. You should be everywhere your customers expect to see you.

This is a common tactic used by authors selling on Amazon. They “encourage” good reviews, typically by handing out free review copies to friends, in order to stack the positive review side in their favor. The occasional negative review may hurt them, but not quite as much as if the number of negative reviews match the number of positive reviews. Some of them overdo it, of course, as twenty 5 star reviews, and nothing else, looks somewhat suspicious. When it comes to PR, it's best to be believable!

Engage

Create a policy for engagement, for yourself, and other people who work for you. Keep it simple, and principle based, as principles are easier to remember and apply. For example, a good principle is to post in haste only if what you are saying is positive. If something is negative, pause. Leave it for a few hours. If it still feels right, then post. It’s so easy to post in haste, and then regret it for years afterwards.

Seek feedback often. Ask people how you’re doing, especially if you suspect you've annoyed someone or let them down in some way. If you give people permission to vent where you control the environment it means they are less likely to let off steam somewhere else. It may also highlight potential trouble-spots in your process, that you can fix and thus avoid repeats in future. I’ve run sites where the sales process has occasionally broken down, and had customers complain. It happens. I make a point of letting them vent, giving them more than they originally ordered, and apologizing to them for the problems. Not only does going over-and-above expectations prevent negative press, it has often turned disgruntled customers into advocates. They’ve increased their business, and referred others. Pretty simple, right, but good customer service is all part of the reputation management process.

Figure out who the influential people are in your industry and try and get onside with them. In a crisis, they may well help you out, especially if they see you’re being hard done by. If influential names weigh in on your behalf, this can easily marginalize the person who is being critical.

Security

Secure your stuff. Check out this awful story on Wired:

In the space of one hour, my entire digital life was destroyed. First my Google account was taken over, then deleted. Next my Twitter account was compromised, and used as a platform to broadcast racist and homophobic messages. And worst of all, my AppleID account was broken into, and my hackers used it to remotely erase all of the data on my iPhone, iPad, and MacBook.

Explaining what happened and getting it published on Wired is a pretty good crisis management response, of course. When you look up “Mat Horan”, you find that article. Separate your social media business and personal profiles. Secure your mobile phone. Check that your privacy settings are correct across social media. Simple stuff that goes a long way to protecting your existing reputation.

What To Do If You Do Hit Trouble

We can’t please everyone, all the time.

A critical factor is speed. If you spot trouble, get into the conversation early. This can prevent the problem festering and gathering it’s own momentum. However, before you leap in, make sure you understand the issue. Ask “what do these people want to happen that is not currently happening?”.

Also consider who is saying it. What’s their reach? If it’s just a ranter on noname.blogspot.com, or a troll attempt, it’s probably not worth your time, and engaging trolls is counter-productive. Someone influential, of course, requires kid glove treatment. One common tactic, especially if the situation is escalating beyond your control, is to try and take it offline and reach resolution that way. You can then go back to the online conversation once it has been resolved, rather than having the entire firefight a matter of indelible public record.

It’s illegal for people to defame you, so you could also consider legal action if the problem is bad enough. You could also consider engaging some PR help, particularly if the problem occurs in mainstream media. PR can be a bit hit and miss, but reputable PR professionals tend to have extensive networks of contacts, so may get you seen where it might be difficult for you to do so on your own. There are also dedicated reputation management companies, such as reputation.com, reputationchanger.com, and reputationmanagementagency.com who handle monitoring and public relations functions. NB: Included for illustration purposes. We have no relationship with these firms.

Practical examples of constructive responses to negative criticism can often be seen in the Amazon reviews.

For example, a writer can respond to any reviews made about their book. A good approach to negative statements is to thank the reviewer for taking the time to provide feedback, regardless of what they said, and address the issue raised in a calm, informative manner. Future customers will see this, of course, which provides yet another opportunity to sway their opinion. One great example I’ve seen was when the writer did all of the above AND offered the person providing the negative review an hour of free consulting so the reviewer could get the specific information he felt he was missing! One downside of this strategy, however, might be more copycat negative reviews aimed at getting the reviewer free consulting!

The same principle applies to any negative comment in other contexts. When a reader sees your reply, they get editorial balance that would otherwise be missing.

It’s obvious, yet important, stuff. If you’ve got examples of how you’ve handled reputation issues in the past, or your ideas on how best to manage reputation going forward, please add them to the comments to help others.

I’m sure they’ll remember you for it :)

Why Does Business Talk That Way?

Nov 1st
posted in

It goes like this.

Our Mission is to provide the best SEO services in the world. We nurture win-win scenarios to create enduring value for our customers. We were voted top SEO agency in Texas and voted the best place to work. We value our staff - we want people to be the best we can be, so as we can maintain our preeminent position in the search industry

Place gun to my head. Pull trigger.

How many times have you come across corporate-speak and thought “who are these people trying to kid”? Yet, when many business people sit down to write, that is the sort of thing they invariably come up with.

Why?

Because they are business people. They are talking about business. That is how business sounds.

Well, it’s how they think business should sound, because that’s the way it has always sounded - a monotone drone of description, chest puffed out. These people are stuck in the business-speak echo chamber.

No one sounds like business-speak in real life. If you ask someone how their job is going, a lot of them will invariably say “it sucks”, "too busy", "it's okay". These same people might work for the firm that has says they were nominated “best place to work”. The image and the reality don't match. At best, people will ignore business-speak. No one really believes it.

There are better ways to communicate.

Truth

A lot of business-speak fails to communicate because it isn't rooted in truth.

I once worked at a Telecommunications Company. The marketing team was having a meeting about a new brochure and came up with the slogan - I am not making this up - "(Company Name) - first in service!". Once I stopped wondering how any of these people ever managed to land a job in Marketing, I asked how we knew we were "first in service"? It seemed a reasonable question, but I may as well have asked the Pope if he really believed in God.

Apparently, it was self-evident we were first in service! There was no basis of truth in it, of course. Just an empty slogan, meaning nothing. No measurement. It was a phrase that "sounded positive!"

I doubt any customers believed it, especially those waiting in call queues.

Do you notice how some small companies try to appear large? They list multiple offices, when in, reality they consist of two guys who have a call forwarding service. I’m not quite sure why a company would pretend to be any bigger than it actually is, because as soon as they get a customer, they are going to get found out. The feeling they’ll likely leave with that customer is that they are fundamentally dishonest.

Which is a strange approach to take.

Many customers consider small to be an advantage. Small can mean you are more connected with your customers as there is no barrier between you and the customer. They can talk directly to you. They can email you. They can see you Twittering. Many customers love that. Big companies have “policies”. They have call centers. They have barriers to entry. It’s no wonder they talk in business-speak. It’s just another means to keep people at a distance.

Small companies sometimes try to appear big because they think they need to be big in order to attract big companies as clients. This is sometimes true, but mostly false. It is true that big companies often like to deal with other big companies, mostly so they can successfully sue them if they stuff up. It is false because smart big companies will know a great idea when they hear one, and size simply won’t be a consideration so long as the small company has got something the big company wants.

For example, I mentioned I’d been reading “The Pumpkin Plan” recently. There is a story about a tiny two person company. They came up with a new way of marketing pharmaceuticals.

One major problem many pharmaceutical companies face is that they need to change their marketing approach in different regions, even though they are marketing the exact same product.

In some areas, they have to market based on price (Los Angeles). In other markets they need to influence the cardiologists (Boston). In other areas they must talk directly to African-American patients (Atlanta). Exact same product, different marketing strategy for each city. Get the strategy wrong, and they waste a lot of money and lose market share.

Two guys came up with a way to crunch the numbers that tell pharmaceutical companies exactly what the biggest driver of performance is in each territory.

Through a network of colleagues, they managed to land a meeting with a pharmaceutical company. Not just any meeting - they go straight to the top floor, and talk to the Chairman Johnson & Johnson Pharmaceuticals. They barely get five slides into their presentation when the Chairman stops them to call in his VP of marketing. They both love the idea! This solves a big problem for Johnson and Johnson. The result is that this two person company lands 500K worth of business on the spot, $4m worth of business in the first two years, and $14.2m by year four. They expand, of course.

So, they were two guys pitching to one the biggest pharmaceutical businesses in the world. They landed millions of dollars worth of business because Johnson and Johnson like their idea. They didn’t need to convince Johnson and Johnson they were anything more than two guys with a good idea. It didn't require any business-speak about mission statements, just a focus on finding and solving a real problem.

Tell A True Story About You (And Them)

If you’re ever tempted to write business-speak, try telling a story instead. Turn your pitches into stories. Turn your proposal into stories. Turn your presentations into stories. Make them true stories. Tell them in your authentic voice. People love to be told a story as stories are both familiar and revealing. A string of facts is never going to have the same impact. Business-speak will invariably leave an audience focused on their smartphones.

A story can be about how you solved a problem in the past. A problem just like the one your prospective clients are having. What was the problem? Why was it painful? What did you do to solve it? What was the result?

Easy and memorable. You can structure almost anything as a story. Stories move from the status quo, straight into a crisis (business problem), then the crisis is resolved, and a new status quo is reached. Start with a problem. Explain why it is painful. Bring in the hero - you - and tell them what you did to solve the problem. Then tell them the result - the new status quo.

Are you more likely to recall the text of my opening paragraph, or the story about the two guys pitching to Johnson and Johnson?

Stories can be so much more effective than business-speak.

Say No To Opportunities & Clients

Oct 29th
posted in

What are you best at?

If you happen to be Google, you’re pretty good at search. And infrastructure. It remains to be seen if you’re any good at social media. It’s fair to say you weren’t much good at Answers, Catalog search, Page Creators, Audio Ads, Wave-ing and Buzz-ing.

The Google example demonstrates that no one can be good at everything, even if they do hire a lot of smart people and have billions in the bank. People, like companies, are good at doing some things, and are okay, or poor, at everything else. Not because they can’t do other things, but because they don't have the time, inclination or disposition.

This truth has led to specialization. Individuals specialize. Companies specialize. Countries specialize. In economics, this is the principle of comparative advantage and it is the basis of trade. We do the things we’re good at, and buy in the things we’re not so good at, or don’t want to do.

We Can’t Be Good At Everything

Like Google, we can’t be good at everything.

Many small businesses make the mistake of trying to do everything, mainly due to lack of resources. However, the opportunity cost of trying to do everything can mean they end up being not very good at doing any one thing. This approach can make them uncompetitive.

Just because we can do something doesn’t mean we should.

Like many web professionals, I can do some coding. Some web design. A bit of this. A bit of that. But I know there are people who are way better at those things that I am, so I let them do it. If I focus on what I’m good at, then I can make money doing that, and buy in the skills I need.

There are many benefits to specialization. For starters, it’s much easier to build a reputation or brand. Who is the go-to guy for Search Engine News? Many people would answer Danny Sullivan. Who is the go-to guy for search patents? That would be Bill.

Another advantage is that specialization leads to omptimized and more efficient processes, and therefore lower costs. The specialist can optimize and improve their approach to a niche activity in a way a generalist seldom can because their focus means they are more likely to see the details.

Most of us occupy very crowded marketplaces, which makes it difficult to stand out as a generalist. Brands, and reputations, can get confused and diluted if businesses spread themselves over multiple service areas. Virgin gets away with it - mainly because of the brand that is Richard Branson - but they are an exception, not the rule.

Not that this article is about the merits of specialization vs being a generalist. More a case of optimizing a business to focus on those areas that are most lucrative, and literally weeding out everything else.

Weeding Out Clients

A lot of companies, like a lot of people, live paycheck to paycheck. They don’t want to turn down any business, because the more clients, the better, right? The more opportunities, the better?

Not all clients are equal. Not all opportunities are a good fit. A client who costs a lot to service, who doesn’t pay their bills on time, who makes life difficult for you is probably not a client worth having. Sure, they might help keep us going to the next paycheck, but this is not an optimal way to run a sustainable business long term. Such clients present an opportunity cost i.e. we could be working with better clients, be making better money, and honing our service around mutual benefit.

For this reason, many companies make a habit of firing clients, or never take them on in the first place.

For example, last year, I received a letter from my accountant. She advised me they were reviewing their business and letting a lot of their clients go, although they were still happy to work with me, and asked that I have a chat with them if I had any concerns.

I did have a chat with them, mainly to confirm my suspicions.

They were deliberately getting rid of 50% of their clients. They had figured out who their top clients were i.e. the clients who took them the least time to service because their books were in order, and they eliminated the rest i.e. those clients whos books were a mess and were generally a pain to deal with. They downsized their business, reduced overhead and now tell me they are making more money than they previously were due to their optimized cost structure. They also appear to be playing a lot more golf!

They optimized their business, became more profitable, and have a lot more time because they made a point of figuring out the core of their business, and saying “no” to everything else.

Say No

Saying no can be very powerful. Prospective clients seem to respect this more, not less. There is something very appealing about a service that is exclusive and beyond reach. It signals a level of confidence that can be attractive.

Exclusive positioning is not just done for the sake of it. It’s a way to filter clients in order to find a good fit, which is especially important for small companies, as they have less resources available to carry bad risks. If we can figure out a client need that we know we can service well (specialization), with sufficient margins for us to be enthusiastic, and the client gets the value they were looking for, then everyone wins.

Let’s say running a PPC bid management service earns an internet marketing company the most money with the least effort. Let’s say they also do web design, but this is a lot more work (read: higher cost to service), and the margins are lower.

Would this company be better off saying “no” to new web design business? Quite possibly. They could dedicate more time to PPC, their PPC processes would get more refined through increased specialization, and they would likely be better placed to compete in the PPC space as their brand and attention becomes more focused. They could let go of the web designer, thus reducing overhead.

Granted, there are many factors to consider, but the question is this: are some areas of your business being serviced only because you can? Or does it make sense to focus on the areas where there is best fit? i.e. better margins, lower costs, most productive relationships - even if that means letting some clients, and even some staff, go?

Could we get better at saying "no"?

3 Reasons Google Won’t Offer Car Insurance Comparisons in the US Anytime Soon

Sep 20th

The following is a guest column written by Rory Joyce from CoverHound.

Last week Google Advisor made its long-awaited debut in the car insurance vertical -- in the UK. Given Google’s 2011 acquisition of BeatThatQuote.com, a UK comparison site, for 37.7 million pounds ($61.5 million US), it comes as little surprise that the company chose to enter the UK ahead of other markets. While some might suspect Google’s foray into the UK market is merely a trial balloon, and that an entrance into the US market is inevitable, I certainly wouldn’t hold my breath.

Here are three reasons Google will not be offering an insurance comparison product anytime soon in the US market:

1) High Opportunity Cost

Finance and insurance is the number one revenue - generating advertising vertical for Google, totaling $4 billion in 2011. While some of that $4 billion is made up of products like health insurance, life insurance and credit cards, the largest segment within the vertical is undoubtedly car insurance. The top 3 advertisers in the vertical as a whole are US carriers -- State Farm, Progressive and Geico -- spending a combined sum of $110 million in 2011.

The keyword landscape for the car insurance vertical is relatively dense. A vast majority of searches occur across 10-20 generic terms (ie - “car insurance,” “auto insurance,” “cheap auto insurance,” “auto insurance quotes,” etc). This is an important point because it helps explain the relatively high market CPC of car insurance keywords versus other verticals. All of the major advertisers are in the auction for a large majority of searches, resulting in higher prices. The top spot for head term searches can reach CPCs well over $40. The overall average revenue/click for Google is probably somewhere around $30. Having run run similar experiments with carrier click listing ads using SEM traffic, I can confidently assume that the click velocity (clicks per clicker) is around 1.5. So the average revenue per searcher who clicks is probably somewhere around $45 for Google.

Now, let’s speculate on Google’s potential revenues from advertisers in a comparison environment. Carriers’ marketing allowable is approximately $250 per new policy. When structuring pay-for-performance pricing deep in the funnel (or on a sold-policy basis), carriers are unlikely to stray from those fundamentals. In a fluid marketplace higher in the funnel (i.e.  Adwords PPC), they very often are managing to a marginal cost per policy that far exceeds even $500 (see $40 CPCs). While it may seem like irrational behavior, there are two reasons they are able to get away with this:

a) They are managing to an overall average cost per policy, meaning all direct response marketing channels benefit from “free,” or unattributable sales. With mega-brands like Geico, this can be a huge factor.

b) There are pressures to meet sales goals at all costs. Google presents the highest intent of any marketing channel available to insurance marketers. If marketers need to move the needle in a hurry, this is where they spend.

Regardless of how Google actually structures the pricing, the conversion point will be much more efficient for the consumer since they will be armed with rates and thus there will be less conversion velocity for Google. The net-net here is a much more efficient marketplace, and one where Google can expect average revenue to be about $250 per sold policy.

How does this match up against the $45 unit revenue they would significantly cannibalize? The most optimized and competitive carriers can convert as high as 10% of clicks into sales. Since Google would be presenting multiple policies we can expect that in a fully optimized state, they may see 50% higher conversion and thus 15% of clicks into sales. Here is a summary of the math:

With the Advisor product, in an optimized state, Google will make about $37.50 ($250 x .15) per clicker. Each cannibalized lead will thus cost Google $7.50 of unit revenue ($45 - $37.50). Given the dearth of compelling comparison options in insurance (that can afford AdWords), consumers would definitely be intrigued and so one can assume the penetration/cannibalization would be significant.

Of course there are other impacts to consider: How would this affect competition and average revenue for non-cannibalized clicks? Will responders to Advisor be incremental and therefore have zero opportunity cost?

2) Advisor Has Poor Traction in Other Verticals

Over the past couple of years, Google has rolled out its Advisor product in several verticals including: personal banking, mortgage, and flight search.

We know that at least mortgage didn’t work out very well. Rolled out in early 2011, it was not even a year before Google apparently shut the service down in January of 2012.

I personally don’t have a good grasp on the Mortgage vertical so I had a chat with a high-ranking executive at a leading mortgage site, an active AdWords advertiser. In talking to him it became clear that there were actually quite a bit of similarities between mortgage and insurance as it relates to Google including:

  1. Both industries are highly regulated in the US, at the state level.
  2. Both verticals are competitive and lucrative. CPCs in mortgage can exceed $40.
  3. Like insurance, Google tested Advisor in the UK market first.

Hoping he could serve as my crystal ball for insurance, I asked, “So why did Advisor for Mortgage fail?” His response was, “The chief issue was that the opportunity cost was unsustainably high. Google needed to be as or more efficient than direct marketers who had been doing this for years. They underestimated this learning curve and ultimately couldn’t sustain the lost revenue as a result of click cannibalization.”

Google better be sure it has a good understanding of the US insurance market before entering, or else history will repeat itself, which brings me to my next point...

3) They Don’t Yet Have Expertise

Let’s quickly review some key differences between the UK and US insurance markets:

  1. Approximately 80% of car insurance is purchased through comparison sites in the UK vs under 5% in the US.
  2. There is one very business-friendly pricing regulatory body in the UK versus state-level, sometimes aggressive, regulation in the US.
  3. The UK is an efficient market for consumers, the US is not. This means margins are tighter for UK advertisers, as evidenced by the fact that CPCs in the UK are about a third of what they are in the US.

As you can see, these markets are completely different animals. Despite the seemingly low barriers for entry in the UK, Google still felt compelled to acquire BeatThatQuote to better understand the market. Yet, it still took them a year and a half post acquisition before they launched Advisor.

I spoke with an executive at a top-tier UK insurance comparison site earlier this week about Google’s entry. He mentioned that Google wanted to acquire a UK entity primarily for its general knowledge of the market, technology, and infrastructure (API integrations). He said, “Given [Google’s] objectives, it didn’t make sense for them to acquire a top tier site (ie - gocompare, comparethemarket, moneysupermarket, confused) so they acquired BeatThatQuote, which was unknown to most consumers but had the infrastructure in place for Google to test the market effectively.”

It’s very unlikely BeatThatQuote will be of much use for the US market. Google will need to build its product from the ground up. Beyond accruing the knowledge of a very complex, and nuanced market, they will need to acquire or build out the infrastructure. In the US there are no public rate APIs for insurance carriers; very few insurance comparison sites actually publish instant, accurate, real-time rates. Google will need to understand and navigate its way to the rates (though it’s not impossible). It will take some time to get carriers comfortable and then of course build out the technology. Insurance carriers, like most financial service companies, can be painfully slow.

Conclusion

I do believe Google will do something with insurance at some point in the US. Of the various challenges the company currently faces, I believe the high opportunity cost is the toughest to overcome. However, the market will shift. As true insurance comparison options continue to mature, consumers will be searching exclusively for comparison sites (see travel), and carriers will no longer be able to effectively compete at the scale they are now -- driving down the market for CPCs and thus lowering the opportunity cost.

This opportunity cost is much lower however for other search engines where average car insurance CPC’s are lower. If I am Microsoft or Yahoo, I am seriously considering using my valuable real estate to promote something worthwhile in insurance. There is currently a big void for consumers as it relates to shopping for insurance. A rival search engine can instantly differentiate themselves from Google overnight in one of the biggest verticals. This may be one of their best opportunities to regain some market share.

Get Valuable Work Done

Aug 21st
posted in

I run my own business, but I've just completed a short stint working on-site at another company.

And after a few months working for another company, I realized that, at my own company, I had fallen into routines and work habits not all of which could be considered productive.

Procrastination, which some argue can be beneficial, can also be a problem when we really need to get things done. So, it was refreshing to see how other people organize their work, and an opportunity to reflect upon, and improve, my own work approach.

In short, I really needed a way of getting more valuable stuff done each day.

How Often Do We Produce Business Value?

Do you sometimes find that you’ve been working all day, but end with a sneaking suspicion you didn’t create a lot of actual value? Are you sometimes busy for the sake of being busy?

That was true in my case.

But now I organize my work to ensure I deliver something of real value - every day.

I discovered a method of working that has been around for a while, called Agile. Agile is a software development process incorporating a number of elegant concepts that can help skyrocket personal productivity. It is used by companies such as Amazon, Microsoft, Yahoo and Salesforce.

Agile is a huge topic, and there are many flavors of Agile, but I’ve picked out the one key feature that can be very effective for individuals and small companies working in areas beyond software development.

But first, let’s talk about how a bunch of amateurs built a supercar in under three months.

Really?

Really.

Wikispeed are a group of part-time volunteers. They built a 0-60mph-in-under-five-seconds supercar, that can do 100mpg, and they did so in under three months. What is more astonishing is that the people building the car often weren’t in the same room, city or even country.

But with very little money, no factories, and little formal car-building experience they built something astonishing in a very short space of time. Currently, they’re building a full production car suitable for the mass market, and if you want to help build it, well, you can!

That's quite some feat in terms of both organisation and personal productivity.

Some people would be forgiven for assuming that the process must have been meticulously planned in advance, laying out precise complex technical and procedural detail, but that wasn’t the case. The project was broken down into very simple concepts even a child could understand

The work was broken down into stories

What Is A Story?

In Agile, a “story” is short, simple description of a feature told from the perspective of the person who will use the capability being created. It also defines the business value.

Here's a template for a story:

As a (type of user), I want (some goal) so that (some reason).

An example might be:

As a marketer, I want a report that shows the number of links coming to my site from Twitter so that I can measure if my Twitter experiment resulted in over 1000 links

We then create a list of tasks needed to accomplish the story.

For example:

  • Investigate software solutions for Twitter link measurement
  • Implement software solution
  • Run report

We then create success criteria to measure if the story has been completed i.e. what output of business value is created?

I can see a report that shows how many links are coming into my site from Twitter

Simple.

Ensure You’re Focused On Delivering Value

On a Monday, I write a set of stories about what I’m going to do that week. I estimate how long each story will take, and then I arrange them in a hierarchy. The order of the hierarchy is determined by which stories produce the most business value.

Next, I count up the hours involved, and if the hours involved exceed the number of hours I have available, the story gets put on the backburner for consideration next week.

I define tasks for each story, and then systematically work through them. It’s like a to-do list, but richer and more valuable because each story forces me to think in terms of delivering something of measurable, business value relative to each other unit of work I need to do. Needless to say, engaging with Facebook doesn't appear often in my stories.

Big projects, such as entire search marketing campaigns, can be broken down into multiple stories, spread over multiple weeks, chunked into tasks, and then timeboxed as a means of project management. In plain, simple language, everyone can see what needs to be done.

If you have trouble determining the business value of a chunk of work you’re doing, chances are it isn’t producing much value, so you should ditch it and find something that does. In this way, you fill your day with the things that matter most.

Satisfaction In a Job Well Done

There are, of course, many ways to manage projects, and many different ways to use Agile. Most companies adopt different flavours of Agile, or use only bits and pieces as it suits.

Personally, I have little use in my own business for the numerous meetings and the often tedious ritualistic activity Agile can involve. I’m also wary of over-hyped--latest-greatest-thing-since-sliced-bread work systems, but I do find stories a great way of deciding what work is most valuable to do at any given time.

I use this chart tool, called LeanKit, to align the story tasks into pre-set columns of “defined” (meaning I've written the story and estimated how long it will take), “in-progress” (meaning "I'm working on it") and “done” (yay!). You can also use sticky notes on a board if you prefer a more tactile approach

I work on one story at a time (the most important first), see it through to "done" status before I start the next one. If I underestimated how long the stories would take, then at least I can be assured I've done the most important work first. If time runs out, the low priority stories simply drop off the end for reconsideration next week.

Click the image for slideshow:

The chart, called a Kanban, is a nice visual representation of how work is progressing, and if other people need to see what I'm working on, and where I'm up to, they can do so at a glance.

As a bonus, it feels very satisfying to move each task across into the done “column”.

Do you use any systems to help ensure you get valuable work done? Please tell us about them in the comments!

PS: I’ve barely touched on Agile, and its many, many variants - a lot of it is more applicable to production processes rather than marketing - but if you want to read more, see the links below.

Further reading:

Transparency vs Asymmetrical Information

Jan 8th

"All things are subject to interpretation. Whichever interpretation prevails at a given time is a function of power and not truth." - Friedrich Nietzsche

Everyone Except Me Should be Open

Being labeled as open or transparent is a great public relations strategy. Executed effectively it gets ditto heads to feel like they are part of a movement and spread your propaganda.

However actually being transparent is often a poor business strategy.

When WordAds opened up someone in the comments suggested that they should win by being open like Google. I read that and laughed. Where Google is losing you can count on them pushing the open label in order to build momentum & destroy the asymmetrical information advantages of existing market leaders. But where Google leads non-transparency is the norm.

A few examples & comparisons:

  • Claiming to run an open auction, while running obfuscated quality metrics that price gouge advertisers.
  • At the same time Google is trying to push social sites to offer transparent data, they decided to block some Google search referral data (unless you are paying for the clicks, then you get that data).
  • When planning some of the features behind Google+ one of their employees wrote a book about the social circles concept with Google's blessings. Then, after he wrote the book, Google revoked permission to publish it!
  • Nuking affiliate links of some websites & then investing in Viglink, a network that automatically turns links into affiliate links.
  • Burning some networks of websites for being doorway pages & then investing in the Whaleshark Media roll up & launching Google Places.
  • Nuking some UK financial comparison sites for link buying & then buying BeatThatQuote.
  • Suggesting 60 or 90 days of penalty is a reasonable penalty for sketchy links & allowing BeatThatQuote to rank 2 weeks after penalizing it without cleaning up any of the paid links.
  • Android is open but internal Google emails revealed that carriers were getting wise to Google using compatibility as a club.
  • Not sharing revenue share stats with AdSense partners for a half-decade.
  • When websites are nuked they are frequently given no explanation. Worse yet, their content often re-appears in the search results on some other domain that stole it, in many cases while being wrapped in AdSense ads.
  • Arbitrarily making it hard to export AdWords campaigns to other services (& making it against the TOS to do same via the API).
  • The Panda update was needed to rid the web of garbage content. And yet Google is pre-paying Demand Media to post videos on YouTube. Since the Panda update downstream Google traffic to YouTube has more than doubled & YouTube is serving over a trillion streams per year!
  • In spite of not having permission to do so, Google has been scanning books for nearly a decade now. Yet whenever Google goes to court they try to get the court documents sealed so that their statements couldn't be used against them.

Judge, Jury, Executioner

Calls for "transparency" in SEO may sound great on their face, but once you peal back the covers the absurdity is laughable. If Google didn't discriminate against certain types of players & if Google didn't compete in the very markets that it judges then perhaps transparency would be a good idea.

However Google is perhaps the single biggest direct competitor in many markets, so to be fully transparent with them when they are the opposite with you is a naive business strategy:

I also disagree that outing each other would make the industry less like a mafia, because SEOs aren't the mafia. SEO is a symbiotic marketing channel reliant on Google, until the next big search engine/method comes along. In a mafioso analogy, Google would be the mafia - as they control the market. Removing all webspam wouldn't necessarily create better search results or a fairer market, as Google still decides who wins and who loses. The biggest winner being Google itself, the next level being their friends.

Secrecy is also the cornerstone of all marketing channels. Social Media for instance works in a similar way to SEO, except they have secret voting methods rather than secret linking methods. You don't see major social media companies outing a rival's voting methods, as it would shine a torch on their own methods. Even outside of marketing, McDonalds probably worked out KFC's magic blend of herbs and spices decades ago, but it's not in their best interest to tell everybody.

Outing webspam helps an SEO blog to keep their UVs up and their VCs happy. It helps a failing newspaper to appear modern and edgy, whilst allowing the contributor to launch a protection racket off the back of another company's misery.

Do You Want SEOs to Seem More Professional?

How often do you see tier-1 public relations firms marketing themselves by smearing other PR firms?

You don't.

You might see a company like Google hire a PR firm to push a bogus study to smear the security of a competitor, but you rarely (if ever) will see one PR firm smear another in the media.

While some of the more intellectually challenged members of the SEO industry associate search spam with molesting children (talk to Google about that after their recent Chrome fiasco), those with a bit of intelligence and/or experience realize that many of the issues are gray and murky. What one person considers as spam one day they later sell as "advanced" months or years down the road. The ecosystem isn't some static black & white code:

The question is less whether black hat and webspam are a good thing or not, but if Google is the unbiased and benevolent instance who shall make the rules. Google is a business and persuits its very own interestes, since it is aware of its market power with a lot of arrogance, aggresivity and obviously double standards. That was also Aaron's point, but seomoz has been missing the point completly in the last time.

I expect an SEO portal/community to focus on how stuff actually works/can work, not to propagate how the monopolist does it want to work. It is their risk of doing business if they decide for an algorithm, not ours. It is our risk however, to decide whether to stick to the rules or not. And it's not only about ethics but has several practical implications...

Full Disclosure Required, Except From Us

On paid links Google claims to require machine AND human readable disclosure. Then on their own site they use an ad color background that literally fades to white on many monitors. Maybe it is legitimate that they are only able to fool some of the users some of the time. But some of their ad initiatives have 0 disclosure at all. None.

That is now part of the "organic" search results, but is that a paid ad?

You wouldn't know by looking at it, but according to the WSJ it is: "Google lists booking links to the airlines as advertisements, but the company declined to comment on how much money it makes from the arrangement."

There is no disclosure that you are in a paid ad funnel until the very last click. And those who fail to pay are either unlisted, listed last, or have a broken booking process where their brand is arbitraged in an attempt to flip the click to somewhere else. According to Leocha, “Google and the airlines have a sweetheart deal with each other, and the consumers are getting screwed.”

In the hotel market Google is also testing comparison ads & price ads.

Notice how little they care about relevancy so long as they keep the click on Google or are paid for the referral. They rank the car rental company Avis as a top Las Vegas hotel! And even the ad links that are sold off of that do not line up. Priceline pushes the Plazzo Luxury Suites & Booking.com pushes the Venitian.

Retarding Investment in the Search Ecosystem

What do you suppose the above behavior does to cash flow & multiples of websites in that vertical? Of course it contracts them & retards investment. Who wants to start a new hotel website at this point? What other verticals have investment held back by the fear of Google's eventual entry?

If you only had to manage competing against other market competitors & staying inside Google's editorial guidelines then investment isn't that difficult, but if you have to stay within Google's guidelines in the short term yet try to build a business that is sustainable even after Google enters & destroys the market it is far more difficult.

Skimming the Cream

At any time Google can enter any market and skim off the cream: "An independent study from Leads360 showed consumers using Google’s comparison ads converted better than any other lead provider."

Other affiliate networks which do not own the search channel have to fight through quality issues if they try to build similar scale.

A Self-serving Bias You Can Count On

When Google enters a market it might buy out a competitor, buy out a supplier, bundle, use predatory pricing, grant themselves superior search placement, adjust the relevancy algorithms and/or editorial guidelines, violate IP, scrape 3rd party content, work with sketchy advertisers & publishers to undermine competing business models, or any combination of the above.

They are rarely transparent with their interests when they enter a market. Almost everything is labeled as "a beta" and "just a test." They promise to "act appropriately" & you may not be aware of the steamroller until you are under it.

Web Scrape Plus+ (Now With More Scraping)

When the +1 button & Google+ launched, Google highlighted how they would use the + button usage as a "relevancy" signal. Google recently started inserting + pages directly into the search results for brands & right from the very start they were using it as a scraper website that would outrank the original content source.

Google used the buy in from their promised relevancy signal to create a badge-based incentivized system which acts as a glorified PageRank funnel to further juice the rankings of these new pages on a domain name that already had a PageRank 10.

I recently read a blog post about how anyone could do the above & the opportunity is open to everyone. But the truth is, I can't state that something will become a relevancy signal that manipulates the search results in order to get buy in. Or, if I did something which actually had the same net effect, Google would likely chop my legs off for promoting a link scheme.

Recently the topic of Google+ as a scraper site came up yet again via Read Write Web & on Hacker News a Googler stated that it was "childish" to place any of the blame on Google!!!!!!

Google determines how much information is shown near each listing & can create "relevancy" signals in ways that things tied to Google get over-represented (look at the +1 count here). When they do that & it destroys other business models *of course* Google deserves 100% of the blame.

It may be more profitable for Google to squeeze out some of the players, but if Google's quest for free content manages to destroy business models & the ecosystem as a whole, then they are not "doing what is best for the user."

Things We Do Not Approve...

Google can bundle themselves into markets, but when others do the same it is a big no no:

A Google spokesman said "applications that are installed without clear disclosure, that are hard to remove and that modify users' experiences in unexpected ways are bad for users and the Web as a whole."

Google's founding research highlighted how bad ad-driven search engines were & then Google's core revenue engine of paid search was built on their violation of Overture's patent. They keep buying swaths of patents to protect against their other violations.

The business model of "violate & then buy protection" has helped lead to a protection-racket styled marketplace in patents that makes the risk of innovation for smaller players so expensive that it drives them under.

Where Google has gained a dominant position in a marketplace they can begin misdirecting for profit. Let's say you link to your own location on Google Maps to drive traffic to Google & help your users locate your office. Well in some cases they then reciprocate by confusing users by putting an ad in your location bubble.

Once again, you are forced to buy your own brand unless you teach your customers (and prospective customers) to avoid Google products.

Sure I May Have Failed, But at Least That Failure Was Transparent...

If you are fully transparent against an arbitrary set of guidelines when the company that judges you also competes against you & brushes up against the limits of the DOJ & FTC then you might lose for no reason other than being transparent. And not only are you competing directly against Google, but the algorithms are biased toward certain players.

Creating a Two-tier Web

In 2006 Google's Eric Schmidt admonished others for attempting to create a 2-tier web:

Today the Internet is an information highway where anybody — no matter how large or small, how traditional or unconventional — has equal access. But the phone and cable monopolies, who control almost all Internet access, want the power to choose who gets access to high-speed lanes and whose content gets seen first and fastest. They want to build a two-tiered system and block the on-ramps for those who can’t pay.

But when Google launched their Panda algorithm they did the same thing.

Their "quality content" thesis could have come across as being honest if they weren't still pre-paying Demand Media to upload "content" to YouTube.

You might get smoked by a Panda update or have your accounts arbitrarily frozen while operating at a 7 out of 10 level, and then you see Ask is Google's biggest advertiser, their arbitrage gets a pass, & that feed even monetizes misspelled searches for Google's brand. ;)

Risks

Risk is needed for adaptation, so some amount of risk is good, but...

If the old established corporate competition needs to be as good as you to compete then there is little risk to being transparent if the competition is doing nothing beyond following you around. But if the playing field is tilted and the competition only needs to be 5% as good as you are to beat you (and can easily come from behind to copy any success you have) then full on transparency brings much more risk than potential profits.

You Are the Ad

We are moving into a media world where the content becomes ads & even how people interact with the ads and content becomes a part of the ad.

Further Google uses their data advantage to create other asymmetrical advantages. While credit card companies sell personalized ads in network, Google is creating a marketplace to buy and sell user data.

Every time you view a page and click an ad (or even don't click an ad) you are feeding highly personal data back to Google. And they will use it as they wish. Here they are saying thousands of people like eBay, which is of course plenty reasonable, except for the fact they claim the people voted for that specific page rather than the site as a whole.

What's worse is that sometimes they will put your picture next to a listing and claim that YOU PERSONALLY voted for a specific page & use that to market that item to your friends and contacts. The problem with this is that:

  • even after you remove the vote for a site they still keep showing it
  • you may vote for site A & they will show your image as voting for site B
  • when they show your picture they claim you voted specifically for the page being advertised (even if that page is promoting a scam or something else you wouldn't endorse)

Once again, I will highlight that they use the votes against the wrong sites & pages and that they keep showing the votes even weeks after you remove them.

Where is the transparency in that deceptive crap?

Others Are Just as Bad, But Are Not Monopolies

But Aaron, you are just being hard on Google, why don't you ever mention Ask or Yahoo! or Bing?

I did mention Ask above. ;)

Bing has done numerous self-serving things, including some that are flat out sketchy.

Yahoo! offers a useless "buying guide" for fish tanks that is nothing more than a paid pointer to Overstock.com.

If you click on their coupons tab on that fish tanks search Yahoo! shows you coupons for tank tops, which is pretty idiotic.

Why is this Yahoo! Shopping & Yahoo! Deals product so ugly? They outsourced it years ago. So it is a non-product & thus the integration can't be anything but crappy.

Why do Yahoo! & Bing typically get a pass? They own a fairly low search marketshare. Missing traffic from either or both of those is certainly significant enough to be felt, however even when they are combined it is still less than half of what Google controls in most markets. Market leaders are expected to operate in less conflicted & less self-serving ways than also ran players in their market do. If Microsoft would have had 10% or 15% marketshare for their operating system then it is unlikely their browser bundling would have come under such scrutiny.

Transparency in The Real World

In the past I highlighted how every form of media is manipulated in Why Outing is Bad, but I thought it would be fun to run through some other markets and highlight how transparency often exists only as an illusion (to lure in punters so they can be rooked).

TrueCar aimed to make that market more transparent by giving consumers pricing data online to remove some of the asymmetrical advantage dealers have & makes the sales process smoother for consumers. How does the automotive market respond? Honda issued threats to their dealers & now TrueCar has a hate video ranking for their brand.

This nontransparency is not something new, but rather the way it has always been.

It exists at every level of society. Countries spy on one another & companies may chose to show different views of the world to different markets.

And what they do internally doesn't match the story they share publicly. Look no further than the News of the World's hacking scandal:

News International’s leading profit centre, the News of the World, was dependent on a very ugly culture of lawbreaking, hacking and impunity. This freewheeling, ask-no-questions attitude spread to other parts of the organisation, such as the Times and the Sunday Times, both of which used have used illegal or unethical techniques. Even more troubling, when senior News International management were confronted with evidence of wrongdoing, the company made false statements and took actions which prevented key evidence from reaching the public domain.

The same company has not only been accused of hacking at some of its other news outlets (by its own employees no less) but was also accused of similar in other lines of business:

Both cases involve News America Marketing, an obscure but lucrative division of the News Corporation that is a big player in the business of retail marketing, including newspaper coupon inserts and in-store promotions. The company has come under scrutiny for a pattern of conduct that includes below-cost pricing, paying customers not to do business with competitors and accusations of computer hacking.

Were The Robber Barons Transparent?

Going back into history it is sort of hard to pick a starting point (one can go to the spice trade & orders that are unsealed at sea, or likely earlier than that) but to pick a somewhat recent starting point, we could look at the railroads:

So how did unnecessary, inefficient railroads get built? Because of government subsidies. In short, the federal government paid to build the railroads through massive financing subsidies and also gave them ample land grants. The trick to building a railroad was not knowing anything about railroads or even about business; it was having friends in Washington who could give you the right financing and land subsidies.

Even then, the railroads lost money. Not only was there insufficient demand for their services, but they were run by people who were generally incompetent. (For one thing, they didn’t even know their own costs of doing business.) Yet the people who owned the railroads made fabulous amounts of money (of which Stanford University is one symbol). The main way to do this was simple. The people who controlled a railroad (generally by putting up very little of their own money, thanks to the government subsidies) would also wholly own a construction company. They would cause the railroad to overpay the construction company to build the railroad—in effect transferring wealth from railroad stockholders and creditors into their own pockets

What did the Robber Barons invest in? In large part government, media & educational institutions so that they could help "educate" society on how to behave much more civilly than they have.

Corporate Advocacy

There are tons of marketing campaigns designed to "educate" society about the impacts of various companies. BP now markets the gulf coast economy they plundered.

AT&T's astroturfing campaign to acquire T-Mobile was so over the top that it actually backfired.

"Get the facts" styled campaigns are rarely about promoting a complete worldview.

Remember the $500 million fine for Google from them pushing ads selling overseas Viagra in the US? Now they promote scaremongering ads against fakes from filthy labs.

Coca-cola runs The Beverage Institute & has "doctors" highlight how healthy soda is.

At the same time, when Pepsi was sued over an alleged rat being in a can of Mountain Dew. Pepsi's defense claimed: "the mouse would have dissolved in the soda had it been in the can from the time of its bottling until the day the plaintiff drank it" turning the mouse into a 'jelly-like' substance. But don't worry folks, it's healthy. :D

At least we still have water.

When they are not busy making it illegal to collect rainwater, Bechtel wants you to follow them on Twitter.

It is hard to know what is in our food & those who label things as organic have to fill out more paperwork than those who manufacture frankenfood. Then there are the baseline chemicals sold as biodegradable which are not. ;)

Oh well, at least we have insurance.

State Farm is the #1 ranked bad faith insurance company, but at least they upload & advertise irrelevant funny videos to YouTube to create brand signal for Google.

Transparency in Everyday Life

Of course some of the worst affiliate offers, the most aggressive sales calls & other scams are designed to prey on ignorance of small print & rebilling, but even generally good businesses practice in asymmetrical skimming.

A few recent examples:

Is Our Financial System Transparent?

When one looks at the field of finance it is story after story of deception, nontransparency & lawlessness. It is a constant reminder that there is no such thing as business ethics.

  • Wachovia laundered $378.4 billion in drug money for violent drug cartels. As if that wasn't bad enough, we also sold them weapons that wound up at murder scenes with our own border patrol dead & the Koch brothers sold weapons to states that we brand as "rogue."
  • Bank of New York Mellon ripped off their clients with unsavory Forex rates: "As investigators sought to determine whether the bank overcharged clients to execute their currency trades, a senior BNY Mellon executive nicknamed "Rambo" urged traders not to tell clients how much money they made on trading, according to the informant."
  • A former Federal Reserve member writes about the Fed: "No matter the legalistic interpretation, the Fed is, working through the ECB, bailing out European banks and, indirectly, spendthrift European governments. It is difficult to count the number of things wrong with this arrangement."
  • Bank of America recently had to pay $335 million to settle a discrimination lawsuit against minorities, due to Countrywide (who is NOT on your side) charging juiced interest rates. Bank of America had to pay an $8.5 billion settlement to investors who bought some of the junk mortgages out the other end.
  • "What’s happened is that, almost overnight, we’ve switched from democracy in real-property recording to oligarchy in real-property recording. There was no court case behind this, no statute from Congress or the state legislatures. It was accomplished in a private corporate decision. The banks just did it." - Christopher Peterson
  • The financial markets are becoming glorified crack houses: "Frankly, I am concerned that Wall Street is becoming little more than a glorified crack house. Day after day, the sole focus of Wall Street is on more sugar, stronger sugar, Big Bazookas of sugar, unlimited sugar, and anything that will get somebody to deliver the sugar faster. This is like offering a lollipop to quiet down a 2-year old throwing a tantrum, and expecting that the result will be fewer tantrums. What we have increasingly observed over the past decade is nothing but the gradual destruction of the ability of the financial markets to allocate capital for the benefit of future growth. By preventing the natural discipline of the markets to impose losses on poor stewards of capital, and to impose interest rates high enough to force debtors to allocate the capital usefully, the world's policy makers are increasingly wrecking the prospects for long-term economic growth."
  • Companies are often brought private, leveraged up on debt & have their pension programs destroyed to make "profits" for private equity investors: "Nowadays private-equity firms often spend hundreds of millions of their own money on an acquisition (BW -- Feb. 27). Just as often, though, they load up the companies with debt and use the money to pay themselves special dividends and other fees that allow them to profit even if the company itself struggles. Then the backers take the company public, often pocketing the lion's share of the offering."
  • Individuals who put in extra hours of work because they are sold on the promise of their options may also find those disappear: "Taking away the value of options that are vested means that the concept of vesting becomes bogus. It doesn't matter whether the employee understood if this was the deal or not, it's a scummy practice, and it's ultimately self-defeating (both for the company and the industry as a whole). Who would go to work for Skype (or any PE-backed company) in the future? "
  • Limitless fraud before the courts & dancing on the graves of the newly homeless: "Court records show that the firm angered state court judges for alleged false statements and filing suspect documents. Arthur Schack, a state court judge in Brooklyn, in a 2010 ruling said that pleadings by the Baum firm on behalf of HSBC Bank, a unit of London-based HSBC Holdings, in a foreclosure case were "so incredible, outrageous, ludicrous and disingenuous that they should have been authorized by the late Rod Serling, creator of the famous science-fiction television series, The Twilight Zone."
    ...
    The law firm said it would shut down after New York Times columnist Joe Nocera in November published photographs of a 2010 Baum firm Halloween party in which employees dressed up as homeless people. Another showed part of Baum's office decorated to look like a row of foreclosed houses."
  • That theft of physical property is ongoing: "Also announced over the weekend was the jaw-dropping, yet illuminating fact that the MF Global bankruptcy was fraudulently, nefariously and illegally drawn up as a Chapter 7 BK for a SECURITIES DEALER and NOT a commodity brokerage as it should have been. Look, MF Global was the second-largest non-bank FCM in the United States next to NewEdge which is the old FIMAT. If MF Global wasn’t an FCM, then there are no FCMs. Of course it was an FCM. It had $7.2 billion in customer seg funds as of August 31, 2011. And yet MF Global was immediately, from the get-go, put into Chapter 7 BK as a SECURITIES FIRM. This is fraud. MF Global’s BK should have OBVIOUSLY been established under Subchapter IV of the Chapter 7 code as a COMMODITY BROKERAGE."
  • And as banking criminals literally steal money, destroy lives & undermine the rule of law to grow their "profits" sleazeballs like Jamie Dimon think that the reason people hate them is envy.

The above makes no mention of helping Greece hide governmental debt, bid-rigging bribes in Jefferson County, robosigning bogus foreclosure documents, and a host of other crimes. But one thing in common with all the above crimes is this: no jailtime for the banksters.

Since there is nothing stopping those criminals they keep up their crimes:

Big banks represent the ultimate in concentrated economic power in today’s economies. They are able to resist all meaningful reform that could really change their compensation schemes. Their executives want to get all the upside while facing none of the true downside.

But capitalism without the prospect of failure is not any kind of market economy. We are running a large-scale, nontransparent, and dangerous government subsidy scheme for the benefit primarily of a very few, extremely wealthy people.

The actions of the financial cartel are both obvious & predictable. And the damage they do is felt worldwide:

Credit-financed economic booms, by turns in private then public credit as one ratchets up the other over a series of booms and busts, are as irresistible to politicians as hookers and maids.
...
The failures of American FIRE Economy policies are behind the movements in Libya, Yemen, and Syria, as reflation measures, from quantitative easing to currency depreciation, steal purchasing power from low income families world wide, acting as the most regressive tax imaginable. Simmering hatreds are exacerbated by the developing global crisis over oil supplies and costs.
...
The so-called debate about debt ceilings, spending cuts, and entitlements reductions is a red herring. The public debt crisis arose from the 2007 - 2008 private credit market crisis, not the government liabilities that have been building for decades. The mistake of both the left and the right is thinking that we can escape an output gap without facing up to the politically unpopular task of demanding that creditors take a loss on loans taken out during the credit bubble era.

A creditor that makes bad loans deserves to go out of business. Their outsized compensation can't be justified unless they are also made to eat their losses. But rather than holding them accountable for their own actions, societies the world over absorb that pain.

"Fascism should more appropriately be called Corporatism because it is a merger of state and corporate power"- Benito Mussolini

Slavery, Debt & Freedom

There are currently more slaves alive than at any point in history. And many people who are not slaves are still being enslaved by crushing debt:

Money is a human construct. The fact that our money is now backed by nothing more than our collective future ability to "produce" relegates us to that of slaves.

Money=paper=blood hours.

Blood hours are a finite measure. Heartbeats.

What's in your wallet? Is it the new debt slavery card: "A personal bankruptcy is supposed to cut borrowers loose from lenders and debt collectors, but Capital One Financial Corp.—one of the nation's largest credit-card issuers—sometimes doesn't want to let go."

Citigroup has an "effective" strategy they employ in some 3rd world countries to deal with those who can't pay:

After dropping his younger daughter at school, Octa walked into Citibank’s credit card collection department on the fifth floor of the Jamsostek tower just after 10 a.m. Four hours later, he left the 25-story building slumped motionless in a wheelchair -- a victim of what police allege was a violent assault by debt collectors. Driven to a nearby hospital in a Citibank car, Octa was pronounced dead on arrival.

Unfortunately, even if you stay out of debt, you are forced to support banking scams:

before being bailed out by governments, banks had never made any return in their history, assuming that their assets are properly marked to market. Nor should they produce any return in the long run, as their business model remains identical to what it was before, with only cosmetic modifications concerning trading risks.

So the facts are clear. But, as individual taxpayers, we are helpless, because we do not control outcomes, owing to the concerted efforts of lobbyists, or, worse, economic policymakers. Our subsidizing of bank managers and executives is completely involuntary.

In the US the reason the government debt outlook is so bad is in part due to overpaying for "assets" owned by the likes of Citibank:

The way the banks make money now is by hiding their losers off balance-sheet, or by forcing them on the taxpayers, and after having themselves declared "systemically important," adjusting their on balance-sheet exposures accordingly, crashing the system and cashing out on their leveraged derivative bets, also at the taxpayers' expense.

In real life, if there is such a thing anymore, all of the major banks are arguably insolvent. So, in reality, they're not making any money at all, they are merely having it transferred to them by their political operatives in Congress and the Federal Reserve Bank. This, after all, is the modern purpose of the Congress, and has always been the purpose of the Federal Reserve System.

Even as they destroy savings, kill jobs & undermine the competitiveness of the economy, why does the government continue to support such scams? Without the scams & cost-shifting those in government wouldn't have as much wealth, power & influence. It is debt & cost-shifting that fuels them:

government and banks are stuck together like a couple of dogs screwing and we don't know which is on top. Here, Republicans need government to finance war and Democrats need it to finance social programs. Both need it to finance both, as that is how government attempts to maintain power and influence over the people this day and time.

The congress literally sells insider tips to hedge funds:

When Senate Democrats finally brokered a compromise over the proposed health-care law, a group of hedge funds were let in on the deal, learning details hours before a public announcement on Dec. 8, 2009.

The news was potentially worth millions of dollars to the investors, though none would publicly divulge how they used the information. They belong to a select group who pay for early, firsthand reports on Capitol Hill.

Since most money comes into circulation as debt (and due to the compounding nature of debt interest), if those at the top are not allowed to fail then those at the bottom will fall hard:

In the past, periods dominated by virtual credit money have also been periods where there have been social protections for debtors. Once you recognize that money is just a social construct, a credit, an IOU, then first of all what is to stop people from generating it endlessly? And how do you prevent the poor from falling into debt traps and becoming effectively enslaved to the rich? That’s why you had Mesopotamian clean slates, Biblical Jubilees, Medieval laws against usury in both Christianity and Islam and so on and so forth.

Since antiquity the worst-case scenario that everyone felt would lead to total social breakdown was a major debt crisis; ordinary people would become so indebted to the top one or two percent of the population that they would start selling family members into slavery, or eventually, even themselves.

Well, what happened this time around? Instead of creating some sort of overarching institution to protect debtors, they create these grandiose, world-scale institutions like the IMF or S&P to protect creditors. They essentially declare (in defiance of all traditional economic logic) that no debtor should ever be allowed to default. Needless to say the result is catastrophic. We are experiencing something that to me, at least, looks exactly like what the ancients were most afraid of: a population of debtors skating at the edge of disaster.

And, I might add, if Aristotle were around today, I very much doubt he would think that the distinction between renting yourself or members of your family out to work and selling yourself or members of your family to work was more than a legal nicety. He’d probably conclude that most Americans were, for all intents and purposes, slaves.
...
Clearly any pretence that markets maintain themselves, that debts always have to be honored, went by the boards in 2008. That’s one of the reasons I think you see the beginnings of a reaction in a remarkably similar form to what we saw during the heyday of the ‘Third World debt crisis’ – what got called, rather weirdly, the ‘anti-globalization movement’. This movement called for genuine democracy and actually tried to practice forms of direct, horizontal democracy. In the face of this there was the insidious alliance between financial elites and global bureaucrats (whether the IMF, World Bank, WTO, now EU, or what-have-you).


Those who have the least often give the most. Excessive income inequality (especially when driven by fraud) leads to a moral and cultural rot. Financial cartels & governments can only enslave people in so much debt & hand out so much soma before they either revolt or simply lose faith.

(On a related note, December saw record gun sales.)

State actors have repeatedly use violence to try to encourage a similar response. Instead they created a viral meme & the movement lives on.

Of course there are "opposition research" hacks willing to dig up dirt on anyone with wide reach who opposes the state-sponsored fraud: "It will be vital,” the memo says, “to understand who is funding it and what their backgrounds and motives are. If we can show that they have the same cynical motivation as a political opponent it will undermine their credibility in a profound way.”

The state has long manipulated mainstream media and has tools for spying on social networks, hacking accounts & astroturfing online, but sock puppets can only go so far against reality.

Who Does 100% Marketing Transparency Help & Who Does it Hurt?

We have an SEC that shreds over a decade of evidence (and engages in other illegal behaviors), a government that bails out the criminal enterprises & a court system that broadly makes it nearly impossible to win a financial fraud lawsuit.

The biggest companies & the biggest people in business at this point are simply above the rule of law & are not held accountable for their actions. Worse yet, the corrupt system has global influence.

  • In 2004 the FBI warned that there was an "epidemic" of mortgage fraud and that it would create a crisis.
  • "My administration is the only thing between you and the pitchforks," the president told them.
  • And, in spite of the FBI highlighting the massive mortgage fraud, and the above quote, the president (who is a horrible human being) aims to keep the population misinformed & ignorant, publicly stating that what Wall St did wasn't illegal!

Henry Kissinger has a famous quote about power: "Before the Freedom of Information Act, I used to say at meetings, ‘The illegal we do immediately; the unconstitutional takes a little longer.’ [laughter] But since the Freedom of Information Act, I’m afraid to say things like that." Since then government officials have become much more evasive & smooth talking. Unfortunately, freedom of the press only goes so far:

this is how the much-lauded "freedom of the press" myth in the US actually works. If you perform the job of an actual journalist, telling truth to power, forget about attending press conferences at the White House, Pentagon or State Department. You won't even be admitted in the building.

When you ask for total market transparency it changes nothing with the criminality at the top, but it does create a juicy data source for criminals while harming personal civil liberties & unpeople with limited power:

The people who most heavily rely on pseudonyms in online spaces are those who are most marginalized by systems of power. “Real names” policies aren’t empowering; they’re an authoritarian assertion of power over vulnerable people.

Passive Online Income vs Sustainable Online Income

Aug 31st

Is there such a thing as "passive" income? Generally no. A person can cash out existing brand equity and exposure, but if they cash out too aggressively and/or do not reinvest enough then they are ultimately cashing out their market position and will eventually fade.

Does Google Make "Passive" Income?

Online there are some network effects that are hard to beat. MySpace had them over Facebook & only lost due to years of systematic incompetence & mismanagement. But if you are boastful about your business model competition will come and eat your lunch. Look at all the Groupon clones. And even Google has to claw and fight for every percent of search marketshare.

A person could say "well Google makes passive income" and I would counter that with "not really."

So far this month Google has made about a dozen search interface changes or tests & the underlying relevancy algorithms have likely had at least 3x or 4x as much change.

Keeping Google's Marketshare Costs Big Money

The propaganda Google spreads include statements like: "users keep coming back to Google even though they have a choice of a search engine every time they open a browser"

While Google maintains that their monopolist marketshare is due to user appreciation of superior technology, a ton of their exposure is paid for. I was helping a friend set up a new laptop and the amount of Google added to the machine made me feel like Google is the new Norton or Symantec.

If you use the Internet Explorer browser to access the web it comes with a Google Toolbar.

That toolbar defaults to enhanced features enabled.

Google not only pays to be the default search provider, but as part of that they also pay to have competition removed from the default options list!

Google also pays for Chrome to be installed in the laptop.

If you are curious enough to click on the pinned Chrome logo then when it opens they try to set it as your default browser.

If you do use Chrome regularly you see Chrome store ads bundled right into the browser.

Ads are also included within the interface of their online tools. For example, if you use Google Analytics they may recommend you try AdSense, AdWords, or their affiliate network.

The act of logging out of 1 Google service may trigger ads for another.

Google bundled chat into Google+ & they were fined by the FTC for bundling Google Buzz into Gmail, a violation of user's privacy.

Google's doodle drawings on their homepage may also promote their other offerings

Even if you don't use Chrome or the Google Toolbar in Internet Explorer then whenever you use Google they suggest setting it to your home page.

And even if you don't change your homepage, Google paid to be the default search box on Toshiba's default start page!

If you manage to somehow avoid all the above Google payola then they also pay other browsers (like Firefox) to be the default search service. Further, they then wait for those 3rd party browser plugins to have security issues & then do a bundled cross-promotion there, thus turning competing browsers into ads for more Google crap.

And when you go to update Flash, look where they tell you to search from

If your default search provider isn't Google when you install Chrome they use an option screen to help you change it, with Google being the first choice

Either Google is fibbing when they state how much of their existing marketshare is due to superior quality service, or they are hedging a risk of losing marketshare to Bing by buying placement everywhere they can. And to me this really highlights one of the big issues with truly "passive" online income. In spite of Google's success (& the great network effects they enjoy), even Google feels the need to spend hundreds of millions of Dollars a year buying exposure for their own browser, buying default search provider exposure in 3rd party browsers, and ensuring new computers are filled with promotional Google crapware.

Google also uses their browser's start screen to push beyond software into hardware...a cautionary tale for Android manufacturers after seeing Google acquire Motorola Mobility.

This sort of cross promotion is everywhere, from ads on Youtube promoting Chrome

to Gmail ads highlighting featured Youtube videos

and Google+ games having Chrome ads integrated as special items in the game

right on through to Google buying display ads promoting display ads.

Facebook realizes how powerful this cross-integration is & thus buys ads on Youtube as well.

But if you want to leave Google's ecosystem it takes a lot of effort, as Google is willing to advertise the Google alternative aggressively wherever they can.

Google recently extended their ecosystem of cross-referencing further by automatically adding Google Related to Google Chrome & the Google Toolbar, which recommends Google content within the browser no matter where you are on the web.

Google's bundling not only follows users around the web & personalizes ads, but it also bakes right into the core of their relevancy algorithms. Eric Schmidt stated "the internet would be better if we knew you were a real person rather than a dog or a fake person. Some people are just evil and we should be able to ID them and rank them downward."

Either you sign up for a Google Profile or you suffer the consequences! Forbes published (then quickly pulled) an alarming article titled “Stick Google Plus Buttons On Your Pages, Or Your Search Traffic Dies.” Wired followed up spreading a similar message & a new Google trusted stores rating system for merchants was also spotted.

With so many attempts at lock-in there is no surprise that some other browsers which have partnered with Google are considering moving on.

This is not to say that Bing doesn't do marketing as well. They just are not as slick about it.

Policing Advertisers Costs Billions

In addition to evolving their core relevancy algorithm, Google has to police advertisers who are willing to be deceptive, market counterfeit goods & use the lowest common denominator. When Google is too loose that can cost them a pretty penny: they just paid a $500 million fine to the US government for ads from Canadian pharmacies. The DOJ claimed Mr. Page knew what was going on:

Mr. Neronha said those efforts amounted to "window-dressing," allowing Google to continue earning revenues from the allegedly illicit ad sales even as it professed to be taking action against them. Google employees helped undercover Justice Department agents in the sting operation evade controls designed to stop companies from advertising illegally, he said.

"Suffice it to say that this is not two or three rogue employees at the customer service level doing this on their own," Mr. Neronha said in an interview. "This was a corporate decision to engage in this conduct."

Likewise, it costs Google a lot of money to deal with lawsuits that arise due to their business practices & lack of respect for copyright with photos, books & videos. They eventually had to develop an expensive video footprinting technology to adopt DRM features on Youtube.

And building the partnerships Google has to run Youtube isn't easy. They pay something like a half-cent per video view & if you create a site with a "no soup for you" message (like the above Google page) for markets where the finances do not work out then you are violating their search guidelines by cloaking, whereas Google overly-promotes YouTube in the search results and is free to count ad views as video views (once again, against Google's guidelines).

New Niche? New Lawsuits

Eric Schmidt highlighted how the lobbyists write the laws & then Google went out and hired over a dozen lobbyist firms. Anything that disintermediates search costs Google a cut of revenues.

While Groupon is still unproven as a business model, Google was willing to spend $6 billion to buy it in order to avoid the risk of missing out on a new form of local ads.

Mobile search now represents 12% of the search market. To look in their dominant search position onto the new devices Google:

  • build a new operating system to give away for free
  • paid carriers a revenue share (in addition to giving it away)
  • likely violated Oracle patents (that will likely cost them in the B's)
  • had other patent issues which required Google to spend $12.5 billion buying Motorola (that is nearly 1/3 of the cash Google has built up through their IPO & saved profits in the 10-year history of the company)

Sneaky ISPs Redirecting Search Traffic

What is worse for Google, is in spite their default status, their huge ad budget, and being large enough to be sued regularly, even all that isn't enough to keep all the traffic they pay for, as there is widespread hijacking of search traffic by ISP providers.

Google Isn't Passive, but ___ Is

Google may have bit off more than they could chew & are certainly doing anything but being passive. But maybe some other companies that make great money are doing so passively. Offline that is certainly true in many instances, but online passive companies tend to disappear.

Look at all the work Yahoo! has done with their news box & their sports vertical, yet when you back out the cash on the books & the foreign investments the company isn't valued at much above $0. AOL has also cratered. In spite of their huge traffic streams they are not growing with the market due to search bypassing them & niche players picking them apart one vertical at a time. Running a portal profitably & sustainably is anything but passive.

Even deep into the long tail at the other end of the equation the profits may be every bit as scarce. Demand Media's accounting techniques show that they were far better at growing revenues than growing profits & the company may never be profitable.

The Limits of "Search"

Google & Bing keep eating more of the value chain through content scraping & a more interactive search experience that include new ad formats, like coupons & product ads with pictures.

In addition, search companies are challenging the boundaries of search by creating vertical media & ad networks that compete against a wide array of publisher websites.

The Huffington Post

Autonomy / Fast Search

Groupon

BankRate

MapQuest + TomTom

The Yellow Pages

Dell / HP

That "Shady" Competitor

When Google talks about "protecting users" one of the case studies / angles they push is the health angle:

The paid post at the top happens to be about brain tumors, which is a really serious subject. If you are searching for information about brain cancer or radiosurgery, you probably don’t want a company buying links in an attempt to show up higher in search engines. Other paid posts might not be as starkly life-or-death, but they can still pollute the ecology of the web.

While Google was using the life-or-death approach to policing link buying outside of their AdWords ad network, Google was knowingly selling search ads to Canadian "pharmacies" providing illicit drugs in the US. The official settlement document lists how Google insiders knew work-arounds to the automated systems & were working directly on managing the ad accounts associated with the illegal activities. Google had done so for over a half-decade & only changed their approach *after* they knew a sting operation was underway.

For those scoring at home, this has been Google's approach to the health vertical:

  • 3rd parties buying links that *could* influence search results for important health topics = morally reprehensible
  • Google selling links *within* the search results for important health topics to criminal organizations = totally reasonable

Given the above investigation, it is not surprising that they shut down their health records initiative. They had already spent all their credibility.

Google may protect you from some third parties, but Google can not protect you from Google. :D

Not only can Google hardcode the algorithms toward promoting certain websites (while editorially discriminating against other webmasters for doing the exact same thing), but Google also actively invests in the publishing ecosystem, which pits them directly against anyone who doesn't receive their largesse.

Webmasters are told that having networks of similar websites is spammy. And yet, Google invests is a company that owns about 7 copies of the exact same business model in the exact same niche as a roll up.

As we saw with BeatThatQuote, Google owned-and-operated websites get penalized for a shorter duration of time for the same offense that other websites get penalized for longer periods of time for. It was only through *repeated* exposure of the absurdity on SEO blogs that Google decided to treat their own property like they treat a typical webmaster.

You can also do nothing wrong, but have your model undermined by looking too similar to a company that is exploiting Google's relevancy weaknesses & forces Google to apply retribution. A lot of small ecommerce sites were purged in the content farm update. What is so sad about that is that if not for accounting games & selling stock as a business model a lot of the biggest "success" stories in the content farm might not even exist.

While the above section focuses on Google, it could be about any competing business that touches the web...a bank which uses bogus accounting driving smaller banks out of business, a company that receives no bid government contracts associated with bribes & uses those "profits" to price dump in related fields, an ISP redirecting your traffic, etc. No matter how clean a business model looks at a glace, there is some gray area where businesses meet & exceed the numbers quarter after quarter.

Look, for example, at the sorts of links NetZero puts in some of their customer emails

And those links point at the illegal "fake news" styled $1 trials (with endless unstoppable recurring billing).

Look closely at any mainstream media site & you will run into those ads.

Are Passive Revenues Impossible?

It really comes down to how you define passive.

If your site doesn't evolve & isn't aggressively marketed then eventually a search engine or another competitor will pick away at your advantages until you are soon found ranking #2 then #3 then #7 then #20 then invisible. Or you might get clipped by an algorithm all at once in a sudden stop torch job that makes your site essentially invisible, or it may be a slow & painful debt by a thousand cuts.

This is one of the reasons I generally prefer to have a site with a 30% or 50% profit margin over one with a 90% or 95% profit margin. Sure high margins are great while they last, but if you don't reinvest enough over time an algorithm or a competitor will eventually torch some of those high margin projects.

When it comes to online income, passive and reliable are not synonyms.

If you saved the margins you made while they were there then you are lucky, whereas if you adjust your lifestyle to that level of income & don't save anything then dark times have appeared.

It turns out having passive frugal spending habits & active savings habits are crucial if your lifestyle relies on "passive" income. ;)

eCommerce SEO? Google AdWords or No Soup for You

Aug 12th

Affiliates Are a Dying Breed

Being an ecommerce affiliate keeps getting harder & harder unless you have a strong brand and/or are selling things with a complex sales cycle.

Portable air conditioners is a pretty niche category, but when I look at it I simply don't see any opportunity on the SEO front unless you take on the significant risk of carrying inventory & drop hundreds of thousands to millions of Dollars on branding.

The Corporate, The Bad & The Ugly

Head keyword: note the brand navigation, the extended AdWords ads & the product search results that drive the traditional search results below the fold

Tail keywords are every bit as ugly, with Google product ads sometimes coming in inline, further driving down the organic search results.

And it is nastier when Google Instant is still extended. 10% of browsers can see a single organic search result!

Corporate, Corporate, Corporate

As ugly as that looks, not only do the larger merchants have an advantage in AdWords (getting their product ads on a CPA basis while smaller merchants have to pay on a CPC basis), Google product search (more reviews), inline search navigation options (featuring the same brands yet again), but most of the organic results (that are generally below the fold) are also the same big brands after the Panda update gave them a boost while torching their smaller competitors.

The Chicken vs Egg Problem of Scale

For online pure-plays (outside of Amazon.com, eBay & a few others) the "no opportunity anywhere" problem in search also harms the ability to be competitive on pricing because without the ability to rank you don't have the leverage over the supply chain the way that the big box stores do from winning everywhere in the SERP & having offline distribution. There is little opportunity to organically grow to scale over time unless you enter the market with some point of leverage (like going so far as creating the product right on through to marketing it to consumers), sell something totally different than what is already available in the market (and hope it doesn't get cloned), buy out an existing company that went bankrupt, and/or build significant non-search distribution channels first.

I suppose the last option on that front would be to promote your stuff on a large platform that is already doing well in Google (say eBay, Amazon, or Facebook), but doing that gives you limited control over the customer experience & forces you to keep chasing new one-off sales rather than building & deepening relationships with customers.

Killing Off Diversity

As Google collects more usage date (mobile is already 12% of search) these big box stores will have an even bigger moat between them & smaller competitors.

The "big box stores only" search results also create an experience that is bland & uniform. At first glance things may look different, but it is the same type of sites again and again: a lot of the brands cross hire, have similar "politically correct" cultures & have roughly similar customer experience sets. When you buy from Walmart you are not going to get that caring email from a founder offering hands on tips & advice. Scale requires homoginization, which generally kills of personality & differentiation.

Killing Off Innovation

The problem with the "be huge or die" approach to search is that most legitimate economic innovation comes from smaller players that challenge the existing power structure. Set the barrier to entry too high and you might have less spam to fight, but you certainly will have less economic innovation & more of the would-be innovators will be stuck working dead end job at dysfunctional corporations.

Now You See it, Now You Don't

Most people can't see what they are missing out on so they won't know, but (as Tim Wu put it so eloquently in The Master Switch) the same was true for AT&T when it held back innovations like the answering machine & what ultimately came to be the WWW. What sort of price do you put on email taking a decade longer to launch? How many other disruptive changes built off of incremental improvements will never appear because they simply weren't large & corporate enough to compete on Google's web?

The web was great because it offered something different. Unfortunately you have to search using something other than Google to find it.

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