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:

• Profit and Loss forecast
• Cash flow forecast
• Balance sheet forecast
• Break-even analysis

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:)

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:

• Pricing With Confidence by Reed Holden. This is a great book on pricing and the inspiration for some of the ideas presented in this article
• Price Theory by David D Friedman
• The Art Of Pricing by Rafi Mohammed
• The Strategy and Tactics of Pricing: A Guide to Growing More Profitably by Thomas Nagle

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It's hard to believe it is the middle of December and a whole year has blown by.  To say 2012 was an interesting year would be an understatement, one thing is for sure, it was never dull!

Some of the SEOBook Moderators and I want to share what we feel will be hot (or not) in 2013, we have a diverse mixture of topics, opinions and practical marketing tactics for you to consider.  First up is our fearless leader Aaron Wall!

Aaron Wall

Google Verticals

I believe we'll see additional Google verticals launched (soon) and they'll be added to the organic search listings.  My guess is that (now that the advisor ad units are below AdWords) we can expect to see Google seriously step into education & insurance next year. I also expect them to vastly expand their automotive category in 2013.

SEO's Move On

Tired by the pace of change & instability in the search ecosystem (along with the "2 books of guidelines" approach of enforcement in the search ecosystem), many people who are known as SEOs will move on in 2013. Many of these will be via acquisitions, and many more will be due to people simply hanging it up & moving on.

Rebranding Away From SEO

A company in the SEO niche that has long been known as an SEO company will rebrand away from the term SEO. After that happens, that will lead to a further polarization of public discourse (where most anything that is effective and profitable gets branded as being spam), only further fueling #2.

Geordie Carswell from Clearly Canadian (err, we mean here)

Adwords

Regarding Adwords, Google will aggressively dial up Quality Scores on keywords that have languished in activity due to low-QS but haven't yet been deleted by advertisers. They seem to have given Quality Scores a bump across the board in Q4, bringing in unexpected increases in traffic and cost to advertisers who weren't aware 'dormant' keywords were even still in their accounts. It's a fantastic revenue generator almost on-demand for Google if the quarterly numbers aren't looking good.

Peter DaVanzo (aka Kiwi)

Building Brand

More focus on building brands i.e. the people behind the site, their story, their history.

This is to encourage higher levels of engagement, leading to increased loyalty. Making the most of the traffic we already have

Eric Covino  (aka vanillacoke)

SEO Diversifies

I think the industry will continue to become more divisive as more people either get out or go more underground and those that continue to remain overly-public will continue to invent language to serve their own commercial purposes while chastising those who do not fall in line; labeling these folks as spammers and bad for the industry in desperate attempts at differentiation so they can continue to try and sell to brands and the lower part of the consumer pyramid (read: mindless sheep)

There will be exceptions where the company will do and probably continue to do really well, but largely those who try and move from being pure SEO agencies to full service [insert new term here] ad-type agencies will fail at delivering real value to their clients. These people will resort to more outing and public spam report filings despite their amusing posts on how they are "different" and "clean". I believe this will spawn a return of enterprise-level SEO services to competent SEO's and SEO firms but not to the "point, link, report ranking agencies". I believe the latter will die a faster death in 2013. Technical proficiency in SEO will become more and more valuable as well, especially if enterprise-level SEO returns as I think it will.

SEO Pricing Structures Will Change

A fractured search landscape where data is harder to come by (not provided, rank checking issues, mobile disruption) in addition to frequent algo shifts and confusion with local rankings will make low-cost SEO much harder to justify and measure, especially in the local area. These issues, coupled with the rising cost of doing business online, will make low to even moderate budget SEO (really low 4 figures or high 3 figures per month) difficult to provide effectively and profitably over a sustained period of time.

The closing window will stay somewhat wide for those that stay around and can afford to take down the margins a bit on some projects. This would be a result of a fairy sizable exodus from the industry as a whole (the self-SEO crowd, for lack of a better term)

Debra Mastaler from Alliance Link

Mobile Applications (apps) and Content for Them

Doesn't it seem like everyone has been talking about the mobile explosion for years now?  I'm jumping on that bandwagon but from a slightly different angle.

If your product lends itself to having an app, I'd urge you to get one started, even if it's a basic program or you have to partner with someone to make it happen.  Recent statistics show there are one billion smart phone users and five billion mobile phone users in the world; being seen on mobile devices is no longer a novelty when those kinds of numbers are involved.  So how do you get your content in front of mobile users? 

For Android fans, you can turn your best content into an Android App by using tools like AppsGeyser.  Their simple three step process allows you to create apps by using content you've already written or showcasing a widget you have in service. If you have evergreen content or a popular widget a lot of people download, create an app to keep them one click away and receiving fresh streams of content from your site.

If you're in a space already filled with apps or can't create one, consider creating unique content to go with what is out there.   For example, novelist Robin Sloan created an iPhone app for “tappable” content.  To move the story along, you tap the screen to the next page.  It is a super simple concept that has exploded over the Internet.   (For more tappable story examples visit here)  creating this kind of content sets you apart from your competitors and provides you with a fresh news angle to pitch the media.

If you do create an app, add it to popular download sites like iTunes but make it exclusively available on your website first. 

(Tip:  Search on “content for iPad” for ideas on creating unique content for tablets and then use the suggestions above to promote them)

Video

OK, more impressive stats to start this section: 

“In general, we know that 800 million people around the world use YouTube each month, a stat that I'm sure we're going to see increase to a billion soon.  And nearly all 100 of AdAge's top 100 advertisers have run ad campaigns on YouTube and Google Display Network–98 in fact.”

There is the word “billion” again!  But there's more and it comes appropriately, right after my pitch for mobile apps:

…”mobile access, which gets over 600 million views a day, tripled in 2011.”

They are talking about access to YouTube here, that's an astonishing number of views per day.  Add to it video results have a tendency to:

• be shown in the first fold of the organic search results (so annoying)
• help make a site “sticky”
• are easily passed around social media sites “like” Facebook

Three sound reasons why you should be involved in making and promoting video in 2013.  Since video works well on smartphones, I'd focus equal resources on creating, optimizing and promoting video and written content in 2013. Check out what top brands are doing on YouTube for promotion ideas, where they're pimping their vids and how.   (And an app to play them on, see above) J

Content Partnerships and Variety is a Search Spice

I think everyone will agree using “content” is the tactic du jour when it comes to attracting links and traffic.  I expect the trend to continue and with good reason, online news outlets, magazines and topical blogs are as eager to run good content as webmasters are to place it.   Finding good outlets will be key, when you do, consider developing a “content partnership" with a set number of sites and negotiate to place more than written content.

What is a content partnership?  In a nutshell it's an exclusive commitment you have to provide content to a set number of sites.  You find a handful of authoritative sites to write for and negotiate the amount and type of content you want to submit. They in turn, get a steady stream of well-produced content and build a solid editorial team.  Win-win!

In a perfect world it's best to be the only one writing on a topic but we all know perfection is hard to achieve.  In that case, zero in on what you want to write about and approach an outlet with a narrow focus.  For example, instead of saying "I'll write all your baby food articles", say, "I'll provide articles, podcasts and videos on natural and organic baby food".  You are much more likely to get what you want if you agree to create content on a specific subject rather than a broad or general topic.

Authentic networking will be key in the future, lock down your sources early and take advantage of the popularity boost you'll receive associating with highly visible, authority sites in your niche.  Use a variety of content methods, the public doesn't live on written content alone.  Video, news and images dominate universal search results; create this type of content so you improve your chances of being seen especially if brands dominate your sector. (So annoying!)

Will Spencer from Tech FAQ

The Value of Links

With Google penalizing obviously generated links instead of simply ignoring them, the value of less-obviously generated links will continue to rise. This will result in higher prices for paid links and an improved return on investment for those links. It will also bring link trading back in vogue, particularly with three-way linking.

We'll be paying more (or charging more) for links than ever before. With most links being discounted or penalized, it will require fewer links to rank -- but those links will have to be acquired at higher prices.

Anita Campbell from Small Business Trends

Website Design Goes Pinterest

We are seeing more websites and blogs designed and displayed a la Pinterest. Content appears in visual boxes with limited text. With that comes a lot more of the infinite scroll – the page that never ends. The new Mashable design is an example. It is hard to tell whether this is a short term fad or a long term trend – but when you have an infinite scrolling page the footer often goes. So all those footer links – well, many may go away.

Social Media Gets the Blender Effect

Social media aggregators are popping up like mushrooms. Tools like Rebelmouse, Scoop.it, Paper.li and a dozen more grab Facebook posts, tweets, retweets and/or blog posts, and mix them all together in a visually appealing presentation that you can embed on your own domain. Some of these tools are not so hot for SEO (all the content is in javascript and/or iframes) or they duplicate a page that resides on the tool's own site, and search agencies will have to get good at sorting them out and explaining the pros and cons to clients who say “I want one!”

The Line Between Content and Advertising Further Blurs:

The CPM rates of banner ads continue to drop, and the standard banner ad sizes are less appealing except as AdWords. The hot types of advertising today are:

• Rich media such as ads that slide out or down when you slide over or large videos that begin to play, and larger sizes that take up a lot of space on the page (even Google this year introduced the 300 x 600 “half-page” size ad);
• “Native ads” which are ads that sites like Twitter and Facebook sell such as sponsored tweets and sponsored posts – leading to the further commercialization of social media;
• Sponsored content, such as sponsored blog posts and sponsored content features on news sites.

There are different schools of thought around sponsored content, and publishers and agencies need to understand the differences and figure out where they want to play. The natural tendency of many SEO professionals is to think of sponsored content purely as link building. But in my experience, sponsors can have many goals and they may have nothing to do with link building. For many sponsors, their goals are branding, product launch exposure, co-citation/co-reference, thought leadership, sales lead generation, general PR, and/or building positive social media sentiment.

Depending on the sponsor's goals, sponsored content covers a wide range. It can range from run-of-the-mill link buying and selling, to various levels of guest blog posting ("spun" junk to high quality well-researched articles), to custom-written content pieces such as articles, eBooks and webinars that are clearly labeled as sponsored, designed to build thought leadership, reach out to new audiences, and to associate the sponsor's name with certain topics.

Marketing agencies will want to sort out the client's objectives, and also educate clients on the broader benefits to be had from sponsored content.

Now you know our thoughts for 2013, what are yours? 

On behalf of everyone here at SEOBook, we wish you a joyous holiday season and much success in 2013!

---

Debra Mastaler is an experienced link building & publicity expert who has trained clients for over a decade at Alliance-Link. She is the link building moderator of our SEO Community & can be found on Twitter @DebraMastaler.

Bing caused a big stink today when they unveiled Scroogled, a site that highlights how Google Shopping has went paid-inclusion only. A couple weeks ago Google announced that they would be taking their controvercial business model global, in spite of it being "a mess."

Nextag has long been critical of Google's shifts on the shopping search front. Are their complaints legitimate, or are they just whiners?

Data, More Reliable Than Spin

Nothing beats data, so lets start with that.

This is what Nextag's search exposure has done over the past few years, according to SearchMetrics.

If Google did that to any large & politically connected company, you can bet regulators would have already took action against Google, rather than currently negotiating with them.

What's more telling is how some other sites in the shopping search vertical have performed.

PriceGrabber, another player in the shopping search market, has also slowly drifted downward (though at a much slower rate).

One of the few shopping search engines that has seen a big lift over this time period was Yahoo! Shopping.

What is interesting about that rise is that Yahoo! outsourced substantially all of their shopping search product to PriceGrabber.

A Self-Destructing Market Dynamic

The above creates an interesting market dynamic...

• the long established market leader can wither on the vine for being too focused on their niche market & not broadening out in ways that increase brand awareness
• a larger site with loads of usage data can outsource the vertical and win based on the bleed of usage data across services & the ability to cross promote the site
• the company investing in creating the architecture & baseline system that powers other sites continues to slide due to limited brand & a larger entity gets to displace the data source
• Google then directly enters the market, further displacing some of the vertical players

The above puts Nextag's slide in perspective, but the problem is that they still have fixed costs to manage if they are going to maintain their editorial quality. Google can hand out badges for people willing to improve their product for free or give searchers a "Click any fact to locate it on the web. Click Wrong? to report a problem" but others who operated with such loose editorial standards would likely be labeled as a spammer of one stripe or another.

Scrape-N-Displace

Most businesses have to earn the right to have exposure. They have to compete in the ecosystem, built awareness & so on. But Google can come in from the top of the market with an inferior product, displace the competition, economically starve them & eventually create a competitive product over time through a combination of incremental editorial improvements and gutting the traffic & cash flow to competing sites.

"The difference between life and death is remarkably small. And it’s not until you face it directly that you realize your own mortality." - Dustin Curtis

The above quote is every bit as much true for businesses as it is for people. Nothing more than a threat of a potential entry into a market can cut off the flow of investment & paralyze businesses in fear.

• If you have stuff behind a paywall or pre-roll ads you might have "poor user experience metrics" that get you hit by Panda.
• If you make your information semi-accessible to Googlebot you might get hit by Panda for having too much similar content.
• If you are not YouTube & you have a bunch of stolen content on your site you might get hit by a copyright penalty.
• If you leave your information fully accessible publicly you get to die by scrape-n-displace.
• If you are more clever about information presentation perhaps you get a hand penlty for cloaking.

None of those is a particularly desirable way to have your business die.

Editorial Integrity

In addition to having a non-comprehensive database, Google Shopping also suffers from the problem of line extension (who buys video games from Staples?).

The bigger issue is that issue of general editorial integrity.

Are products in stock? Sometimes no.

It is also worth mentioning that some sites with "no product available" like Target or Toys R Us might also carry further Google AdSense ads.

Then there are also issues with things like ads that optimize for CTR which end up promoting things like software piracy or the academic versions of software (while lowering the perceived value of the software).

Over the past couple years Google has whacked loads of small ecommerce sites & the general justification is that they don't add enough that is unique, and that they don't deserve to rank as their inventory is unneeded duplication of Amazon & eBay. Many of these small businesses carry inventory and will be driven into insolvency by the sharp shifts in traffic. And while a small store is unneeded duplication, Google still allows syndicated press releases to rank great (and once again SEOs get blamed for Google being Google - see the quote-as-headline here).

Let's presume Google's anti-small business bias is legitimate & look at Google Shopping to see how well they performed in terms of providing a value add editorial function.

A couple days ago I was looking for a product that is somewhat hard to find due to seasonal shopping. It is often available at double or triple retail on sites like eBay, but Google Shopping helped me locate a smaller site that had it available at retail price. Good deal for me & maybe I was wong about Google.

... then again ...

The site they sent me to had the following characteristics:

• URL - not EMD & not a brand, broken English combination
• logo - looks like I designed it AND like I was in a rush when I did it
• about us page - no real information, no contact information (on an ecommerce site!!!), just some obscure stuff about "direct connection with China" & mention of business being 15 years old and having great success
• age - domain is barely a year old & privacy registered
• inbound links - none
• product price - lower than everywhere else
• product level page content - no reviews, thin scraped editorial, editorial repeats itself to fill up more space, 3 adsense blocks in the content area of the page
  • no reviews, thin scraped editorial, editorial repeats itself to fill up more space, 3 adsense blocks in the content area of the page
  • no reviews, thin scraped editorial, editorial repeats itself to fill up more space, 3 adsense blocks in the content area of the page
  • no reviews, thin scraped editorial, editorial repeats itself to fill up more space, 3 adsense blocks in the content area of the page
  • the above repetition is to point out the absurdity of the formatting of the "content" of said page
• site search - yet again the adsense feed, searching for the product landing page that was in Google Shopping I get no results (so outside of paid inclusion & front/center placement, Google doesn't even feel this site is worth wasting the resources to index)
• checkout - requires account registration, includes captcha that never matches, hoping you will get frustrated & go back to earlier pages and click an ad
  

It actually took me a few minutes to figure it out, but the site was designed to look like a phishing site, with intent that perhaps you will click on an ad rather than trying to complete a purchase. The forced registration will eat your email & who knows what they will do with it, but you can never complete your purchase, making the site a complete waste of time.

Looking at the above spam site with some help of tools like NetComber it was apparent that this "merchant" also ran all sorts of scraper sites driven on scraping content from Yahoo! Answers & similar, with sites about Spanish + finance + health + shoes + hedge funds.

It is easy to make complaints about Nextag being a less than perfect user experience. But it is hard to argue that Google is any better. And when other companies have editorial costs that Google lacks (and the other companies would be labeled as spammers if they behaved like Google) over time many competing sites will die off due to the embedded cost structure advantages. Amazon has enoug scale that people are willing to bypass Google's click circus & go directly to Amazon, but most other ecommerce players don't. The rest are largely forced to pay Google's rising rents until they can no longer afford to, then they just disappear.

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