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December 08, 2008

The impact of SEO on the online advertising market

This paper written by BO Xing and Zhangxi Lin from the Texas Tech University in 2006 discusses the impact of SEO online. The study is conducted in an analytical way, using a number of good resources but has at times a simplistic view of the SEO effort. SEO's are considered to be of "parasitic nature", hindering the good functioning of search engines and cheating the user. These are not new accusations, the community has sustained these on a regular basis. Nontheless the paper is interesting and opens up discussion on this little researched topic (academically). Such things concerning algorithm robustness are briefly discussed basically saying that the better the search engine, the harder the SEO becomes. 

It's a shame that there was no follow up to this for 2008 really, but their paper is still interesting.  I'd blogged about this on my last blog, so it's old work brought back to the forefront if you like.

Here are a few exerpts:

"This study aims to analyze the condition under which SEO exist and further, its impact on the advertising market. With an analytical model, several interesting insights are generated. The results of the study fill the gap of SEO in academic research and help managers in online advertising make informed advertising decisions".

"Recently, SEO is gaining momentum primarily for two reasons. First, CPC has increased tremendously over years. According to a Fathom Online report, keyword cost has risen 19% in one year since September 2004[8]. Second, it has been realized that organic results are more appealing to searchers because these results are considered more objective and unbiased than sponsored results. According to an online survey by Georgia Tech University[10], over 70% of the search engine users prefer clicking organic results to sponsored results. The SEMPO survey[17] concurs with this finding, showing that organic listings are chosen first by 70% of the people viewing search results, while sponsored listings receive about 24.6% of clicks".

"No SEO firm knows the ranking algorithm of the search engine, and therefore, SEO practice only improves the chance of ranking improvement, rather than guarantees top ranking. Given an advertiser and advertising requirement, algorithm robustness denotes the effectiveness of SEO with the search engine".

"The net payoff for higher type advertisers using paid placement decreases because the marginal cost from CPC does not keep up with the marginal benefit from advertising. On the contrary, in the case of SEO, the marginal benefit increases due to the constant SEO fee. The practical implication is that search engines could increase its profit by adopting period-based pricing policy, rather than CPC, for higher-type advertisers".

"The sustainability of SEO firms also depends on s, the proportion of sponsored results returned, and h, the algorithm robustness. Intuitively, decreasing the proportion of organic results could pose threat to SEO firms".

"More importantly, a search engine is potentially subject to “freeriding” effect from SEO firms, because of the parasitic nature of these firms. As the search engine invest in algorithm effectiveness improvement, SEO firms may also benefit from this investment. In order to reap a fuller benefit from investment, the search engine has the incentive to improve its algorithm robustness at the same time".

"First, a search engine could optimize its pricing policies for higher-type advertisers to reap higher profit. Second, investment in algorithm robustness has the effect of protecting the investment in algorithm effectiveness. Third, the second market position endows the follower additional benefits due to low sustainability of SEO firms".

There are a number of juicy equations in this study for you to ponder over if you can get hold of it. Overall I find it to be quite right in some respects but in others I think that the view of SEO is fairly limited, the authors don't seem to have a totally realistic grasp of the industry, although they are quite thorough in the way that they advance their views.

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Science for SEO by Marie-Claire Jenkins is licensed under a Creative Commons Attribution-Non-Commercial-No Derivative Works 2.0 UK: England & Wales License.
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