Category: SEO Book

Shadows are the color of the sky.

It’s one of those truths that is difficult to see, until you look closely at what’s really there.

To see something as it really is, we should try to identify our own bias, and then let it go.

“Unnatural” Links

This article tries to make sense of Google’s latest moves regarding links.

It’s a reaction to Google’s update of their Link Schemes policy. Google’s policy states “Any links intended to manipulate PageRank or a site’s ranking in Google search results may be considered part of a link scheme and a violation of Google’s Webmaster Guidelines.” I wrote on this topic, too.

Those with a vested interest in the link building industry – which is pretty much all of us – might spot the problem.

Google’s negative emphasis, of late, has been about links. Their message is not new, just the emphasis. The new emphasis could pretty much be summarized thus:”any link you build for the purpose of manipulating rank is outside the guidelines.” Google have never encouraged activity that could manipulate rankings, which is precisely what those link building, for the purpose of SEO, attempt to do. Building links for the purposes of higher rank AND staying within Google’s guidelines will not be easy.

Some SEOs may kid themselves that they are link building “for the traffic”, but if that were the case, they’d have no problem insisting those links were scripted so they could monitor traffic statistics, or at very least, no-followed, so there could be no confusion about intent.

How many do?

Think Like Google

Ralph Tegtmeier: In response to Eric’s assertion “I applaud Google for being more and more transparent with their guidelines”, Ralph writes- “man, Eric: isn’t the whole point of your piece that this is exactly what they’re NOT doing, becoming “more transparent”?

Indeed.

In order to understand what Google is doing, it can be useful to downplay any SEO bias i.e. what we may like to see from an SEO standpoint, rather try to look at the world from Google’s point of view.

I ask myself “if I were Google, what would I do?”

Clearly I’m not Google, so these are just my guesses, but if I were Google, I’d see all SEO as a potential competitive threat to my click advertising business. The more effective the SEO, the more of a threat it is. SEOs can’t be eliminated, but they can been corralled and managed in order to reduce the level of competitive threat. Partly, this is achieved by algorithmic means. Partly, this is achieved using public relations. If I were Google, I would think SEOs are potentially useful if they could be encouraged to provide high quality content and make sites easier to crawl, as this suits my business case.

I’d want commercial webmasters paying me for click traffic. I’d want users to be happy with the results they are getting, so they keep using my search engine. I’d consider webmasters to be unpaid content providers.

Do I (Google) need content? Yes, I do. Do I need any content? No, I don’t. If anything, there is too much content, and lot of it is junk. In fact, I’m getting more and more selective about the content I do show. So selective, in fact, that a lot of what I show above the fold content is controlled and “published”, in the broadest sense of the word, by me (Google) in the form of the Knowledge Graph.

It is useful to put ourselves in someone else’s position to understand their truth. If you do, you’ll soon realise that Google aren’t the webmasters friend if your aim, as a webmaster, is to do anything that “artificially” enhances your rank.

So why are so many SEOs listening to Google’s directives?

Rewind

A year or two ago, it would be madness to suggest webmasters would pay to remove links, but that’s exactly what’s happening. Not only that, webmasters are doing Google link quality control. For free. They’re pointing out the links they see as being “bad” – links Google’s algorithms may have missed.

Check out this discussion. One exasperated SEO tells Google that she tries hard to get links removed, but doesn’t hear back from site owners. The few who do respond want money to take the links down.

It is understandable site owners don’t spend much time removing links. From a site owners perspective, taking links down involves a time cost, so there is no benefit to the site owner in doing so, especially if they receive numerous requests. Secondly, taking down links may be perceived as being an admission of guilt. Why would a webmaster admit their links are “bad”?

The answer to this problem, from Google’s John Mueller is telling.

A shrug of the shoulders.

It’s a non-problem. For Google. If you were Google, would you care if a site you may have relegated for ranking manipulation gets to rank again in future? Plenty more where they came from, as there are thousands more sites just like it, and many of them owned by people who don’t engage in ranking manipulation.

Does anyone really think their rankings are going to return once they’ve been flagged?

Jenny Halasz then hinted at the root of the problem. Why can’t Google simply not count the links they don’t like? Why make webmasters jump through arbitrary hoops? The question was side-stepped.

If you were Google, why would you make webmasters jump through hoops? Is it because you want to make webmasters lives easier? Well, that obviously isn’t the case. Removing links is a tedious, futile process. Google suggest using the disavow links tool, but the twist is you can’t just put up a list of links you want to disavow.

Say what?

No, you need to show you’ve made some effort to remove them.

Why?

If I were Google, I’d see this information supplied by webmasters as being potentially useful. They provide me with a list of links that the algorithm missed, or considered borderline, but the webmaster has reviewed and thinks look bad enough to affect their ranking. If the webmaster simply provided a list of links dumped from a link tool, it’s probably not telling Google much Google doesn’t already know. There’s been no manual link review.

So, what webmasters are doing is helping Google by manually reviewing links and reporting bad links. How does this help webmasters?

It doesn’t.

It just increases the temperature of the water in the pot. Is the SEO frog just going to stay there, or is he going to jump?

A Better Use Of Your Time

Does anyone believe rankings are going to return to their previous positions after such an exercise? A lot of webmasters aren’t seeing changes. Will you?

Maybe.

But I think it’s the wrong question.

It’s the wrong question because it’s just another example of letting Google define the game. What are you going to do when Google define you right out of the game? If your service or strategy involves links right now, then in order to remain snow white, any links you place, for the purposes of achieving higher rank, are going to need to be no-followed in order to be clear about intent. Extreme? What’s going to be the emphasis in six months time? Next year? How do you know what you’re doing now is not going to be frowned upon, then need to be undone, next year?

A couple of years it would be unthinkable webmasters would report and remove their own links, even paying for them to be removed, but that’s exactly what’s happening. So, what is next year’s unthinkable scenario?

You could re-examine the relationship and figure what you do on your site is absolutely none of Google’s business. They can issue as many guidelines as they like, but they do not own your website, or the link graph, and therefore don’t have authority over you unless you allow it. Can they ban your site because you’re not compliant with their guidelines? Sure, they can. It’s their index. That is the risk. How do you choose to manage this risk?

It strikes me you can lose your rankings at anytime whether you follow the current guidelines or not, especially when the goal-posts keep moving. So, the risk of not following the guidelines, and following the guidelines but not ranking well is pretty much the same – no traffic. Do you have a plan to address the “no traffic from Google” risk, however that may come about?

Your plan might involve advertising on other sites that do rank well. It might involve, in part, a move to PPC. It might be to run multiple domains, some well within the guidelines, and some way outside them. Test, see what happens. It might involve beefing up other marketing channels. It might be to buy competitor sites. Your plan could be to jump through Google’s hoops if you do receive a penalty, see if your site returns, and if it does – great – until next time, that is.

What’s your long term “traffic from Google” strategy?

If all you do is “follow Google’s Guidelines”, I’d say that’s now a high risk SEO strategy.

Google is getting a bit absurd with suggesting that any form of content creation that drives links should include rel=nofollow. Certainly some techniques may be abused, but if you follow the suggested advice, you are almost guaranteed to have a negative ROI on each investment – until your company goes under.

Some will ascribe such advice as taking a “sustainable” and “low-risk” approach, but such strategies are only “sustainable” and “low-risk” so long as ROI doesn’t matter & you are spending someone else’s money.

The advice on infographics in the above video suggests that embed code by default should include nofollow links.

Companies can easily spend at least $2,000 to research, create, revise & promote an infographic. And something like 9 out of 10 infographics will go nowhere. That means you are spending about $20,000 for each successful viral infographic. And this presumes that you know what you are doing. Mix in a lack of experience, poor strategy, poor market fit, or poor timing and that cost only goes up from there.

If you run smaller & lesser known websites, quite often Google will rank a larger site that syndicates the infographic above the original source. They do that even when the links are followed. Mix in nofollow on the links and it is virtually guaranteed that you will get outranked by someone syndicating your infographic.

So if you get to count as duplicate content for your own featured premium content that you dropped 4 or 5 figures on AND you don’t get links out of it, how exactly does the investment ever have any chance of backing out?

Sales?

Not a snowball’s chance in hell.

An infographic created around “the 10 best ways you can give me your money” won’t spread. And if it does spread, it will be people laughing at you.

I also find it a bit disingenuous the claim that people putting something that is 20,000 pixels large on their site are not actively vouching for it. If something was crap and people still felt like burning 20,000 pixels on syndicating it, surely they could add nofollow on their end to express their dissatisfaction and disgust with the piece.

Many dullards in the SEO industry give Google a free pass on any & all of their advice, as though it is always reasonable & should never be questioned. And each time it goes unquestioned, the ability to exist in the ecosystem as an independent player diminishes as the entire industry moves toward being classified as some form of spam & getting hit or not depends far more on who than what.

Does Google’s recent automated infographic generator give users embed codes with nofollow on the links? Not at all. Instead they give you the URL without nofollow & those URLs are canonicalized behind the scenes to flow the link equity into the associated core page.

No cost cut-n-paste mix-n-match = direct links. Expensive custom research & artwork = better use nofollow, just to be safe.

If Google actively adds arbitrary risks to some players while subsidizing others then they shift the behaviors of markets. And shift the markets they do!

Years ago Twitter allowed people who built their platform to receive credit links in their bio. Matt Cutts tipped off Ev Williams that the profile links should be nofollowed & that flow of link equity was blocked.

It was revealed in the WSJ that in 2009 Twitter’s internal metrics showed an 11% spammy Tweet rate & Twitter had a grand total of 2 “spam science” programmers on staff in 2012.

With smaller sites, they need to default everything to nofollow just in case anything could potentially be construed (or misconstrued) to have the intent to perhaps maybe sorta be aligned potentially with the intent to maybe sorta be something that could maybe have some risk of potentially maybe being spammy or maybe potentially have some small risk that it could potentially have the potential to impact rank in some search engine at some point in time, potentially.

A larger site can have over 10% of their site be spam (based on their own internal metrics) & set up their embed code so that the embeds directly link – and they can do so with zero risk.

@phillian Like all empires, ultimately Google will be the root of its own demise.— Cygnus SEO (@CygnusSEO) August 13, 2013

I just linked to Twitter twice in the above embed. If those links were directly to Cygnus it may have been presumed that either he or I are spammers, but put the content on Twitter with 143,199 Tweets in a second & those links are legit & clean. Meanwhile, fake Twitter accounts have grown to such a scale that even Twitter is now buying them to try to stop them.

Typically there is no presumed intent to spam so long as the links are going into a large site (sure there are a handful of token counter-examples shills can point at). By and large it is only when the links flow out to smaller players that they are spam. And when they do, they are presumed to be spam even if they point into featured content that cost thousands of Dollars. You better use nofollow, just to play it safe!

That duality is what makes blind unquestioning adherence to Google scripture so unpalatable. A number of people are getting disgusted enough by it that they can’t help but comment on it: David Naylor, Martin Macdonald & many others DennisG highlighted.

Oh, and here’s an infographic for your pleasurings.

Most Organic Search Data is Now Hidden

Over the past couple years since its launch, Google’s keyword (not provided) has received quite a bit of exposure, with people discussing all sorts of tips on estimating its impact & finding alternate sources of data (like competitive research tools & webmaster tools).

What hasn’t received anywhere near enough exposure (and should be discussed daily) is that the sole purpose of the change was anti-competitive abuse from the market monopoly in search.

The site which provided a count for (not provided) recently displayed over 40% of queries as (not provided), but that percentage didn’t include the large percent of mobile search users that were showing no referrals at all & were showing up as direct website visitors. On July 30, Google started showing referrals for many of those mobile searchers, using keyword (not provided).

According to research by RKG, mobile click prices are nearly 60% of desktop click prices, while mobile search click values are only 22% of desktop click prices. Until Google launched enhanced AdWords campaigns they understated the size of mobile search by showing many mobile searchers as direct visitors. But now that AdWords advertisers can’t opt out of mobile ads, Google has every incentive to promote what a big growth channel mobile search is for their business.

Looking at the analytics data for some non-SEO websites over the past 4 days I get Google referring an average of 86% of the 26,233 search visitors, with 13,413 being displayed as keyword (not provided).

Hiding The Value of SEO

Google is not only hiding half of their own keyword referral data, but they are hiding so much more than half that even when you mix in Bing and Yahoo! you still get over 50% of the total hidden.

Google’s 86% of the 26,233 searches is 22,560 searches.

Keyword (not provided) being shown for 13,413 is 59% of 22,560. That means Google is hiding at least 59% of the keyword data for organic search. While they are passing a significant share of mobile search referrers, there is still a decent chunk that is not accounted for in the change this past week.

Not passing keywords is just another way for Google to increase the perceived risk & friction of SEO, while making SEO seem less necessary, which has been part of “the plan” for years now.

When one digs into keyword referral data & ad blocking, there is a bad odor emitting from the GooglePlex.

Buy AdWords ads and the data gets sent. Rank organically and most the data is hidden.

Subsidizing Scammers Ripping People Off

A number of the low end “solutions” providers scamming small businesses looking for SEOs are taking advantage of the opportunity that keyword (not provided) offers them. A buddy of mine took over SEO for a site that had showed absolutely zero sales growth after a year of 15% monthly increase in search traffic. Looking at the on-site changes, the prior SEOs did nothing over the time period. Looking at the backlinks, nothing there either.

So what happened?

Well, when keyword data isn’t shown, it is pretty easy for someone to run a clickbot to show keyword (not provided) Google visitors & claim that they were “doing SEO.”

And searchers looking for SEO will see those same scammers selling bogus solutions in AdWords. Since they are selling a non-product / non-service, their margins are pretty high. Endorsed by Google as the best, they must be good.

Or something like that:

Google does prefer some types of SEO over others, but their preference isn’t cast along the black/white divide you imagine. It has nothing to do with spam or the integrity of their search results. Google simply prefers ineffective SEO over SEO that works. No question about it. They abhor any strategies that allow guys like you and me to walk into a business and offer a significantly better ROI than AdWords.

This is no different than the YouTube videos “recommended for you” that teach you how to make money on AdWords by promoting Clickbank products which are likely to get your account flagged and banned. Ooops.

Anti-competitive Funding Blocking Competing Ad Networks

John Andrews pointed to Google’s blocking (then funding) of AdBlock Plus as an example of their monopolistic inhibiting of innovation.

sponsoring Adblock is changing the market conditions. Adblock can use the money provided by Google to make sure any non-Google ad is blocked more efficiently. They can also advertise their addon better, provide better support, etc. Google sponsoring Adblock directly affects Adblock’s ability to block the adverts of other companies around the world. – RyanZAG

Turn AdBlock Plus on & search for credit cards on Google and get ads.

Do that same search over at Bing & get no ads.

How does a smaller search engine or a smaller ad network compete with Google on buying awareness, building a network AND paying the other kickback expenses Google forces into the marketplace?

They can’t.

Which is part of the reason a monopoly in search can be used to control the rest of the online ecosystem.

Buying Browser Marketshare

Already the #1 web browser, Google Chrome buys marketshare with shady one-click bundling in software security installs.

If you do that stuff in organic search or AdWords, you might be called a spammer employing deceptive business practices.

When Google does it, it’s “good for the user.”

Vampire Sucking The Lifeblood Out of SEO

Google tells Chrome users “not signed in to Chrome (You’re missing out – sign in).” Login to Chrome & searchers don’t pass referral information. Google also promotes Firefox blocking the passage of keyword referral data in search, but when it comes to their own cookies being at risk, that is unacceptable: “Google is pulling out all the stops in its campaign to drive Chrome installs, which is understandable given Microsoft and Mozilla’s stance on third-party cookies, the lifeblood of Google’s display-ad business.”

What do we call an entity that considers something “its lifeblood” while sucking it out of others?

How do you determine your SEO strategy?

Actually, before you answer, let’s step back.

What Is SEO, Anyway?

“Search engine optimization” has always been an odd term as it’s somewhat misleading. After all, we’re not optimizing search engines.

SEO came about when webmasters optimized websites. Specifically, they optimized the source code of pages to appeal to search engines. The intent of SEO was to ensure websites appeared higher in search results than if the site was simply left to site designers and copywriters. Often, designers would inadvertently make sites uncrawlable, and therefore invisible in search engines.

But there was more to it than just enhancing crawlability.

SEOs examined the highest ranking page, looked at the source code, often copied it wholesale, added a few tweaks, then republished the page. In the days of Infoseek, this was all you needed to do to get an instant top ranking.

I know, because I used to do it!

At the time, I thought it was an amusing hacker trick. It also occurred to me that such positioning could be valuable. Of course, this rather obvious truth occurred to many other people, too. A similar game had been going on in the Yahoo Directory where people named sites “AAAA…whatever” because Yahoo listed sites in alphabetical order. People also used to obsessively track spiders, spotting fresh spiders (Hey Scooter!) as they appeared and….cough……guiding them through their websites in a favourable fashion.

When it comes to search engines, there’s always been gaming. The glittering prize awaits.

The new breed of search engines made things a bit more tricky. You couldn’t just focus on optimizing code in order to rank well. There was something else going on.

Backlinks.

So, SEO was no longer just about optimizing the underlying page code, SEO was also about getting links. At that point, SEO jumped from being just a technical coding exercise to a marketing exercise. Webmasters had to reach out to other webmasters and convince them to link up.

A young upstart, Google, placed heavy emphasis on links, making use of a clever algorithm that sorted “good” links from, well, “evil” links. This helped make Google’s result set more relevant than other search engines. Amusingly enough, Google once claimed it wasn’t possible to spam Google.

Webmasters responded by spamming Google.

Or, should I say, Google likely categorized what many webmasters were doing as “spam”, at least internally, and may have regretted their earlier hubris. Webmasters sought links that looked like “good” links. Sometimes, they even earned them.

And Google has been pushing back ever since.

Building links pre-dated SEO, and search engines, but, once backlinks were counted in ranking scores, link building was blended into SEO. These days, most SEO’s consider link building a natural part of SEO. But, as we’ve seen, it wasn’t always this way.

We sometimes get comments on this blog about how marketing is different from SEO. Well, it is, but if you look at the history of SEO, there has always been marketing elements involved. Getting external links could be characterized as PR, or relationship building, or marketing, but I doubt anyone would claim getting links is not SEO.

More recently, we’ve seen a massive change in Google. It’s a change that is likely being rolled out over a number of years. It’s a change that makes a lot of old school SEO a lot less effective in the same way introducing link analysis made meta-tag optimization a lot less effective.

My takeaways from Panda are that this is not an individual change or something with a magic bullet solution. Panda is clearly based on data about the user interacting with the SERP (Bounce, Pogo Sticking), time on site, page views, etc., but it is not something you can easily reduce to 1 number or a short set of recommendations. To address a site that has been Pandalized requires you to isolate the “best content” based on your user engagement and try to improve that.

Google is likely applying different algorithms to different sectors, so the SEO tactics used in on sector don’t work in another. They’re also looking at engagement metrics, so they’re trying to figure out if the user really wanted the result they clicked on. When you consider Google’s work on PPC landing pages, this development is obvious. It’s the same measure. If people click back often, too quickly, then the landing page quality score drops. This is likely happening in the SERPs, too.

So, just like link building once got rolled into SEO, engagement will be rolled into SEO. Some may see that as a death of SEO, and in some ways it is, just like when meta-tag optimization, and other code optimizations, were deprecated in favour of other, more useful relevancy metrics. In others ways, it’s SEO just changing like it always has done.

The objective remains the same.

Deciding On Strategy

So, how do you construct your SEO strategy? What will be your strategy going forward?

Some read Google’s Webmaster Guidelines. They’ll watch every Matt Cutts video. They follow it all to the letter. There’s nothing wrong with this approach.

Others read Google’s Guidelines. They’ll watch every Matt Cutts video. They read between the lines and do the complete opposite. Nothing wrong with that approach, either.

It depends on what strategy you’ve adopted.

One of the problems with letting Google define your game is that they can move the goalposts anytime they like. The linking that used to be acceptable, at least in practice, often no longer is. Thinking of firing off a press release? Well, think carefully before loading it with keywords:

This is one of the big changes that may have not been so clear for many webmasters. Google said, “links with optimized anchor text in articles or press releases distributed on other sites,” is an example of an unnatural link that violate their guidelines. The key are the examples given and the phrase “distributed on other sites.” If you are publishing a press release or an article on your site and distribute it through a wire or through an article site, you must make sure to nofollow the links if those links are “optimized anchor text.

Do you now have to go back and unwind a lot of link building in order to stay in their good books? Or, perhaps you conclude that links in press releases must work a little too well, else Google wouldn’t be making a point of it. Or conclude that Google is running a cunning double-bluff hoping you’ll spend a lot more time doing things you think Google does or doesn’t like, but really Google doesn’t care about at all, as they’ve found a way to mitigate it.

Bulk guest posting were also included in Google’s webmaster guidelines as a no no. Along with keyword rich anchors in article directories. Even how a site monetizes by doing things like blocking the back button can be considered “deceptive” and grounds for banning.

How about the simple strategy of finding the top ranking sites, do what they do, and add a little more? Do you avoid saturated niches, and aim for the low-hanging fruit? Do you try and guess all the metrics and make sure you cover every one? Do you churn and burn? Do you play the long game with one site? Is social media and marketing part of your game, or do you leave these aspects out of the SEO equation? Is your currency persuasion?

Think about your personal influence and the influence you can manage without dollars or gold or permission from Google. Think about how people throughout history have sought karma, invested in social credits, and injected good will into their communities, as a way to “prep” for disaster. Think about it.

We may be “search marketers” and “search engine optimizers” who work within the confines of an economy controlled (manipulated) by Google, but our currency is persuasion. Persuasion within a market niche transcends Google

It would be interesting to hear the strategies you use, and if you plan on using different strategy going forward.

There’s an in-depth discussion going on in the members area about how to sell an SEO business. There will surely be readers of the blog interested in the topic, too, so I thought I’d look at the more general issues of selling a business – SEO, or otherwise. Specifically, how to structure a business so it can be sold.

Service-Based Businesses

Service based businesses are attractive because they’re easy to establish.

Who can sell a service? The answer is simple–anyone and everyone. Everyone is qualified because each of us has skills, knowledge or experience that other people are willing to pay for in the form of a service; or they’re willing to pay you to teach them your specific skill or knowledge. Selling services knows no boundaries–anyone with a need or desire to earn extra money, work from home, or start and operate a full-time business can sell a service, regardless of age, business experience, education or current financial resources

The downside of a service based business is that they’re easy to establish, so any service area that’s worth any money soon gets flooded with competition. The ease with which competitors can enter service-based markets is one of the reasons why service-based business can be more difficult to sell for a reasonable price.

Selling A Consultancy

Some businesses are more difficult to sell than others. Agency business, such as SEO consulting, can be especially problematic if they’re oriented around highly customized services.

In Built To Sell: Creating Business That Can Thrive Without You, John Warrillow outlines the reasons why, and what can be done about it. The book is an allegory about the troubles the founder of a design agency experiences when, after eight years, he is fed up with the demands of the business and decides to sell, only to find it’s essentially worthless. His business creates logos, does SEO, web design, and brochures, so many of his trials and tribulations will sound familiar to readers of SEOBook.com

Smart businesspeople believe that you should build a company to be sold even if you have no intention of cashing out or stepping back anytime soon

There are 23 million businesses in the US, yet only a few hundred thousand sell each year. Is this simply because the owners want to hold onto them? Yes, in some cases. But mainly it’s because a lot of them can’t be sold due to structural issues. They might be worth something to the seller, but they’re not worth much to to anyone else.

If You Were To Buy A Business, Would You Buy Yours?

If you put yourself in the shoes of a buyer, what would you be looking for in an SEO-related business? What are the traps?

We might start by looking at turnover. Let’s say turnover looks good. We may look at the customer list. Let’s say the customer list looks good, too. There are forward contracts. Typically, owners of businesses place a lot of value on goodwill – their established reputation of a business regarded as a quantifiable asset.

Frequently, goodwill is overvalued and here’s why:

It is fleeting.

A company may have happy customers, happy staff, and people may say good things about them, but that might all change next week. Let’s say Update Zebra, or whatever black n white exotic animal is heading our way next, is rolled out next month and trashes all the good SEO work built up over years. Is everyone still happy? Clients still happy? Staff still happy? Were there performance guarantees in place that will no longer be met? The most difficult thing about the SEO business is that critical delivery aspects are beyond the SEOs control.

Goodwill is so subjective and ephemeral that many investors deduct it completely when valuing a company. This is not to say a good name and reputation has no tangible value, but the ephemeral nature perhaps illustrates why buyers may place less value on goodwill than sellers. If you think most of your business value lies in goodwill, then you may have trouble selling for the price you desire.

….the only aspect of goodwill that can unequivocally offer comfort to an investor is the going-concern value of a company. This represents things such as the value of assets in place, institutional knowledge, reputational value not already captured by trade names, and superior location. All these attributes can lead to sources of competitive advantage and sustainable results; and/or they can give an entity the ability to develop hot products, as well as to achieve above-average earnings.

If a buyer discounts most or all of the goodwill, then what is left? There is staff. But staff can leave. There are forward contracts. How long do these contracts last? What are they worth? Will they roll over? Can they be cancelled or exited? A lot of the value of an agency businesses will lay in those forward contracts. What if the customers really like the founder on a personal level, and that is why they do business with him or her? A service business that is dependent on a small group of clients, who demand personal attention of the founder, and where the business competes with a lot of other players offering similar services is, in the words of John Warrillow “virtually worthless”.

But there are changes that can be made to make it valuable.

Thinking Of Service Provision In Terms Of Product

Warrillow argues that a business can be made more valuable if they create a standard service offering. Package services into a consistent, repeatable process that staff can follow without depending on you. The service should be something that clients need on a regular basis, so revenue is recurring.

His key point is to think like a product company, rather than a service company.

Good service companies have some unique approaches and talented people. But as long as they customize their approach to solving client problems, there is no scale to the business and it’s operations are contingent on people. When people are the main assets of the business – and they can come and go every night – the business is not worth very much

That’s not to say a service business can’t be sold for good money. However, Warrillow points out that they’re typically purchased on less than ideal terms, often involving earn-outs. An earn-out is when the owner gets some money up front, but to get the full price, they need to hit earnings targets, and that may involve staying on for years. In that time, anything can happen, and the people buying the company may make those targets difficult or impossible to achieve. This doesn’t necessarily happen through malice – although sometimes it does – but can arise out of conflicting incentives.

There are other stories of entrepreneurs going through the change from service to products, although the process may not be quite as straightforward as the character in the book experiences:

So I’m sure there’s a lot of entrepreneurs out there that want to make the switch from consultancy to selling products. Belgian entrepreneur Inge Geerdens did exactly that: she pivoted successfully from providing services to selling a product…….A product is entirely different. You have costs that you can’t cut. In a service company, you can downsize everyone if you want, and run it at basically zero cost. It’s impossible to do that with a product. There’s hosting, development, upgrades, bug fixes, support: those are costs that you can’t flatten in any way. Your developers need new PC’s a lot sooner than consultants!

Nonetheless, the book offers seventeen tips on how to adjust a service based business to make it more saleable, and there are a lot more great ideas in it. Hopefully, outlining these tips will encourage you to buy the book – I’m not on commission, honest, but it’s a great read for anyone starting or running a business with the intention to sell it one day.

Let’s look at these tips in the context of SEO-related businesses.

1. Specialize

It’s difficult for small firms to be generalists.

Large firms can offer many services simply by having many specialists on the payroll. If a small business tries to do likewise, small business end up with staff wearing many hats. Someone who is a generalist is unlikely to be as proficient as a specialist, and this makes it more difficult to establish a point of difference and outperform the competition.

In terms of SEO, it’s already a pretty specialized area. The businesses that might be more difficult to sell in this market sector are the businesses offering multiple service lines including SEO, web design, brochures, etc, unless they have some local advantage that can’t easily be replicated.

However, positioning as a generalist can have it’s advantages, especially if the ecosystem changes:

Despite the corporate world’s insistence on specialization, the workers most likely to come out on top are generalists—but not just because of their innate ability to adapt to new workplaces, job descriptions or cultural shifts. Instead, according to writer Carter Phipps, author of 2012’sEvolutionaries generalists will thrive in a culture where it’s becoming increasingly valuable to know “a little bit about a lot.” Meaning that where you fall on the spectrum of specialist to generalist could be one of the most important aspects of your personality—

This is perhaps more true of individual workers than entities.

2. Make Sure No One Client Makes Up More Than 15% Of Your Revenue

If a business is too reliant on one client, then risk is increased. If the business loses the client, then a big chunk of the business value walks out the door.

Even though we usually land an annual contract, once that runs out, the client can cut us loose without any of the messiness involved in firing employees — that is, no severance pay, no paying unemployment benefits, no risk of being sued for discrimination or harassment or any of the other three million reasons why an ex-employee sues an ex-employer

3. Owning A Process Makes It Easier To Pitch And Puts You In Control

It is more difficult and time consuming to sell highly configured solutions than it is to sell packaged services. Highly configured services are also harder to scale, as this usually involves adding highly skilled and therefore expensive staff.

In SEO, it can be difficult to implement packaged, repeatable processes. Another way of looking at it might be to focus on adaptive processes, as used in Agile:

Reliable processes focus on outputs, not inputs. Using a reliable process, team members figure out ways to consistently achieve a given goal even though the inputs vary dramatically. Because of the input variations, the team may not use the same processes or practices from one project, or even one iteration, to the next. Reliability is results driven. Repeatability is input driven.

4. Don’t Become Synonymous With Your Company

Yahoo lived on without its founders. As will Google and Microsoft. The founders created “machines” that will “go” whether the founders are there or not.

Often, small consulting businesses are built around the founder, and this can make selling the company more difficult than need be. If customers want the founder handling or overseeing their account, then a buyer is going to wonder how much of the customer list will be left after the founder exits. It can even happen to big companies, like Apple, although their worry is perhaps more about the ability of successors to lead innovation.

If you never returned to your business, could it keep running?

Test yourself simply by asking yourself these questions and if you can respond yes to all of them you are well prepared:

• Do you have a strategy in place should you, or a key staff member, be unable to return to work for a long period, or never?
• Is this strategy documented and has it been communicated effectively to the business?
• Do you have a process in place that ensures qualified and appropriately trained people are able to take over competently when the current generation of managers and key people retire or move on?
• Has this strategy been documented and communicated to the key people involved?
• Do you have a ‘vision’ for your business? Does it link easily to the ‘values’ of the business and the behaviours of the people within the business?
• Has your ‘vision’ been well articulated and communicated with the people in the business?
• Are you able to demonstrate your business plans for a clearly-defined viable future?
• Have these plans been clearly articulated, documented and communicated to the key people within your organisation?

5. Avoid The Cash Suck

Essentially, try to get payment up-front. This is a lot easier to do for products than services. Alternatively, use progress billing. Either way, you need to be cash-flow positive.

Poor cashflow is the silent killer of many businesses, and poor, lumpy cashflow looks especially bad when a business is being packaged up for sale. It’s difficult to make accurate forward revenue predictions when looking at sporadic cashflow.

6. Don’t Be Afraid To Say No To Projects

It can be difficult to turn down work, but if the work doesn’t fit into your existing processes, then you need to find extra resources to do it. Above all else, it’s a distraction from your core function, which will also likely be your competitive advantage.

This point is also highlighted well in The Pumpkin Plan:

Never, ever let distractions – often labelled as new opportunities – take hold. Weed them out fast

7. Take Time To Figure Out How Many Pipeline Prospects Will Likely Lead To Sales

What’s your conversion rate? This helps a buyer determine the market potential. They want to know if they can expect the same rate of sales when they take it over.

8. Two Sales Reps Are Always Better Than One

The reasoning for this is that sales people are naturally competitive, so will compete against each other, which benefits the business.

Most of us would agree that salespeople are competitive by nature. This is obvious and necessary. After all, these are the people we put on the front lines to win the day and bring back revenue-producing opportunities for the company. They are assessed on their sales performance via metrics and measurements, and they’re incentivized with compensation and perks. Many organizations even have annual sales drives or competitions to quantify the level of performance and measure who is the best.

9. Hire People Who Are Good At Selling Products, Not Services

If you’ve gone to the trouble of systematizing your services to turn it into a product, then you don’t want salespeople agreeing to meet a customers demands by bending the product to those demands. Either the product meets their demands, or it doesn’t. I have known some service-oriented salespeople sell solutions that the company doesn’t even offer, reasoning the sale is the important thing, and the “back office” will work it out somehow!

Part of the rationale is that product based salespeople will filter out clients who want something else, and focus on those who are best served by the product, and likely to want more of it in future.

10. Ignore Your Profit And Loss Statement In The Year You Make A Switch To The Standardized Offering

It will likely show losses due to restructuring around a repeatable process or product. In any case, the future buyer is not buying the previous service business, they’re buying the new product business, and it is on these figures alone, going forward, the business will be judged.

11. You Need At Least Two Years Financial Statements Reflecting Your Standardized Model

See above.

12. Build A Management Team And Offer A Long Term Incentive Plan That Rewards Their Loyalty

Just like a buyer doesn’t want to see a business dependent on the founder, a buyer doesn’t want a management team abandoning ship after they’ve bought a company, either, unless the buyer is happy putting their own management in place.

13. Find An Adviser For Whom You Will Be Neither Their Largest Nor Smallest Client. Ensure They Know The Industry

Warrillow advises using a boutique mergers and acquisitions firm, unless you business is worth well under $5 million, in which case a broker is likely to handle the sale.

Between 1995 and 2006 about a quarter of merging firms hired boutique banks as their advisors on mergers and acquisitions (M&A). Boutique advisors, often specialized by industry, are generally smaller and more independent than full-service banks. This paper investigates firms’ choice between boutique and full-service advisors and the impact of advisor choice on deal outcomes. We find that both acquirers and targets are more likely to choose boutique advisors in complex deals, suggesting that boutique advisors are chosen for their skill and expertise.

14. Avoid An Advisor Who Offers To Broker A Discussion With A Single Client. You Need To Ensure (Buyer) Competition

Sometimes, advisors are scouts for favoured clients. This can create a conflict of interest as the advisor may be trying to limit the bidding competition as a favor to the buyer, or because they’re earning higher margins from that one client for introducing deals.

15. Think Big. Write A Three-Year Business Plan That Paints A Picture Of What Is Possible For Your Business

Think in terms of what the business could be, not necessarily what it is within your capabilities. For example, if the business is regional, what are the possibilities if it was scaled to every state? Or the world?

The buyer may have resources to leverage that you do not, such as established agencies in different markets. What happens if they sell your product to all their existing customers? Suddenly the scope of the business is increased, and the possible value is highlighted. Imagine what it would be like if you had the networks that were possible, as opposed to those you have at present.

16. If You Want A Sellable, Product Oriented Business, You Need To Use The Language Of One

“Clients” become “customers”, “firm” becomes “business”. It’s not just a change of positioning, it’s also a change of mindset and rhetoric, which in turn helps frame the company in the right light for the buyer.

17. Don’t Issue Stock Options To Retain Key Employees After Acquisition. Instead, Use A Simple Bonus.

Stock options can be complicated, although pretty common in the tech world. Warrillow’s argument against stock options is that they can complicate the sales process, as it’s reasonable all stockholders should get some say in the terms of the sale. This probably isn’t such an issue for larger businesses, as buyers would expect it.

Instead, Warrillow recommends a stay bonus, which is a cash reward for key staff if you sell the company. There should also be bonuses beyond the transition in order to inceentivise them to stay.

Conclusion

There are a lot of good tips and ideas in Warrillow’s book, and I’ve really only scratched the surface with this summary. These tips require context to get the most out of them, but hopefully they’ve provided a good starting point.

Have you bought or sold an SEO business? It would be great to hear your experience of doing so. Do you agree with some of these tips, or disagree? Please feel free to add to the comments!

As Google makes life more difficult for SEOs, pure-play SEO business models, such as affiliate and Adsense, can start to lose their shine. Google can remove you from Adsense without warning, and the affiliate model has always had hooks.

One of the problems with affiliate and Adsense has always been that it is difficult to lock in and build value using these models. If the customer is “owned” by someone else, then a lot of the value of the affiliate/Adsense middle-man lies in the SERP placement. When it comes time to sell, apart from possible type-in domain value, how much intrinsic value does such a site have? Rankings are by no means assured.

So, if these areas are no longer earning you what they once did, it makes sense to explore other options, including vertical integration. Valuable online marketing skills can be readily bolted onto an existing business, preferably to a business operating in an area that hasn’t taken full advantage of search marketing in the past.

Even if you plan on building a business as opposed to buying, looking at businesses for sale in the market you intend to build can supply you with great information. You can gauge potential income, level of competition, and undertaking a thorough business analysis can help you discover the hidden traps before you experience them yourself. If there are a lot of businesses for sale in the market you’re looking to enter, and their figures aren’t that flash, then that’s obviously a warning sign.

Such analysis can also help you formulate your own exit strategy. What would make the business you’re building look attractive to a buyer further down the track? It can be useful to envision the criteria for a business you’d like to buy, and then analyse backwards to give you ideas on how to get there.

In this article, we’ll take the 3,000 ft view and look at the main considerations and the type of advice you’ll need. We’ll also take a look at the specifics of buying an existing SEO business.

Build Or Buy?

There are a number of pros and cons for either option and a lot depends on your current circumstances.

You might be an existing owner-operator who wants to scale up, or perhaps add another revenue stream. Can you get there faster and more profitably by taking over a competitor, rather than scaling up your own business?

If you’re an employee thinking of striking out on your own and becoming your own boss, can you afford the time it takes to build revenue from scratch, or would you prefer instant cashflow?

The Advantages Of Building From Scratch

Starting your own business is low cost. Many online businesses cost next to nothing to start. Register the business. Open a bank account. Fill out a few forms and get a business card. You’re in business.

You don’t need to pay for existing assets or a customer base, and you won’t get stuck with any of the negatives an existing business may have built up, like poor contracts, bad debts and a tainted reputation. You can design the business specifically for the market opportunity you’ve spotted. You won’t have legacy issues. It’s yours. It will reflect you and no one else, at least to start with. The decisions are yours. You don’t have to honor existing contracts, deal with clients or suppliers you had no part in being contractually obliged to in the first place.

In short, you don’t have legacy issues.

What’s not to like?

There is more risk. You don’t yet know if your business will work, so it’s going to require time and money to find out. There are no guarantees. It can be difficult to get funding, as banks like to see a trading history before they’ll lend. It can be very difficult to get the right employees, especially early on, as highly skilled employees don’t tend to favor uncertain startups, unless they’re getting equity share. You have to start a structure from scratch. Is the structure appropriate? How will you know? You need to make a myriad of decisions, from advertising, to accommodation, to wages, to pricing, and with little to go on, apart from well-meaning advice and a series of hunches and experiments. Getting the numbers right is typically arrived at via a lot of trial and error, usually error. You have no cashflow. You have no customers. No systems. No location.

Not that the downsides should stop anyone from starting their own business. If it was easy, everyone would do it, but ask anyone who has started a business, and they’ll likely tell you that sure, it’s hard, but also fun, and they wouldn’t go back to being an employee.

There is another option.

Buy It

On the plus side, you have cash flow from day one. The killer of any business is cash flow. You can have customers signed up. People may be saying great things about you. You may have a great idea, and other people see that it is, indeed, a great idea.

But if the cash flow doesn’t turn up on time, the lights go out.

If you buy an existing business with sound cashflow, you not only keep the lights on, you’re more likely to raise finance. In many cases, the seller can finance you. If that’s the case, then for a small deposit you get the cashflow you need, based on the total business value, from day one.

You’ve got a structure in place. If the business is profitable and running well, then you don’t need to experiment to find out what works. You know your costs, how much you need to spend, and how much to allocate to which areas. You can then optimize it. You have customers, likely assistance from the vendor, and the knowledge from existing suppliers and employees. There is a reduced risk of failure. Of course, you pay a price for such benefits.

To buy a business, you need money. Whatsmore, you’re betting that money on someone elses idea, not your own, and it can be difficult to spot the traps. You can, of course, reshape and respin the business in your own image. You can get stuck with a structure that wasn’t built to your specifications. You might not like some of the legacy issues, including suppliers, existing contracts or employees.

If you decide buying a business is the right thing for you, then you’ll need good advice.

Advice

According to a survey conducted by businessforsale.com, businesses can take an average of nine months to sell:

• 28% of brokers said within 6 months
• 31% of brokers said within 9 months
• 21% of brokers said within 12 months
• 10.5% of brokers said that more than 12 months was required to sell a business

Buying a business is more complicated than buying an asset, such as a website. You could buy only the assets of a business – more on that shortly – but often the businesses are sold as a going concern, which means you may take on all the potential liabilities of that business, too.

Hence the need for sound advice in three main areas. Assemble a team to cover legal, accounting and business advisory.

Legal

Buying is a business, like buying a house, is a legal transaction, consisting of a number of legal issues. They key issues are you want to know exactly what you’re buying and won’t be left with any unexpected liabilities. You also want to make sure the seller won’t compete with you by re-entering the market after you buy.

One of the first things I do with clients is make sure they understand what they are buying,….They need to be able to tell me if they are buying assets, such as customer list and equipment, or the business, with the warts and ugliness that come with it.

There are a number of potential traps:

Among the things to worry about when you buy an existing business: undisclosed debts, overstated earnings, poor employee relations, overvalued inventory and pending lawsuits, to name a few. Hidden liabilities can exist in all sorts of areas – from land contaminated with toxic chemicals, to accounts receivable that look solid but prove to be uncollectible, to inventory that’s defective or dated

There’s an important distinction between buying the assets of a business and buying a business. Buyers typically want to buy the assets, such as a customer list, supply contracts, or plant. Sellers typically want to sell the entire business entity.

If you buy only a corporation’s assets, you don’t assume its liabilities, including taxes.
If you buy a corporation’s shares of stock, however, you end up with both its assets and liabilities – including known and unknown taxes. An example of an unknown tax debt would be one that resulted from an IRS audit that has not yet begun. The seller of the corporate shares is released from all corporate debts unless he personally guarantees them or agrees to be liable for them after the transfer

Which is an important distinction. However, most smaller business sales are likely to be asset sales, as they are often sole proprietorships or partnerships.

There are also financial implications in terms of tax writeoffs.

Accountant

There are two main areas accountants look at when evaluating a business. The financial history, and the tax ramifications.

Advisors often recommend looking at more than just the last years books:

In order to know whether or not the asking price for the business is fair, it is very important that you look through the books of the company over a number of financial periods. Don’t make the mistake of asking for just last year’s accounts. You should have at least three and preferably five years of records for the business. If it is half way through the financial year, ask for an interim set of accounts for this year. You need to be assured that trading conditions have not deteriorated from the last financial year. If you are looking to put your hard-earned money (and other’s equally hard-earned money) into a business, you want to make sure that the business is not going backwards. You need to look for evidence of year on year growth at acceptable margins. Remember, any company can show regular growth but it must be profitable. Fire sales can increase revenue with little or no impact on margin or worse, the revenue can be unprofitable

The other main area is tax.

Again, this is where the difference between assets and equity is important. There are tax advantages in buying assets, as you can depreciate based on the purchase price:

Property acquired by purchase. The depreciable basis is equal to the asset’s purchase price, minus any discounts, and plus any sales taxes, delivery charges, and installation fees. For real estate, you can also include costs of legal and accounting fees, revenue stamps, recording fees, title abstracts/insurance, surveys, and real estate taxes assumed for the seller

We’ve barely scratched the surface, and your financial advice will be considerably more detailed, taking into account multipliers, profit and revenue, and more. Business valuation is a specialist area, and if you want to read more on this topic, I found The Small Business Valuation Book a good resource.

Business Advisor

After lawyers and accountants, the third member of your evaluation team should be a qualified business adviser who is familiar with businesses in your area of interest.

A thorough competitive analysis should be a first step. Where does this business sit in relation to existing competition? How easy is it for new competitors to enter the market? How much risk is involved?

Whenever you buy an existing business and look at its records, you’re looking at the past. There’s no guarantee things won’t change going forward. If you’re negotiating to buy a business and you think the seller is giving you a great deal, be very suspicious–there’s probably something heading down the road at 90 miles an hour that will blow this business apart when it hits

That’s the same if you plan to build a business from scratch, the difference being you probably won’t have to risk as much up front.

It can also pay to go through a broker acting on your behalf, as opposed to the seller. “>Brokers can:

Prescreen businesses for you. Good brokers turn down many of the businesses they are asked to sell, whether because the seller won’t provide full financial disclosures or because the business is overpriced. Going through a broker helps you avoid these bad risks.
Help you pinpoint your interest. A good broker starts by finding out about your skills and interests, then helps you select the right business for you. With the help of a broker, you may discover that an industry you had never considered is the ideal one for you.
NegotiateThe negotiating process is really when brokers earn their keep. They help both parties stay focused on the ultimate goal and smooth over any problems that may arise.
Assist with paperwork. Brokers know the latest laws and regulations affecting everything from licenses and permits to financing and escrow. They also know the most efficient ways to cut through red tape, which can slash months off the purchase process. Working with a broker reduces the risk that you’ll neglect some crucial form, fee or step in the process.

Buy An Existing SEO Business

If you want to build an SEO business, here’s a good idea of what’s involved in building one up to scale:

When you are building your agency, you need to focus on getting clients that pay you 6 figures a year. It’s hard to build a profitable agency and provide great results when someone only pays you a few grand a month.

There’s a lot of competition in this market because there are no real barriers to entry. Anyone can call themselves an SEO and anyone can advertise such services. The result is that it can be pretty difficult to differentiate yourself.

The advantages of buying an SEO business are the same for buying any other type of business i.e. you get instant cashflow, a client list, and reputation. The standard analysis, as outlined in this article, applies. Evaluate financials, legal issues and position in the market, the same as any other business.

If you’re considering buying an SEO business you need to pay particular attention to reputation. It’s a market where, I think it’s fair to say, there is a significant level of hype. Customers are often oversold on benefits that don’t eventuate i.e. a focus on rankings that don’t result in leads or customers.

Reputable SEO businesses are unlikely to have a high level of customer churn. Look for customer lists where the customers has been with the agency for a good length of time, and are ordering more services. Look for locked in forward contracts. It’s pretty easy for other SEOs to poach other customers by offering them lower prices. Again, this is why reputation and evidence of high service levels are important.

One valuable aspect, as Neil alludes to in his article, is relationships:

In the short run you will lose money from business development, but in the long run you’ll be able to make it up. The quickest way for you to increase your revenue is to be the outsourced arm of bigger agencies. As an SEO company, look for ad agencies to partner with, as there are way bigger ad agencies than seo agencies. Feel free and cold call them, offer to help them for free with their own website, and if you do well they’ll drive a lot of clients to you

Look at how the agency gets work. If it comes from established, larger advertising agencies, then these relationships are valuable. They typically result in a steady flow of new work without the need for new advertising spend. Look at the promises that have been made to clients. For example, ongoing payment may rely on performance metrics, such as ongoing rankings.

Further Resources:

Hopefully this has article has given you some food for thought. If you’re capital rich and time poor, then buying an established business can be an attractive proposition. Here are some of the sources used in this article, and further reading:

• The Small Business Valuation Book
• The Complete Guide To Buying A Business
• Expensive Mistakes When Buying & Selling A Business

If we’re targeting keywords, getting good traffic as a result, but not converting as much traffic as we’d like, then it might be due to a market validation problem.

Basic keyword research typically involves looking at the nature of the web site, creating a list of terms that describe the offers being made, expanding the keyword list out using keyword research tools, and then targeting those keyword terms.

However, if that’s all a search marketer does, and fails to get conversions and engagement as a result, then they might be asking the wrong questions.

Asking The Right Questions

Consider Coca-Cola.

Coca Cola undertook extensive market testing and research before they introduced “New Coke”, yet New Coke failed miserably. Their competitors, Pepsi, used a blind taste test, asking people if they preferred Coke or Pepsi. Coca Cola ran their own testing, and the results were not good. The majority preferred Pepsi.

However, the problem in asking people to take just one sip and compare was to ask the wrong question. People may have preferred the first sip of Pepsi, but they preferred the less sweet Coke when they consumed an entire glass. In “Inside Coca-Cola: A CEO’s Life Story of Building the World’s Most Popular Brand”, Neville Isdell also postulates that new coke failed because original coke was about the iconic. It was linked to history. It wasn’t just about the taste of the first sip, it was also about the place of Coke in culture. There was a lot more to it than the first, sugary hit.

Coca Cola asked the wrong questions. Getting the context right was important if they were to understand the answers.

If you’ve designed relevant landing pages but not getting the conversion rate you desire, no matter how much split/run testing you do, or if you’ve managed to rank #1 for your chosen term, and you’ve written some great copy, but the traffic just keeps bouncing away, then it might be a problem with positioning in the market.

These market validation ideas apply mostly to search marketers who build their own sites, but it’s also applicable to marketers working on client sites if those client sites have poor targeting. Bolting on search marketing won’t do much good if a site is making substandard, or redundant offers.

Market Validation

“Market Validation” was a concept defined by Rob Adams in his book “If You Build It They Will Come”. It’s the process of figuring out if a market exists before you go to the expense and time of filling that market. Market validation is typically used by entrepreneurs in order to determine if they should enter a market, however the more general aspects can also be applied to search marketing.

Two aspects that are particularly useful for search marketers, especially those marketers who care what happens after the click, is a market analysis – to determine what stage in the market the business is at – and a competitive analysis. Armed with this information, they’ll know how to best pitch the offer, which, when combined with effective copywriting and calls to action should increase engagement and conversion.

Market Stage

Entrepreneurs are concerned with the growth rate of a market sector.

Typically, entrepreneurs want to get into fast rising, new markets, as opposed to mature or sunset markets. It’s difficult for new entrants to compete with incumbents, as doing so involves high costs. It is estimated that the cost of taking a customer off a competitor is typically three to ten times the cost of acquiring a new customer.

Try to figure out the stage of growth of the market. If the site operates in a mature market, with multiple competitors, then aspects such as price and features are important. In a mature market, the site you’re working with should be competitive on these aspects, else a top ranking position and compelling copy won’t help much, as the buyer will likely be comparing offers.

Similarly, if the client is competitive in these areas, then it pays to push these aspects hard in your copy and calls to action. For example, if a mobile phone site focused, first and foremost, on buyer education, it probably won’t do as well as a site that focuses on price and features. Generally speaking, buyers in this mature market sector don’t need to be educated on the merits of a mobile phone. They’re probably mainly interested in looks, availability, price and features.

If your client is in a fast growing new market, then there’s typically a lot more buyer education involved. People need to be convinced of new offers, so consider making your copy more education focused in these niches.

For example, when the iPhone came out, it didn’t have any direct competition. Apple didn’t need to push hard on price or features – there were cheaper phones, and there were phones that could do some things better, but there was nothing directly comparable in the smartphone market. Only recently, now that the market has matured, are Apple focusing on price with the introduction of lower priced entry level phones. This is a characteristic of more mature markets with high levels of competition and price pressure.

Here’s an example of mobile phone makers targeting a submarket of a mature market, differentiated by age:

Since mobile phone penetration has reached almost saturation levels in Europe and the United Kingdom, mobile service providers are focusing attention on the 55–65 and 65-plus segment to improve usage and penetration. Their high disposable incomes and their ability to devote time to new habits are seen as a lucrative market opportunity. 5 At the other end of the demographic scale, Red Bull has built a following among youth worldwide.

Identify what stage the business is at, and adjust your approach based on the strengths or weaknesses of that market.

Market Segment

The more specific the keyword, the more the keyword is likely to identify subcategories within broader markets. For example, a travel agent could target a general term like “hotels in Spain”, or the more specific “luxury hotels in Marbella”.

Look for competitive strengths a business may have in a submarket and consider focusing search marketing efforts in these areas first. An easy-win builds confidence. Is this submarket fast-growing? Even better. Build both confidence and revenue. It may lead to more of the business being refocused around these submarkets.

Are there some submarkets that have decent keyword volume, but they’re mature? Ensure that you have some competitive advantage in terms of pricing and features before devoting too much time targeting them.

Even if the traffic isn’t particularly high in some submarkets, at very least you’ll have earned the engagement metrics Google likes to see, and likely built some brand reputation in these submarkets that can then be leveraged into other submarkets.

Lifecycles

Determine the audience in term of product lifecycle.

Are you targeting keyword areas relating to new products? If so, you’re most likely talking to early adopters. Therefore, the pitch is likely to involve aspects such as education, being first, desirability, being forward-thinking, and standing out from the crowd. The pitch is less likely to focus on negating buyer risk.

If you’re dealing with a business later in the lifecycle, then you’ll likely be talking more about price and comparing and differentiating features.

Competitive Analysis

Competitive analysis is perhaps the most important, yet often overlooked, aspect of SEO/PPC.

Top rankings can be a waste of time if direct competitors are more competitive on features, price, service and brand recognition. Buyers will compare these aspects clicking from link to link, or will use third-party comparison sites, a sure signal of a mature market.

Find out what competitors are doing. And what they’re not doing. Try creating a competitive matrix:

A competitive matrix is an analysis tool that helps you establish your company’s competitive advantage. It provides an easy-to-read portrait of your competitive landscape and your position in the marketplace. The matrix can be just a simple chart. In the left column, you list the main features and benefits of your product or service. On the top row, you list your company and the names of your competitors. Then fill in the chart with the appropriate information for each company. For example, if you own a dry cleaning service, you might list the different services you offer or the quick turnaround you provide on items (24 hours), and then note how your competitors fail at these features.

If there are competitors, then obviously a market exists. Compare your competitors against as many keyword terms as possible, and see how well they’re doing in each keyword area. Not just in terms of ranking, but in terms of their offer and the maturity of the market. If there are numerous competitors gunning for the same keyword terms, then determine if your offer is strong enough that should you beat their rankings, you can still stand up to a side-by-side feature, service and price comparison. Is there a submarket in which they are weak? Would you be better off devoting your time and energy to this submarket?

Examine their pitch. In any competitive niche, the pitch made by those occupying the top three spots in Adwords over time is likely to be the most relevant to the audience. If their pitch wasn’t relevant, it’s unlikely they could remain in those positions, due to quality score metrics, and the financial strength to keep outbidding competitors. There are exceptions i.e. competitors running losses for some reason, but generally, it’s safe to assume they’re doing something right.

Are they talking price? Features? Are they using video? Are they using long copy? Are they using people in their photographs? How big is their text? What’s the path to ordering? Do they highlight a phone number, or do they bury it? Pull their offer, and presentation of that offer, apart.

Make a note of everything the top three or four sites Adwords sites are doing and then emulate the commonalities. This gives you a strong baseline for further experimentation, testing and positioning on the SEO side. Keep in mind it’s not good enough to beat these competitors by a small margin. Incumbents often have brand awareness and customer bases (high trust levels), so to counter that, your should be considerably better. A “better offer” can mean superior price or features, but it can also be better service levels, a more specific solution, or a fresh new angle on an existing solution.

Also consider substitutions.

If a buyer can substitute a product or service, then this offers a potential opportunity. For example, lets say a buyer has a transportation problem. They could buy a car to solve that problem. Or, they could lease a car on a pay-per-drive model. The pay-per-drive model is a substitution threat for car sellers. If you take a step back and determine what problem the visitor trying to solve, as opposed to leaping to conclusions about the obvious keyword that describes that solution, then you might find rich, unmined substitution keywords. Perhaps your offer can be repackaged slightly differently in order to mine a substitution keyword stream.

Of course, people don’t always buy on price and features, even if the market is mature, but they still need a compelling value proposition. One example is organic produce. It’s typically more expensive, and the “features” are the same, but the context is different. The produce is sold on environmental values.

So look for value propositions that customers might respond to, but competitors aren’t taking advantage of. Or you can extend the ones they use. Now that Google is coming from behind with their own Motorola phones they are extending Apple’s designed in California with made in America.

Summary

There are many links on the page a searcher can click. The more mature the market, the more relevant search results they’re likely to encounter, and those results, both PPC and natural search are likely to match their intent. At that point, getting the offer right is important. If you can’t compete in terms of offer, try looking for submarkets and position there, instead.

I hope this article has given you some new angles to explore. A good reference book on the topic of market validation, and the inspiration for this article, is “If You Build It They Will Come”, by Rob Adams.

In previous articles, we’ve looked at the one-sided deal that has emerged when it comes to search engines and publishers. Whilst there is no question that search engines provide value to end users, it’s clear that the search engines are taking the lionshare of the value when it comes to web publishing.

That isn’t sustainable.

The more value stripped from publishing, the less money will be spent on publishing in future. In this respect, the search engines current business model undermines their own long-term value to end users.

In this ecosystem, the incentive is to publish content that is cheap to produce. Content might also be loss-leader content that serves as a funnel leading to a transaction. Some of the content might be advertorial, the result of direct sponsorship, and may well include paid links. Curiously, it has been suggested by a Google rep that “….you blur the lines between advertising and content. That’s really what we’ve been advocating our advertisers to do”. Some of it might be “the right kind of native“, courtesy of Google Doubleclick. Some of the higher value content tends to be a by-product of the education sector, however the education sector may be the next in line to suffer a commodification of value.

There is little return to be had in producing high value content and making it publicly available for free, with no strings attached, so naturally such content is disappearing behind paywalls and taking other forms.

YouTube

Some YouTube producers are rebelling.

In a recent post, Jason Calacanis outlines the problem for video content producers. He maintains that Google’s cut of the rewards amounts to 45%, and that this cut simply isn’t sustainable for video producers as their margins aren’t that high.

Successful media businesses today have margins in the 20% to 50% range–if they hit profitability. That means if you give a partner 45% off the top, you have no chance of breaking even (emphasis mine). In fact, this absurd revenue is so bad that people have made amazingly clever strategies to skirt them, like VICE producing the Snoop Lion documentary and Grace Helbig becoming the face of Lowe’s Hardware. A full 100% of that money goes to the content creator — boxing out YouTube. More on this later.

Sure, it can *feel* like you’re making money, but when you look across the landscape of YouTube businesses — and I won’t call anyone out here — it’s very, very clear they are losing millions and millions of dollars a year.

YouTube doesn’t have to worry because they simply lop off 45% of the revenue from the top for providing video hosting. Hosting for them is, essentially, free since they have a huge — and growing — network of fiber (see ‘Google’s Fiber Takeover Plan Expands: Will Kill Cable & Carriers’).

Since YouTube doesn’t have to create any content, just aggregate it, they don’t need to worry about the individual profitability of any one brand……With YouTube, as with their AdSense product, Google is trying to insert itself between publishers and advertisers and extract a massive tax. In the case of YouTube, it’s a 45% tax

In a subsequent post, Calacanis laments that whilst a lot of publishers got back to him in support of his views, he received no contact from YouTube, even though he is supposedly a high value “partner”.

And what do YouTube do for this 45% cut? Hosting? They’ve pretty much outsourced support and liability to the MCNs for no money down. I imagine running a video network is pretty expensive, although I wonder about the true costs for Google. Calacanis obviously doesn’t think they’re great enough to justify the cut.

PPC Not Immune

Paid search also extracts a high tax.

Let’s run the numbers. A site has an average order price of $100. The site converts at 1% i.e. a site makes a sale to one in every hundred visitors. Sales are $1 per visitor. If the total cost of providing the order is $50, then the profit is 50 cents per visitor. The site can pay the search engine up to 49 cents per click and make a profit.

Let’s say the site invested heavily in conversion optimization to raise the conversion rate. They redesign their site, they refine their offer to give users exactly what they want, they optimize the sales funnel, and they manage to double their conversion rate to 2%. Now, for every 100 visitors, they make $2 per visitor. They can now bid up to $1.99 and still make a profit.

Great, right.

But along comes the competition. They also invest heavily in conversion optimization, and copy, and process, and they double their conversion rates, too. These sites must then keep upping their bids to stay on top in the auction process. Who benefits?

The search engine does.

The search engine benefits from this content improvement in the form of higher bid prices. The producer improves the value of their sites to users, but whilst the competition is doing the same thing, the real winner is the search engine.

This is one reason the search engine spokespeople will advise you to focus on delivering value to customers. The more value you create, the more value you’re going to end up passing to a search engine. As publishing becomes easier, the more gets published, yet the amount of attention remains relatively static. The competition increases, and it is likely that those with the deepest pockets eventually win high value and/or mature verticals.

How To Deal With It

Whilst we’re waiting for a new paradigm to come along that swings the pendulum back in favor of publishers – and we may be waiting some time – we need to think about how to extract more value from each visitor. This is not meant as a beat-up on the search engines – I’m glad they exist and enjoy most of what they do – rather this is about trying to get a handle on the ecosystem as it stands and how to thrive in it, rather than be crushed by it. In long tail markets – and web content is a l-o-n-g tail market – most of the value flows to the person organizing the market.

The key to prospering in this environment – if you don’t have the deepest pockets and you don’t organize the market – is to build relationships.

SEO is built largely on the premise that a relationship doesn’t exist between searcher and publisher. If a relationship already existed, the searcher would go direct to the publisher site, or conduct a brand search. I’m sure that’s how most people reading this article arrived on SEOBook.

So, try to make the most of every search visitor by turning them into non-search visitors. The search engine gets to extract a lot of value on first visit, especially if they arrive via PPC, but if you can then establish an on-going relationship with that visitor, then you get to retain value.

1. Encourage Subscriptions

Subscriptions can be in the form of bookmarking, signing up to Twitter, on Facebook, email subscriptions, RSS, and forum subscriptions. Encourage users to find you, in future, via channels over which you have more control. If you’ve buried these subscription calls to action, make them overt.

2. Form Alliances

Share exit traffic with like-minded but non-competitive sites. Swap advertising. Make guest posts and allow others to do likewise. Interview each other. If appropriate, instigate affiliate programs. Invest in and grow your personal networks.

3. Invest In Brand

Define a unique brand. Push your URL and brand everywhere. Take it offline. Even down to the basics like business cards, pens, whatever, emblazoned with your logo and URL. If you don’t have a definitive brand in your space, pivot and build one. Own your brand search, at very least.

4. Widen Distribution Channels

Publish ebooks. Build apps. Publish white papers. Make videos. Think of every medium and channel in which you can replicate your web publishing efforts.

Once you establish a relationship, give people reasons to come back. Think of what you do in terms of a platform, destination or place. How would this change your current approach? Ensure your business is positioned correctly so that people perceive a unique value.

You can then treat search engine traffic as a bonus, as opposed to the be all and end all of your business.

Jon Henshaw put the hammer down on inbound marketing highlighting how the purveyors of “the message” often do the opposite of what they preach. So much of the marketing I see around that phrase is either of the “clueless newb” variety, or paid push marketing of some stripe.

@seobook why don’t you follow more of your followers?

— Randy Milanovic (@kayak360) May 19, 2013

One of the clueless newb examples smacked me in the face last week on Twitter, where some “HubSpot certified partner” (according to his Twitter profile) complained to me about me not following enough of our followers, then sent a follow up spam asking if I saw his artice about SEO.

@seobook Have you seen: socialmediatoday.com/randy-milanovi…

— Randy Milanovic (@kayak360) May 19, 2013

The SEO article was worse than useless. It suggested that you shouldn’t be “obvious” & that you should “naturally attract links.” Yet the article itself was a thin guest post containing the anchor text search engine optimization deep linking to his own site. The same guy has a “book” titled Findability: Why Search Engine Optimization is Dying.

Why not promote the word findability with the deep link if he wants to claim that SEO is dying? Who writes about how something is dying, yet still targets it instead of the alleged solution they have in hand?

If a person wants to claim that anchor text is effective, or that push marketing is key to success, it is hard to refute those assertations. But if you are pushy & aggressive with anchor text, then the message of “being natural” and “just let things flow” is at best inauthentic, which is why sites like Shitbound.org exist. ;)

Some of the people who wanted to lose the SEO label suggested their reasoning was that the acronym SEO was stigmatized. And yet, only a day after rebranding, these same folks that claim they will hold SEO near and dear forever are already outing SEOs.

Sad but fact: Rand Fishkin outs another site that just happens to be competing with Distilled twitter.com/randfish/statu…

— john andrews (@johnandrews) May 31, 2013

The people who want to promote the view that “traditional” SEO is black hat and/or ineffective have no problems with dumping on & spamming real people. It takes an alleged “black hat” to display any concern with how actual human beings are treated.

If the above wasn’t bad enough, SEO is getting a bad name due to the behavior of inbound tool vendors. Look at the summary on a blog post from today titled Lies The SEO Publicity Machine Tells About PPC (When It Thinks No One’s Looking)

Then he told me he wasn’t seeing any results from following all the high-flown rhetoric of the “inbound marketing, content marketing” tool vendor. “Last month, I was around 520 visitors. This month, we’re at 587.”

Want to get to 1,000? Work and wait and believe for another year or two. Want to get to 10,000? Forget it.
…
You could grow old waiting for the inbound marketing fairy tale to come true.

Of course I commented on the above post & asked Andrew if he could put “inbound marketer” in the post title, since that’s who was apparently selling hammed up SEO solutions.

In response to Henshaw’s post (& some critical comments) calling inbound marketing incomplete marketing Dharmesh Shah wrote:

When we talk about marketing, we position classical outbound techniques as generally being less effective (and more expensive) over time. Not that they’re completely useless — just that they don’t work as well as they once did, and that this trend would continue.”

Hugh MacLeod is brilliant with words. He doesn’t lose things in translation. His job is distilling messages to their core. And what did his commissions for HubSpot state?

• thankfully consiging traditional marketing to the dustbin of history since 2006
• traditional marketing is easy. all you have to do is pretend it works
• the good news is, your customers are just as sick of traditional marketing as you are
• hey, remember when traditional marketing used to work? neither do we
• traditional marketing doesn’t work. it never did

Claiming that “traditional marketing” doesn’t work – and never did, would indeed be claiming that classical marketing techniques are ineffective / useless.

If something “doesn’t work” it is thus “useless.”

You never hear a person say “my hammer works great, it’s useless!”

As always, watch what people do rather than what they say.

When prescription and behavior are not aligned, it is the behavior that is worth emulating.

That’s equally true for keyword rich deeplink in a post telling you to let SEO happen naturally and for people who relabel things while telling you not to do what they are doing.

If “traditional marketing” doesn’t work AND they are preaching against it, why do they keep doing it?

Follow the money.

If you run an SEO business, or any service business, you’ll know how hard it can be to scale up operations. There are many constraints that need to be overcome in order to progress.

We’ll take a look at a way to remove barriers to growth and optimize service provision using the Theory Of Constraints. This approach proposes a method to identify the key constraints to performance which hinder growth and expansion.

The Theory Of Constraints has been long been used for optimizing manufacturing…..

We had no legs to stand on to maintain our current customer base let alone acquire and keep new business. This was not an ideal position to be in, particularly in a down economy when we couldn’t afford to have sales reduce further

… but more recently, it’s been applied to services, too.

The results were striking. The number of days to decide food stamp eligibility dropped from 15 to 11; phone wait times were reduced from 23 minutes to nine minutes. Budgetary savings have exceeded the $9 million originally cut

It’s one way of thinking about how to improve performance by focusing on bottlenecks. If you’re experiencing problems such as being overworked and not having enough time, it could offer a solution.

First we’ll take a look at the theory, then apply it to an SEO agency. It can be applied to any type of business, of course.

Theory Of Constraints

Any manageable system as being limited in achieving more of its goals by a very small number of constraints. There is always at least one constraint, and TOC uses a focusing process to identify the constraint and restructure the rest of the organization around it

If there weren’t constraints, you could grow your business as large and as fast as you wanted.

You can probably think of numerous constraints that prevent you from growing your business. However, the theory holds that most constraints are really side issues, and that organizations are constrained by only one constraint at any one time.

A constraint is characterized as the “weakest link”.

The weakest link holds everything else up. Once this constraint has been eliminated or managed, another “weakest link” may well emerge, so the process is repeated until the business is optimized. Constraints can be people, procedures, supplies, management, and systems.

In Dr. Eli Goldratt’s book, “The Goal“, Golddratt identifies the five steps to identify and address the constraint:

1. Identify The Constraint

What is the biggest bottleneck that holds back company performance? What activity always seems to fall behind schedule, or take the most time? This activity might not be the main activity of the company. It could be administrative. It could be managerial.

If you’re not sure, try the “Five Whys” technique to help determine the root cause:

By repeatedly asking the question “Why” (five is a good rule of thumb), you can peel away the layers of symptoms which can lead to the root cause of a problem. Very often the ostensible reason for a problem will lead you to another question. Although this technique is called “5 Whys,” you may find that you will need to ask the question fewer or more times than five before you find the issue related to a problem

2. Exploit The Constraint

Once the constraint is identified, you then utilize the constraint to its fullest i.e. you try to make sure that constraint is working at maximum performance. What is preventing the constraint from working at maximum performance?

If the constraint is staff, you might look at ways for people to produce more work, perhaps by automating some of their workload, or allocating less-essential work to someone else. It could involve more training. It could involve adopting different processes.

3. Subordinate Everything Else To The Constraint

Identify all the non-constraints that may prevent the constraint from working at maximum performance. These might be activities or processes the constraint has to undertake but aren’t directly related to the constraint.

For example, a staff member who is identified as a constraint might have a billing task that could either by automated or allocated to someone else.

The constraint should not be limited by anything outside their control. The constraint can’t do any more than it possibly can i.e. if your constraint is time, you can’t have someone work anymore than 24 hours in a day! More practically, 8 hours a day.

Avoid focusing on non-constraints. Optimizing non-constraints might feel good, but they won’t do much to affect overall productivity.

4. Elevate The Constraint

Improve productivity of the constraint by lifting the performance of the constraint. Once you’ve identified the constraint, and what is limiting performance, then you typically find spare capacity emerges. You then increase the workload. The productivity of the entire company is now lifted. Only then would you hire an additional person, if necessary.

5. Repeat

The final step is to repeat the process.

The process is repeated because the weakest link may now move to another area of the business. For example, if more key workers have been hired to maximize throughput, then the constraint may have shifted to a management level, because the supervisory workload has increased.

If so, this new constraint gets addressed via the same process.

Applying The Theory Of Constraints To An SEO Agency

Imagine Acme SEO Inc.

Acme SEO are steadily growing their client base and have been meeting their clients demands. However, they’ve noticed projects are taking longer and longer to finish. They’re reluctant to take on new work, as it appears they’re operating at full capacity.

When they sit down to look at the business in terms of constraints, they find that they’re getting the work, they’re starting the work on time, but the projects slow down after that point. They frequently rush to meet deadlines, or miss them. SEO staff appear overworked. If the agency can’t get through more projects, then they can’t grow. Everything else in the business, from the reception to sales, depends on it. Do they just hire more people?

They apply the five steps to define the bottleneck and figure out ways to optimize performance.

Step One

Identify the constraint. What is the weakest link? What limits the SEO business doing more work? Is it the employees? Are they skilled enough? How about the systems they are using? Is there anything getting in the way of them completing their job?

Try asking the Five Whys to get to the root of the problem:

1. Why is this process taking so long? Because there is a lot of work involved.
2. Why is there a lot of work involved? Because it’s complex.
3. Why is it complex? Because there is a lot of interaction with the client.
4. Why is there a lot of interaction with the client? Because they keep changing their minds.
5. Why do they keep changing their demands? Because they’re not clear about what they want.

Step Two

Exploiting the constraint. How can the SEO work at maximum load?

If an SEO isn’t doing as much as they could be, is it due to project management and training issues? Do people need more direct management? More detailed processes? More training?

It sounds a bit ruthless, especially when talking about people, but really it’s about constructively dealing with the identified bottlenecks, as opposed to apportioning blame.

In our example, the SEOs have the skills necessary, and work hard, but the clients kept changing scope, which is leading to a lot of rework and administrative overhead.

Once that constraint had been identified, changes were made to project management, eliminating the potential for scope creep after the project had been signed off, thus helping maximize the throughput of the worker.

Step Three

Subordinate the constraint. So, the process has been identified as the cause of a constraint. By redesigning the process to control scope creep before the SEO starts, say at a sales level, they free up more time. When the SEO works on the project, they’re not having to deal with administrative overhead that has a high time cost, therefore their utility is maximised.

The SEO is now delivering more forward momentum.

Step Four

Elevate the performance of the constraint. They monitor the performance of the SEO. Does the SEO now have spare capacity? Is the throughput increasing? Have they done everything possible to maximize the output? Are there any other processes holding up the SEO? Should the SEO be handling billing when someone else could be doing that work? Is the SEO engaged in pre-sales when that work could be handled by sales people?

Look for work being done that takes a long time, but doesn’t contribute to output. Can these tasks be handed to someone else – someone who isn’t a constraint?

If the worker is working at maximum utility, then adding another worker might solve the bottleneck. Once the bottleneck is removed, performance improves.

Adding bodies is the common way service based industry, like SEO, scales up. A consultancy bills hours, and the more bodies, the more hours they can ill. However, if the SEO role is optimized to start with, then they might find they have spare capacity opening up so don’t need as many new hires.

Step Five

Repeat.

Goldratt stressed that using the Theory Of Constraints to optimize business is an on-going task. You identify the constraint – which may not necessarily be the most important aspect of the business i.e. it could be office space – which then likely shifts the weakest link to another point. You then optimize that point, and so on. Fixing the bottleneck is just the beginning of a process.

It’s also about getting down to the root of the problem, which is why the Five Whys technique can be so useful. Eliminating a bottleneck sounds simple, and a quick fix, but the root of the problem might not be immediately obvious.

In our example, it appeared as though the staff are the problem, so the root cause could be misdiagnosed as “we need more staff”. In reality, the root cause of the bottleneck was a process problem.

Likewise some problems aligned with an employee on a specific project might be tied to the specific client rather than anything internal to your company. Some people are never happy & will never be satisfied no matter what you do. Probably the best way to deal with people who are never satisfied is to end those engagements early before they have much of an impact on your business. The best way to avoid such relationships in the first place is to have some friction upfront so that those who contact you are serious about working with you. It can also be beneficial to have some of your own internal sites to fall back on, such that when consulting inquiries are light you do not chase revenue at the expense of lower margins from clients who are not a good fit. These internal projects also give you flexibility to deal with large updates by being able to push some of your sites off into the background while putting out any fires that emerge from the update. And those sorts of sites give you a testing platform to further inform your strategy with client sites.

How have you addressed business optimization problems? What techniques have you found useful, and how well did they work?

Further Resources:

I’ve skimmed across the surface, but there’s a lot more to it. Here’s some references used in the article, and further reading…

• Reaching The Goal – How Managers Improve A Service Business Using Goldratt’s Theory Of Constraints
• Applying Theory Of Constraints To Eliminate Boottlenecks
• The Theory Of Constraints And Its Thinking Process

It was hard to spot, at first.

It started with one store on the outskirts of town. It was big. Monolithic. It amalgamated a lot of cheap, largely imported stuff and sold the stuff on. The workers were paid very little. The suppliers were squeezed tight on their margins.

And so it grew.

And as it grew, it hollowed out the high street. The high street could not compete with the monoliths sheer power. They couldn’t compete with the monoliths influence on markets. They couldn’t compete with the monoliths unique insights gained from clever number crunching of big data sets.

I’m talking about Wal Mart, of course.

Love ‘em or loathe ‘em, Walmart gave people what they wanted, but in so doing, hollowed out a chunk of America’s middle class. It displaced a lot of shop keepers. It displaced small business owners on Main Street. It displaced the small family retail chain that provided a nice little middle class steady earner.

Where did all those people go?

It was not only the small, independent retail businesses and local manufacturers who are fewer in number. Their closure triggered flow-on effects. There was less demand for the services they used, such as local small business accountants, the local lawyer, small advertising companies, local finance companies, and the host of service providers that make up the middle class ecosystem.

Where did they all go?

Some would have taken up jobs at WalMart, of course. Some would become unemployed. Some would close their doors are take early retirement. Some would change occupations and some would move away to where prospects were better.

What does any of this have to do with the internet?

The same thing is happening on the internet.

And if you’re a small business owner, located on the web-equivalent of the high street, or your business relies on those same small business owners, then this post is for you.

Is Technology Gutting The Middle Class?

I’ve just read “Who Owns The Future”, by Jaron Lanier. Everyone who has anything to do with the internet – and anyone who is even remotely middle class – will find it asks some pretty compelling questions about our present and future.

Consider this.

At the height of it’s power, the photography company Kodak employed more than 140,000 people and wa worth $28 billion. They even invented the first digital camera. But today Kodak is bankrupt, and the new face of digital photography has become Instagram. When it was sold to Facebook for a billion dollars in 2012, Instagram only employed 13 people

Great for Instagram. Bad for Kodak. And bad for the people who worked for Kodak. But, hey. That’s progress, right? Kodak had an outdated business model. Technology overtook them.

That’s true. It is progress. It’s also true that all actions have consequences. The consequence of transformative technology is that, according to Lanier, it may well end up destroying the middle class if too much of the value is retained in the large technology companies.

Lanier suggests that the advance of technology is not replacing as many jobs as it destroys, and those jobs that are destroyed are increasingly middle class.

Not Political (Kinda)

I don’t wish to make this post political, although all change is inherently political. I’m not taking political sides. This issue cuts across political boundaries. I have a lot of sympathy for technological utopian ideas and the benefits technology brings, and have little time for luddism.

However, it’s interesting to focus on the the consequences of this shift in wealth and power brought about by technology and whether enough people in the internet value chain receive adequate value for their efforts.

If the value doesn’t flow through, as capitalism requires in order to function well, then few people win. Are children living at home longer than they used to? Are people working longer hours than they used to in order to have the same amount of stuff? Has the value chain been broken, Lanier asks? And, if so, what can be done to fix it?

What Made Instagram Worth One Billion Dollars?

Lanier points out that Instagram wasn’t worth a billion dollars because it had extraordinary employees doing amazing things.

The value of Instagram came from network effects.

Millions of people using Instagram gave the Instagram network value. Without the user base, Instagram is just another photo app.

Who got paid in the end? Not the people who gave the network value. The people who got paid were the small group at the top who organized the network. The owners of the “Siren Servers“:

The power rests in what Lanier calls the “Siren Servers”: giant corporate repositories of information about our lives that we have given freely and often without consent, now being used for huge financial benefit by a super-rich few

The value is created by all the people who make up the network, but they only receive a small slither of that value in the form of a digital processing tool. To really benefit, you have to own, or get close to, a Siren Server.

Likewise, most of Google’s value resides in the network of users. These users feed value into Google simply by using it and thereby provide Google with a constant stream of data. This makes Google valuable. There isn’t much difference between Google and Bing in terms of service offering, but one is infinitely more valuable than the other purely by virtue of the size of the audience. Same goes for Facebook over Orkut.

You Provide Value

Google are provided raw materials by people. Web publishers allow Google to take their work, at no charge, and for Google to use that work and add value to Google’s network. Google then charges advertisers to place their advertising next to the aggregated information.

Why do web publishers do this?

Publishers create and give away their work in the hope they’ll get traffic back, from which they may derive benefit. Some publishers make money, so they can then pay real-world expenses, like housing, food and clothing. The majority of internet publishers make little, or nothing, from this informal deal. A few publishers make a lot. The long tail, when it comes to internet publishing, is pretty long. The majority of wealth, and power, is centralized at the head.

Similarly, Google’s users are giving away their personal information.

Every time someone uses Google, they are giving Google personal information of value. Their search queries. They browsing patterns. Their email conversations. Their personal network of contacts. Aggregate that information together, and it becomes valuable information, indeed. Google records this information, crunches it looking for patterns, then packages it up and sells it to advertisers.

What does Google give back in return?

Web services.

Is it a fair exchange of value?

Lanier argues it isn’t. What’s more, it’s an exchange of value so one-sided that it’s likely to destroy the very ecosystem on which companies like Google are based – the work output, and the spending choices, of the middle class. If few of the people who publish can make a reasonable living doing so, then the quality of what gets published must decrease, or cease to exist.

People could make their money in other ways, including offline. However, consider that the web is affecting a lot of offline business, already. The music industry is a faint shadow of what it once was, even as recent as one decade ago. There are a lot fewer middle class careers in the music industry now. Small retailers are losing out to the web. Fewer jobs there. The news industry is barely making any money. Same goes for book publishers. All these industries are struggling as online aggregators carve up their value chains.

Now, factor in all the support industries of these verticals. Then think about all the industries likely to be affected in the near future – like health, or libraries, or education, for example. Many businesses that used to hire predominantly middle class people are going out of business, downsizing their operations, or soon to have chunks of their value displaced.

It’s not Google’s aim to gut the middle class, of course. This post is not an anti-Google rant, either, simply a look at action and consequence. What is the effect of technology and, in particular, the effect of big technology companies on the web, most of whom seem obsessed with keeping you in their private, proprietary environments for as long as possible?

Google’s aim is index all the worlds information and make it available. That’s a good aim. It’s a useful, free service. But Lanier argues that gutting the middle class is a side-effect of re-contextualising, and thereby devaluing, information. Information may want to be free, but the consequence of free information is that those creating the information may not get paid. Many of those who do get paid may be weaker organizations more willing to sacrifice editorial quality in able to stay in business. We already see major news sites with MFA-styled formatting on unvetted syndicated press releases. What next?

You may notice that everyone is encouraged to “share” – meaning “give away” – but sharing doesn’t seem to extend to the big tech companies, themselves.

They charge per click.

Robots.txt

One argument is that if someone doesn’t like Google, or any search engine, they should simply block that search engine via robots.txt. The problem with that argument is it’s like saying if you don’t like aspects of your city, you should move to the middle of the wilderness. You could, but really you’d just like to make the city a better place to be, and to see it thrive and prosper, and be able to thrive within it.

Google provides useful things. I use Google, just like I use my iPhone. I know the deal. I get the utility in exchange for information, and this exchange is largely on their terms. What Lanier proposes is a solution that not only benefits the individual, and the little guy, but ultimately the big information companies, themselves.

Money Go Round

Technology improvements have created much prosperity and the development of a strong middle class. But the big difference today is that what is being commoditized is information itself. In a world increasingly controlled by software that acts as our interface to information, if we commoditize information then we commoditize everything else.

If those creating the information don’t get paid, quality must decrease, or become less available than it otherwise would be. They can buy less stuff in the real world. If they can’t buy as much stuff in the real world, then Google and Facebook’s advertisers have fewer people to talk to that they otherwise would.

It was all a social construct to begin with, so what changed, to get to your question, is that at the turn of the [21st] century it was really Sergey Brin at Google who just had the thought of, well, if we give away all the information services, but we make money from advertising, we can make information free and still have capitalism. But the problem with that is it reneges on the social contract where people still participate in the formal economy. And it’s a kind of capitalism that’s totally self-defeating because it’s so narrow. It’s a winner-take-all capitalism that’s not sustaining

That isn’t a sustainable situation long-term. A winner-takes-all system centralizes wealth and power at the top, whilst everyone else occupies the long tail. Google has deals in place with large publishers, such as AP, AFP and various European agencies, but this doesn’t extend to smaller publishers. It’s the same in sports. The very top get paid ridiculous amounts of money whilst those only a few levels down are unlikely to make rent on their earnings.

But doesn’t technology create new jobs? People who were employed at Kodak just go do something else?

The latest waves of high tech innovation have not created jobs like the old ones did. Iconic new ventures like Facebook employ vastly fewer people than big older companies like, say, General Motors. Put another way, the new schemes…..channel much of the productivity of ordinary people into an informal economy of barter and reputation, while concentrating the extracted old -fashioned wealth for themselves. All activity that takes place over digital networks becomes subject to arbitrage, in the sense that risk is routed to whoever suffers lesser computation resources

The people who will do well in such an environment will likely be employees of those who own the big data networks, like Google. Or they will be the entrepreneurial and adaptable types who manage to get close to them – the companies that serve WalMart or Google, or Facebook, or large financial institutions, or leverage off them – but Lanier argues there simply aren’t enough of those roles to sustain society in a way that gave rise to these companies in the first place.

He argues this situation disenfranchises too many people, too quickly. And when that happens, the costs spread to everyone, including the successful owners of the networks. They become poorer than they would otherwise be by not returning enough of the value that enables the very information they need to thrive. Or another way of looking at it – who’s going to buy all the stuff if only a few people have the money?

The network, whether it be a search engine, a social network, an insurance company, or an investment fund uses information to concentrate power. Lanier argues they are all they same as they operate in pretty much the same way. The use network effects to mine and crunch big data, and this, in turn, grows their position at the expense of smaller competitors, and the ecosystem that surrounds them.

It doesn’t really matter what the intent was. The result is that the technology can prevent the middle class from prospering and when that happens, everyone ultimately loses.

So What Does He Propose Can Be Done?

A few days ago, Matt Cutts released a video about what site owners can expect from the next round of Google changes.

Google have announced a web spam change, called Penguin 2.0. They’ll be “looking at” advertorials, and native advertising. They’ll be taking a “stronger line” on this form of publishing. They’ll also be “going upstream” to make link spammers less effective.

Of course, whenever Google release these videos, the webmaster community goes nuts. Google will be making changes, and these changes may either make your day, or send you to the wall.

The most interesting aspect of this, I think, is the power relationship. If you want to do well in Google’s search results then there is no room for negotiation. You either do what they want or you lose out. Or you may do what they want and still lose out. Does the wealth and power sit with the publisher?

Nope.

In other news, Google just zapped another link network.

Cutts warns they’ll be going after a lot of this happening. Does wealth and power sit with the link buyer or seller?

Nope.

Now, Google are right to eliminate or devalue sites that they feel devalues their search engine. Google have made search work. Search was all but dead twelve years ago due to the ease with which publishers could manipulate the results, typically with off-topic junk. The spoils of solving this problem have flowed to Google.

The question is has too much wealth flowed to companies like Google, and is this situation going to kill off large chunks of the ecosystem on which it was built? Google isn’t just a player in this game, they’re so pervasive they may as well be the central planner. Cutts is running product quality control. The customers aren’t the publishers, they’re the advertisers.

It’s also interesting to note what these videos do not say. Cutts video was not about how your business could be more prosperous. It was all about your business doing what Google wants in order for Google to be more prosperous. It’s irrelevant if you disagree or not, as you don’t get to dictate terms to Google.

That’s the deal.

Google’s concern lies not with webmasters just as WalMarts concern lies not with small town retailers. Their concern is to meet company goals and enhance shareholder value. The effects aren’t Google or WalMarts fault. They are just that – effects.

The effect of Google pursuing those objectives might be to gouge out the value of publishing, and in so doing, gouge out a lot of the value of the middle class. The Google self-drive cars project is fascinating from a technical point of view – the view Google tends to focus on – but perhaps even more fascinating when looked at from a position they seldom seem to consider, at least, not in public, namely what happens to all those taxi drivers, and delivery drivers, who get their first break in society doing this work? Typically, these people are immigrants. Typically, they are poor but upwardly mobile.

That societal effect doesn’t appear to be Google’s concern.

So who’s concern should it be?

Well, perhaps it really should be Google’s concern, as it’s in their own long-term best interest:

Today, a guitar manufacturer might advertise through Google. But when guitars are someday spun out of 3D printers, there will be no one to buy an ad if guitar designs are “free”. Yet Google’s lifeblood is information put online for free. That is what Google’s servers organize. Thus Google’s current business model is a trap in the longterm

Laniers suggestion is everyone gets paid, via micro-payments, linked back to the value they helped create. These payments continue so long as people are using their stuff, be it a line of code, a photograph, a piece of music, or an article.

For example, if you wrote a blog post, and someone quoted a paragraph of it, you would receive a tiny payment. The more often you’re quoted, the more relevant you are, therefore the more payment you receive. If a search engine indexes your pages, then you receive a micro-payment in return. If people view your pages, you receive a micro-payment. Likewise, when you consume, you pay. If you conduct a search, then you run Google’s code, and Google gets paid. The payments are tiny, as far as the individual is concerned, but they all add up.

Mammoth technical issues of doing this aside, the effect would be to take money from the head and pump it back into the tail. It would be harder to build empires off the previously free content others produce. It would send money back to producers.

It also eliminates the piracy question. Producers would want people to copy, remix and redistribute their content, as the more people that use it, the more money they make. Also, with the integration of two-way linking, the mechanism Lanier proposes to keep track of ownership and credit, you’d always know who is using your content.

Information would no longer be free. It would be affordable, in the broadest sense of the word. There would also be a mechanism to reward the production, and a mechanism to reward the most relevant information the most. The more you contribute to the net, and the more people use it, the more you make. Tiny payments. Incremental.

Interesting Questions

So, if these questions are of interest to you, I’d encourage you to read “Who Owns The Future” by Jaron Lanier. It’s often rambling – in a good way – and heads off on wild tangents – in a good way, and you can tell there is a very intelligent and thoughtful guy behind it all. He’s asking some pretty big, relevant questions. His answers are sketches that should be challenged, argued, debated and enlarged.

And if big tech companies want a challenge that really will change the world, perhaps they could direct all that intellect, wealth and power towards enriching the ecosystem at a pace faster than they potentially gouge it.