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The Hard Freakonomics of Search Marketing for Small Business

by Rob Laporte
Visibility Magazine – Winter 2012
(original article reprinted below)

Executive Summary

Increasing complexity and competition in search marketing push it beyond the budgets of ever larger small businesses. The rate of this increase is accelerating. The top search engines and agencies try to ameliorate this trend by offering simpler, cheaper solutions which merely slow this trend. Exploiting fear and innocence, many firms sell false expectations about the ROI of their pre-packaged solutions. This article elucidates this trend and suggests remedies that help but don’t wish away the hard Freakonomics that amplify disparities between the haves and have-nots in search marketing.

More Tactics, More Complexity, More Costs

My argument rests on two simple truths about search marketing.

  1. Positive ROI in search marketing requires ever greater resource allocation, as essential tactics emerge that require more expert labor and more software support.
  2. The losses incurred by not doing the relentlessly mounting minimum grow because of greater competition for the same top ten positions and because search engines increasingly require that websites do more to be OK.

A complete catalog of essential tools and tactics introduced just in the last two years would take several pages. Here are a few random examples. The Google Webmaster Tools suite addresses ever more crucial aspects of SEO health, like soft 404s, problematic parameter strings, harmful incoming links, website speed problems, and more. The accelerating semantic web’s micro-formats promise better click-through rates–for your competition if you don’t implement them. Google’s Panda and Penguin changes pose risks or actual damage if you don’t address relevant website attributes. Website redesigns risk loss of search engine positions and history if 301 redirects aren’t implemented properly–not to mention other PageRank Sculpting (see the Fall 2012 edition of Visibility). Google Places recently merged with Google+ for Business, requiring more work to make or preserve gains in local search. A good SEO plug-in for WordPress that deals with duplicate content produced by archives, categories, and authors should be researched and implemented. New and evolving PPC tools and tactics, like broad match modifiers, multi-channel attribution, analytics content experiments, and re-marketing, are needed to achieve or retain positive ROI.

People who have worked in search marketing for a few years could add to the above list ad nauseum. Merely monitoring risks, never mind addressing them, takes ever more time. These are all costs that increase constantly.

More Competition, Less Forgiveness

Most small businesses can’t or won’t devote sufficient resources to search marketing, but only a small percent of businesses have to do so in order to multiply competition and erode your positions. The top ten (or page one) positions in search engines remain just that, so if in a given year 1% of 1000 businesses decide to invest sufficiently, that adds ten to the top ten, which is a 100% increase in competition. Someone has to go down to make room for the new investors.

In a broad sense, SEO is a bidding platform like PPC: as more competitors invest in SEO, each competitor must invest more merely to tread water.

The search engines know that good businesses with helpful website content may not have the resources to keep up with new rules and tools. Yet the search engines probably surmise that even a weak correlation between (1) adherence to the rules and (2) other good business practices justifies giving higher rank to the few who do invest sufficiently. The evidence at my firm and in the reports of other firms confirm that indeed the search engines are becoming less forgiving of SEO technical problems and a lack of proactive SEO. More rules + more competition = more costs.

Help on the Receding Horizon

To counter this trend, the search engines and many search marketing firms have been working hard to offer economical solutions for small businesses. For example, Google Places and now Google+ for Business offer relatively simple and inexpensive ways to get local coverage. AdWords Express greatly simplifies PPC for small businesses. Search marketing firms and software providers offer relatively low-cost monthly payments for turnkey solutions.

Revealing the true costs of these solutions relative to results would take many pages, but let’s look at two cases and then return to the general Freakonomic principles. AdWords Express is quick and simple to set-up, and Google does most of the ad management, yet one reliable report showed that at best 1/3 of AdWords Express users benefit. (Sorry I can’t link to this report; I heard it on a podcast, and please trust me that it was convincing). Put on your Freakonomic goggles, and you’ll clearly see that even if AdWords Express succeeded for everyone now, in a matter of months a mounting base of users roll into the top ten positions. Another case is Hubspot.com, a turnkey web marketing suite for small businesses. HubSpot offers to small businesses good tools and education for between $200 and $600 per month (12 months must be paid in advance, making their “per month” an example of the rampant falsity I mention above), but someone has to spend the most precious resource of all–time–acting on the information. Google’s and Bing’s webmaster tools continuously add useful new features, but again someone’s precious time is needed to actuate those features.

Social media marketing conjures the mirage of a panacea. Freakonomic goggles reveal that successful social media takes lots of time. Anecdotes of great ROI ignore the industry-wide costs vs. returns on reasonably intelligent deployment. The law of increasing competition and complexity–in driving traffic to a wholly new channel in order to then drive traffic and customers to your website–will quickly level the cost-effectiveness of any social media channel.

I’m not saying that small business should not use these and other tactics. I am saying that ROI will rapidly decline and in many cases is already negative.

Solution: Prioritizing and CRO

As search marketing done right exceeds the reach of small businesses, rigorous prioritizing becomes vital. Enthusiastic experiments and gut-driven forays increasingly fail. This means that small businesses must find a trusted advisor who knows enough to predict the ROI of all web marketing tactics (see my article on “Simple ROI Projecting and Tracking”). Agencies should offer not necessarily what they’ve done and packaged but instead a list prioritized by ROI and perhaps including items that are not what the agency specializes in or does at all.

When my firm addresses small budgets, we explain and price the most cost-effective tactics, but propose a fee less than the total of those tactics, promise to cherry-pick sub-tasks of each tactic, scale back formal reports on deliverables, and train the client to do any tasks for which their competence and available time are adequate.

My firm also provides a priority spreadsheet that itemizes all worthy tactics and includes a column that factors, from other columns, our cost, the client’s time (cost), and importance ranked 1 through 5, with importance based on predicted profit. Of course that spreadsheet requires billable time and ample knowledge derived from lots of past research and experience, but it allows the client to best allocate scarce resources.

One web marketing tactic that may be less subject to the law of increasing complexity and competition is conversion rate optimization. True, as more small businesses do this, more must do it to keep pace, but one is not constrained to top ten positions in the search engines, and the tools for split A-B and multivariate testing are getting simpler to use. Moreover, conversion rates can often be increased substantially by applying known usability rules, without testing. Doubling conversion rates and thus web-based leads and/or sales has the same impact as doubling relevant traffic, and the increases are not subject to the tyranny of sudden changes in search engine algorithms.

Business ethics, not to mention basic human decency, often require that search marketing firms tell a small business the hard truth that the small budget holds little or no hope of success. Reminding prospects of their expenditures in, say, direct sales or non-web advertising sometimes encourages raising the budget to sufficiency.

Not surprisingly, especially given our country’s general decline in truth-telling, many firms exploit small business’s fear and ignorance by offering packages whose negative ROI won’t be realized until long after the client has paid. This hurts the whole search marketing industry. Good ethics married with disciplined knowledge helps everyone, as they always have.