DomainTools Blog

Appearing on the front page of Search Engine’s result page is actually fairly easy if a person is trained in the science and art of SEO; provided however that the term they targetting is below the 75th percentile on the keyword difficulty index score. Competitive terms (AKA Money Terms) are fought over in the SEO Wars everyday. If a webmaster with the right product can reach the first page of results with the right term it can mean thousands of dollars of additional income a month.

We know that 50% of all Google Searches each month are unique so we can safely say there are a lot of terms to fight over. There are at least 10,000 web hosting companies in the world right now but only 10 of them can appear on the first page of Google for the term “Web Hosting”. These companies need to find other terms it they plan to rank at all. The “Fat Front” of the Long Tail is the huge amount of people we see on a distrubtion curve. As the distrubtion curve gets more narrow, we are in the section we call the long tail. For the “Web Hosting” term, no matter how hard Hosting Companies try they will never rank for this term.

A test that I like to give self-professed SEO experts is asking them if they can get me on the front page of results for any term. If they say, Yes. I know they are full of it. I would not trust a SEO that can guarantee a front page result for any term. Some terms, Yes, but not categorically any term.

Keyword Difficulty index:

	65%	Non-competitive term, found in the content of the page.
	65%-75%	Low competition, page strenght combined with on-page content.
	75%-85%	Slightly competitive, linking and title strenght.
	85%-95%	Competitive, highly optimized on-page content and substantial link strength.
	95%-97%	Highly competitive term, well-established history, robust link strength, and correct optimization.
	97%-99.5%	Exceptionally competitive term, top rankings only achievable with highly-established sites and overwhelming link strength.
	99.5%+	Among the most competitive terms on the web, only the most powerful & popular sites can achieve these rankings.

It is easy to be found, but it is hard to be found using Money Terms.

Search Engine Arbitrage is defined as buying ads from a search engine and then selling ads at a higher price. For example the arbitrager buys the term “rare dirty coin” at Google and pays $0.05 for the ad because no one else is advertising on that term. Once the user clicks on the arbitrager’s ad he is taken to a page about “gold coins”. Let’s say the term “gold coins” makes $0.70 per click. The Arbitrager would need to convert 1 in 13 people to make a profit or 1 in 14 people to break even. We can think about Arbitrage as a keyword funnel, collect a lot of small terms and lead them into a big term. I think search engine arbitrage is another brilliant way of Mining the Longtail. There are drawbacks to arbitrage though, the market can only support so many of them. Geosign just announced they raised $160 Million from American Capital. With big announcements like this there is a lot of attention being focused on the keyword arbitrage market.

Let’s say there are 50 companies engage in large scale keyword arbitrage right now, they all make a return on their investment of 400%. If the market had 2,000 arbitrage companies I know the return would be much lower for all. I see algorithms getting smarter and machine evaluation processes getting faster, in short, to survive long term companies will need to have smarter machines then the next guy. The beauty of the longtail is that it can support a lot of companies. So it may take 30,000 arbitragers to drive average profit to 5%. The Fat Front of the Longtail will be eaten up very quickly and arbitrages that try to survive there will die, only 10 companies can show up for a term. So if 30 companies rule this industry we can see that there will be a collapse at some point and rest of the companies will fold or be bought out. However, reselling a poorly preforming arbitrage company will be harder then selling sand to an Egyptian.

Frank Schilling has a good perspective on how search engine arbitrage compares to domain arbitrage. He point out that only one company controls a domain, meanwhile anyone can bid on a search engine term. Traffic on a domain will never go away and a competitor will never drive costs up for owning the domain. For the king of domains it is easy, he can focus on domains and weather the arbitrage storm. Even if he enters the arbitrage business he has a safety net of 300,000+ generic domains with tons of type-in traffic. In Franks own words, “Homer Simpson himself could not kill Name Administration“.

My take on all this is that search engine arbitrage is here to stay but the margins will get thinner in the future. We can expect the leaders of today’s pure arbitrage business to get tossed out. Historically, the first to market in a highly competitive environment will lose their lunches to the next smartest company. Mosaic and Netscape are prime examples but I am sure there are more. Margins will compress rather quickly and the smart guys will be left. For the companies that want a re-do, they will need to have a back up plan. Marchex is a good example of a company with backup plan. They have a huge domain portfolio that has natural traffic.

There is a clear evolution for domain owners to play in this space: (Domainer > Registrar > Media Company) Once a domainer has hit the Media Company phase they can start playing in arbitrage. There are more direct routes to becoming an arbitrage company, start as an SEM company. But SEM companies are more pure play and don’t have backup plans, so I predict will be the ones that get squeezed out as margins compress.