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Recently, there was a question on the Business of Software forums, asking whether someone could recommend a good SEO firm which was not booked solid.  Someone jokingly suggested that the best SEO firms are so busy no one hires them anymore.  That answer, which might have been intended as the equivalent of a Slashdot +5 Funny, gets really close to fingering the actual problem.

The problem is: if you can afford to hire a particular SEO firm, they probably aren’t competent enough for your needs.  This is pretty much a result of how the incentives line up for being a really good SEO who works for clients versus being a really good SEO who also happens to run a business themselves.  (Shoemoney, a noted and successful Internet marketer, recently had a bit of a tizzy with the SEO community, suggesting that 95% of it is worthless for a variety of reasons.  I think he is more right than wrong, but could have used some dispassionate analysis to make the case better.)

This should be obvious to most people reading this already, but SEO is a flowing river of cash if you’re good at it.  Both parts of this equation are important.  I have an unhealthy fascination with bingo cards, seeing as I run a small business focused on them, so let us look at that exact query.  First, observe:

• it isn’t awash in cash  (not mortgages, pills, adult, etc)
• it doesn’t have an obvious monetization strategy (4+ different takes in the top 10 results)
• it isn’t hyper-competitive (at least 2 sites up there have been up less than 2 years)
• it doesn’t get hundreds of thousands of searches every month

Every day, while you’re eating your breakfast or putting the baby to bed, that query doles out money to about 6 small businesses.

SEO: Winner Take Most

For your reference, the #5 spot on the query is worth about 6k unique visitors a month.  (I bounced around between 5 and 10 on it, so I have a fairly decent idea of what each position is worth.)  We have a rough approximation at what multiple the #1 spot gets of that, thanks to the leaked AOL search data: it is in the ballpark of a factor of 8.5.  We can thus approximate the traffic from the #1 spot as about 50k uniques per month, giving a little bit of a fudge factor.  Now, my effective profit per 1k search visitors is on the order of $40, so if I were in the #1 spot, I would presumably be making something on the order of $20,000 a month.  (I’d probably discount that by 50%, for reasons that go beyond the scope of this post, but $10,000 isn’t much to sneeze at, either.)

So here we have a baseline, using real numbers, for what topping off a search engines result page is worth.  In a wee, little niche, in a wee little section of the Internet, one single, insignificant query can quite handsomely support a small businessman and his family.

Now, pretend you’re the head consultant at Magic Fairies SEO, and you are so good at your job that you have but to flick your SEO wand and Bingo Card Creator will sail to its rightful position at the head of the Internet.  How much should you charge me for the use of your wand? 

Option #1: Charge me $X an hour

No sane person will charge me $X an hour when I stand to gain $20,000 a month from your services.  This is, however, the prevailing billing model for SEO firms.  They take a generous billing rate, oh, call it $100 an hour, spend 10 hours on the project… and then I become crazily profitable in under 48 hours.  Oh, crikey, how silly that is.  (I also think you’re silly to charge on a per-hour basis as a contract engineer if you’re writing things that are going to scale stupidly for the client.  It is a quirky world where you get paid less as you get better at doing your job, but that is what hourly billing amounts to.)

Option #2: Charge me $X0,000 up front

Very few sane clients will accept this arrangement from most unproven SEO firms, because the Internet doesn’t believe in fairies.  Even if I were largely not sensitive to risk ($10,000 a month!!! has a certain intoxicating flavor to it), there is the capitalization problem.  Put simply, I am not in the financial position to pay $5,000 or $10,000 in a lump sum (my business only profited $6,500 last year).  Most small businesses are similarly undercapitalized.

Option #3: Equity Participation

Let’s say the SEO Fairies and I strike up a deal — they get me to #1, I pay them a portion of the money I make from being #1.  This puts a gratuitous amount of risk on the poor fairies — I could fail to monetize #1 successfully, I could conveniently forget about our contractual relationship, I could skim sales off the top, I could screw them in any of a hundred ways.  To the extent that I’m honest about my dealings with them, it is a terrible deal for me, too: after the work is done, I rationally want to terminate their participation in my business as fast as possible.  I’d be constantly on the lookout for ways to terminate our relationship and save me what would surely be my largest business expense.  For example, I’d study what techniques they were using, and show them the door as soon as I was reasonably certain I could copy them.  Thus, the Fairies would be constantly worried that they were going to get their big fat bingo check from me every month.

#4 Cut me out of the picture

We all know what the Fairies contribute to the business: a #1 search rating.  What do I contribute?  Well, a program that can be written in a week, some support, and my own marketing efforts — which are demonstrably worth, oh, about $6,500 a year on the open market.  Being a crafy profit-maximizing Fairy, if you know your wand is going to get you to the top of [bingo cards]… what did you need me for, again?  You can either write your own website/program or outsource somebody to do it for you, rank that, and then start printing money hats.  And then you aren’t dependent on me in the slightest.  You get all of the gain and none of the risk relative to the other options.

Most of the best SEOs in the world have long since done this math for themselves.  Keep in mind that [bingo cards] is sort of the blue collar of the Internet search space.  If you move to the upper middle class sections, like (picking an example at random) student credit cards, and you were good enough to prosper in a Winner Take Most environment, you would laugh in the general direction of $10,000 a month.  And this is, fundamentally, why you can’t find many good SEO consultants for hire: if they’re as good as you need, they don’t need you.

What can you find?

Well, just like in any labor market, there is a wide spectrum of ability.  You can’t afford to hire somebody who can rank for [student credit cards], or even conceive of ever ranking for that term, but maybe you can fall down the curve a little bit.  Maybe the B student in the class is good enough.  The B student probably has designs of being a B+ student, since Winner Takes Most means skill and effort superscale: if you are 1% better than the next guy you get many times the revenues.  Thus, again, why is the B student wasting his time with you, when he could be working on his own projects.

There is also the problem that SEO is a high-skill occupation and you, as the customer, have to worry about the high floor every bit as much as the limitless ceiling.  Any SEO worth his salt is probably employable as a generic web programmer, for example.  $55,000 salary straight out of college, very little risk, relatively unstressful.  Similarly, the more creative ends of the field can be used in classical marketing or copyrighting for, again, not insignificant amounts of money.  You have to be able to beat the SEO’s next best offer, and their worst, risk-free, in-case-of-financial-emergency-break-glass offer, is pretty expensive from the point of view of a cash-strapped small businessman.

So you’re left with the dregs

This shouldn’t be a fairly controversial claim: most people who are interested in making money online, using whatever method (running a software company, being an SEO, filling out surveys), have no particular skill at what they do.  The overwhelming majority will not be financial successes, relative to a very conservative definition of financial success such as “Makes as much online per hour as they would flipping hamburgers or cleaning toilets”. 

(It is entirely possible that they’re externally motivated and wouldn’t mind continuing what they’re doing because, after all, the Internet is more fun than cleaning toilets.  I’m very sympathetic to this and yet, as a fellow businessman, I would want my partners to be successful first and emotionally fulfilled second, because success transfers fairly easily but emotional fulfillment probably does not.)

You can see this same dynamic in the software business, where the overwhelming majority of proprietors make close to nothing.

If you look at any random collection of folks who sell SEO services for money, the overwhelming majority are going to be in the dregs.  It is sort of like a perverse anti-Darwin evolution: successful specimens are the first to die  (i.e. move to greener pastures, in every sense of the word green).  The more successful they are, the quicker they die.  What you’re left with is a mix of both newbies, and folks who just do not have the chops you need.  I suppose theoretically you could hope to scoop up a newbie who is both a) skilled and b) doesn’t know the value of their own skill yet.  However, most newbies are too busy being scammed out of $49.95 so that they can buy e-books to learn how to make $200,000 a month!!! selling e-books and if you act now get our copy of Magic Long Copy Letters, a $79.95 value, for absolutely free… to work for you.  And the ones who aren’t busy are probably, well, untrained and terrible at what they do.  So you’re buying lottery tickets and, as we all know, lottery tickets are just a tax on people who can’t do math.

So is there a way out?

All of the above is specific to SEO services.  SEO products could very well have a different incentive structure — they are also a Winner Take Most economy, so if you can be SEOMoz or Aaron Wall you might actually stand a decent change of making money, and thus it almost makes sense for you to be offering your expertise as a product.  I have my doubts in the generic case, though.

I sometimes shake my head in wonder at both of them, actually.  I won’t tell anyone else how to run their life or business interests – if they’re happy, I’m happy for them.  Nonetheless, Rand Fishkin and the team are clearly near the top of their field, with skillsets that are worth conservatively millions, and yet they do client work for peanuts, relatively speaking.  Rand Fishkin, after years of having a deserved reputation for being insanely good at what he does, makes far under the SEO floor salary.  (Or at least he did before the VC injection — maybe one of the board members will have a facts of life talk with him.)  They could just as easily have sewn up a niche, or a half dozen of them, hire folks to keep it sewn up for them, and do SEO education as a hobby to pass the time between celebratory cash bonfires.  Or, heck, they could find one guy who could open doors to the world of big business and say “Hiya, Bank of America.  Give us a 10 man team and a year, and we’ll increase revenue driven by your website by 3%.  You know that is worth millions, and believe me, you will pay millions for it, or Citibank will.”  (I am reminded of the classic sieve to separate rich lawyers from poor lawyers: look for the ones who work for rich clients.  There is a lot to be said for that maxim.)

I incidentally haven’t purchased either of the above services, but I’m making an educated judgement about their quality on the basis of the information they write for free in their blogs.  Both are likely excellent resources for folks getting past the newbie hump in a hurry.  However, because you can’t really teach what gets folks from a solid foundation in the basics to the B+ region where they are making decently large sums of money, I wouldn’t expect these resources to get you there.  After all, if they could, why would you sell them for $80?  They’d be worth more in future income than a college education at my alma mater, and would be priced to match.  But if you are feeling totally clueless about SEO, and think your time is valuable, I’d suggest buying one or both of the above and, more importantly, start learning by doing.  (As usual, I have no financial relationship with either of the above two products.) 

So that is the cynical economist’s take on the SEO market.  I fully acknowledge that I am, at best, a B or B- SEO, so it is entirely possible I don’t know what I’m talking about.  And I also know that, as a software developer/marketer/CEO/whatever, I’m also a little itty bitty fish in a huge ocean of the Internet.  Here’s the thing, though: being a minorly successful little bitty fish is worth somewhere in the $80+ range an hour.  If I’m absolutely clueless about this field, this implies that someone who has a clue will be dreadfully expensive.

If you have squared the circle and figured out why someone with SEO chops would choose to be a for-hire consultant instead of a business owner themselves, I’d love to hear your arguments in the comments.