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A “Market for Lemons”, a Nobel Prize, and Snake Oil SEO

As a commercial competitor, I seek to understand my markets. If I can understand what the market is doing, I can position myself and my clients profitably. If I can understand how the market reacts, I can interpret my competitor’s activities in light of their likely performance in the market. In other words, I can compete.

A very long time ago I got into a discussion with my father about how deals are made, and how prices are set during negotiations. My father was a civil engineer working with large businesses and governments, and I was a computer networking consultant building and repairing systems for customers. I postured that the party with more information could allow the other party to set the price, providing guidance if the initial price point represented inadequate profits. In this manner, the less knowledgeable party would have to expose his value position, and thus indicate the “reasonable price” he would ultimately be willing to pay for the transaction. The more knowledgeable party had the advantage, clearly, but the important point for me was that in that marketplace it was not supply and demand nor value that set the price. The two parties did not check the offer price against a market price, but rather one-sided perceived value. And the perception of value was defined by the accessibility of information. A smart, more knowledgeable party in the transaction could afford to incentivize the deal for quick closure, as a means of preventing the less-knowledgeable party from learning more, fast enough to impact the price. I’ll offer this price, if you agree today. Otherwise, the price will go higher.

My father felt the price would be found via discussions based on value. Obviously we worked in quite different industries. Technology moved so fast, getting better/cheaper/faster while construction was old-skool, with large multi-year contracts, government regulation, and various forms of large scale collusion behind the scenes.

I recently read Bruce Schneier’s commentary on how the computer security industry suffers under a situation of consumer ignorance. I see mis-information as a core problem for the SEO industry. There is so much so-called SEO out there, mostly outdated, baseless, or downright wrong, that the accessible information is more wrong than right. A Google or Yahoo! search on SEO topics is ridiculous, for many reasons. Often accurate SEO information is considered trade secret by knowledge consultants, and thus is not very accessible. What appears in front of the inquisitive SEO consumer is mostly junk. This puts the prospective SEO client at a distinct disadvantage, and provides an opportunity for the contract-seeking “snake oil SEO salesman” to close a deal at a good profit, often without realistic accountability or other consumer safeguards in place. But, as the 2001 Nobel Prize winning economist George Akerlof showed in his famous paper “A Market for Lemons”, asymmetrical information does much more than that. It actual can destroy the market for true, quality SEO.

Akerlof analyzed the used car market, showing that the information disparity surrounding the value of a used car led to a collapse of the market as a used car market, creating instead a “market for lemons”. The used car salesman knew how good (or bad) a used car really was. The buyer could not determine that until after the car was purchased. Because of this “information asymmetry” in the used car market, used car salesmen could overprice “lemons” – the low value used cars that looked ok. Poor quality cars no longer priced as poor quality. Actually good used cars became too expensive for buyers to chance, as poor quality cars at middle-quality prices presented better perceived value and higher profits for salesmen. As non-selling good cars were removed from the market, masquerading “lemons” dominated, setting the tone for the used car market, and further blocking actually good used cars from appearing. In the end, the used car market becomes a market for lemons, not a used car market.

It seems SEO has the same problem. As “boiler-room” SEO firms cold-call companies and pitch ridiculously low prices for SEO contracts, based on old and incorrect SEO information readily accessible to consumers, high quality SEO firms start looking “too expensive”. Consumer research into SEO does not reveal better information, since that knowledge comprises a significant portion of the value SEO consulting, and is thus not freely published. The entire market for SEO services starts to become a market not for actual search engine optimization, but more a market for “snake oil SEO” than true SEO. The typical seeker of SEO services these days seems ready to sign a one year contract with little if any performance basis. I can only presume they are buying based on looks, flashy presentations, or perhaps on gut instinct after a personal interaction with the salesman. I suppose we can expect SEO firms to start hiring pretty women and smart dressing, friendly “SEOs” instead of the geeks that actually understand search engine optimization. For a service designed to achieve rankings in search results, that seems very very odd. SEO has a measurable outcomes. Unlike a used car, SEO is a service. Nobody has to sign an SEO contract that does not include a 3 or 6 months performance evaluation with hard metrics of success and a cancellation clause.

We SEOs can learn a lot from Akerlof’s paper, but that might not be enough to save the SEO market. I already see that tech-savvy seekers of SEO skip right past the fluff and ask for short term or no term engagements, performance metrics, and accountability. The price pressures are still an issue, though, because quality SEO services are difficult to find and costly to develop. Without the financial support of longer term contracts, SEO becomes classic consulting which is not very scalable until layered in a bureaucratic hierarchy reminiscent of the Price Waterhouse style of the eighties and nineties. That might not be better than where we are now, and probably supports the case for bringing SEO in-house. Once in-house, though, who will pay for the advanced training and research required to stay current and effective as an SEO?

It seems the key issue for SEO consultants will be bringing performance metrics out front a.s.a.p., to appease the interests of paying clients while satisfying the need for results-oriented pay for SEOs. Those who work on a performance basis probably know what I mean by that, and probably find it exciting (as I do). Unfortunately, it means more secret information outside of the view of the general public. Alas, isn’t that what true SEO has always been?


  1. One of the best posts I’ve read all year.

    SEO is really 2 different services/products. One is SEO sold as a service. The other is SEO sold as a product.

    While I wish everyone had the understanding and budget to buy SEO as a service, many do not. So many of the SME out there will never be willing to invest in SEO as a service. They instead want it as a product. Something packaged that is easy for them to understand. While the product end may not be as effective as the service end, it is a market that has a need and therefore there will always be people out there willing to provide it.

    Friday, April 20, 2007 at 8:55 am | Permalink
  2. Harvey wrote:

    Agree with Jeremy’s comment, and…

    Those wanting a product usually want a boxed solution that requires the minimum of input on their part. These are the same customers who won’t fix their ghastly design, or actually add something interesting to their site once in a while. Or those that get the new kid to write some new copy for the homepage. When conversions are not happening, the responsibility falls on the SEO but the truth is that a well-oiled website needs attention from a number of different directions, and especially the owner.

    The worst thing the snake oil SEOs are doing is actually accepting these people as clients. It doesn’t make sense to take on a client when you know you can’t meet their expectations and you also can’t change their expectations.

    Sunday, April 22, 2007 at 1:40 pm | Permalink
  3. David Burdon wrote:


    not sure I’d agree with the central thesis. Bad SEO provides and opportunity for good SEO. Cars are cars and many are lemons. SEO is a service and no self-respecting business should fall for the hard sell of the boiler room outfits. 90% of my business comes from recommendations. Its how a service business should work.

    Monday, April 23, 2007 at 5:08 am | Permalink
  4. A simply excellent post John, getting to the heart of the challenge facing SEO customers and providers as well as a possible solution – forms of success metrics that are fairly standardized and/or easy to digest.

    But good metrics are a gaping void in advertising and have been for decades. I’m often floored by the ignorance of advertisers who think they can count on salespeople to advise them on the effectiveness of the campaigns, which in my sector of travel are often horrible.

    I’d suggest that TV and print salespeople are the most conspicuous deceivers, even more than many SEO pretenders. Although I agree that the overwhelming majority of SEO claims are bogus or deceptive, it’s important for advertisers to realize that even a modest PPC campaign, run themselves, will often outperform *their best print or TV efforts*.

    Advertising in all forms, for the most part, is a lie. It often fails and people are too mathematically ignorant to discover the problems and realign the spend.

    Monday, April 23, 2007 at 11:18 am | Permalink
  5. Will Scott wrote:

    Great post. I followed the link over from Aaron’s blog.

    There’s a lot of this kind of dialog in the industry and while I totally agree regarding snake-oil salesmen and dead spammy-technique I think there’s one thing that gets missed in this and Jason Calcanis type discussion.

    There is a market for entry-level SEO. There are businesses which can’t, or won’t, afford the 10k minimum level of engagement.

    Who serves these guys? They may not even know how much market share they’re losing, and the likelihood of them reading this or Aaron’s blog (or search engine guide or SEO chat) is very low indeed.

    And, the old-school — not rocket science — techniques we all take for granted may do them a world of good. And no, they’ll never take the time to learn for themselves.

    So, unless someone calls them on the phone and offers them a low cost (and yes, entry-level) opportunity they’ll never know what they’re missing.

    What if it’s not snake oil, and proprietary technologies and landing pages etc., etc?

    What if instead it’s basic, blocking and tackling SEO and the caller is just a salesman selling an ROI justified value proposition rather than a dream?

    Tuesday, April 24, 2007 at 10:16 am | Permalink
  6. Adam Tal wrote:

    Truly an excellent piece. Eloquently written.
    From my own personal experience as a professional SEO company in Israel, people are truly looking more at the price, rather than at the bottom line which is the SERP. They’d rather go for the good looking saleswoman than the stocky, chubby professional.

    In Israel the situation is quite grim, as the biggest companies (ranking for relative Hebrew SEO terms on google) are actually the ones that provide the lowest quality of SEO. Their only advantage is (due to their great selling not technical skills) they have acquired many powerful clients who hopped on the “you must do SEO” bandwagon hype.

    It truly is a pain seeing huge clients throwing large amount of funds on such poorly done SEO.

    Oh well, that’s life and people still judge a book only by it’s cover and not by it’s content (and they say Content is King :))


    Monday, December 10, 2007 at 12:29 am | Permalink
  7. Lynn Bishop wrote:

    There is a market for entry-level SEO. There are businesses which can’t, or won’t, afford the 10k minimum level of engagement.

    I agree with this comment, I offer entry level SEO services, many of my clients are happy with an increase in visitors/sales, and even though I suggest that a larger investment in SEO could do more, many don’t catch onto what I’m getting at, and maybe think I’m just “After more Money”
    They don’t seem to get just how big the internet is, and how big their business could get, or maybe they are happy, with their little slice of the pie, not at face level, they like to have something to moan about when sales are slack, instead of getting proactive.
    I have had 4 clients in the last year, that have had Basic SEO done,(between $3-$6000) seen the results, and looked at the bigger picture, and increased their investment in SEO drastically, with outstanding results.
    When talking about SEO’s that don’t share their secrets, none of those clients were willing for me to use the statistics for the SEO work they had done, to show what SEO will do. I even had one client ask, what would happen if the tax department were to visit my website and see what they were really getting. Clients are as precious about what SEO does or can do, as the SEO themselves manybe for similar reasons. .

    Cheers Lynny

    Monday, December 10, 2007 at 9:26 pm | Permalink
  8. Matt L wrote:

    Great post – only recommendation I’d make is to work on that formatting a bit so more readers get through to the bottom :)

    lines currently about 115ish chars, no longer than 65 reads the best
    chop up those paragraphs a bit more – maybe no longer than 5 lines
    some subheadings

    anyhoo – thanks for sharing

    Friday, December 14, 2007 at 7:48 am | Permalink
  9. Pony wrote:

    In my experience, the highend SEO techniques eventually filter down to the entry level SEOs when they are no longer pulling in the kind of SERP power that they used to.

    In South Africa there are a number of low level SEO companies that are using questionable methods including using client sites to link back to the mothership, embed third party google analtics code to inflate clicks. For about $30 you can get someone to SEO your site, i.e. change the description, titles and metatags on a couple of pages, and add a link back to the mothership, basically the mothership gets a free dofollow link, and they get paid for it. These are the same people still using hidden links.

    Thursday, January 3, 2008 at 3:37 am | Permalink
  10. Douglas wrote:

    if it hasn’t happened already, SEO will be offered as a major at some major university within 2 years.

    Monday, March 31, 2008 at 2:47 pm | Permalink
  11. Dan Durick wrote:

    John, you’re right on here. In dealing with clients I’m finding a trend in growing interest in consulting rather than hiring SEO services outright. I primarily work with car dealers, and the savvier, larger, auto groups are tackling more in-house. If they already have a strong marketing team, this just makes sense, and I see the “secret information” as something that be overcome with some consultations (I wouldn’t hold back information from a client, and I don’t think most consultants would).

    Friday, April 4, 2008 at 6:22 am | Permalink
  12. Dave Store wrote:

    There seems to me to be a lot of SEO work that non-technical people can do. It seems insane for a company who has employees who maybe aren’t employed to the full not to utilize them for an hour a day trying to find links and writing content.

    Thursday, July 3, 2008 at 10:54 am | Permalink
  13. leonardo yee wrote:

    Often accurate SEO information is considered trade secret by knowledge consultants, and thus is not very accessible.
    agree with that..

    Wednesday, August 20, 2008 at 1:47 pm | Permalink
  14. I agree that SEO should be considered more a service than a product. It is not a one -time event, but something that needs attention over an extended period of time. it’s more akin to a marathon, than a 100 meter dash.

    Saturday, October 18, 2008 at 11:27 am | Permalink
  15. I agree with the last commenter that it has to be an ongoing thing like a marathon. Algorithm changes in search engines and loss of backlink value, mandate that as a necessity.

    Thursday, December 4, 2008 at 1:05 pm | Permalink
  16. Pet Dogs wrote:

    Douglous makes an interesting point, SEO taught at university. As a computer science grad I think it could make a nice course in upper division.

    Thursday, December 4, 2008 at 1:08 pm | Permalink
  17. Seo India wrote:

    Yes Douglous Seo is not the theory which can be written at peace of paper and can’t practiced it after 6 months to 2 year, because algos gets outdated over the period of time. Hence it can’t be practiced in universities.

    Tuesday, December 23, 2008 at 7:58 am | Permalink
  18. palani wrote:

    John that was an excellent analysis.
    I have faced this in my own personal experience. As Harvey as rightly pointed out with couple of clients, i have also walked out. These clients failed to understand the value of SEO and the long term returns or i failed in convincing them.
    We believe events like Search Camp would help in knowledge Sharing.
    What happens when some so-called “EXPERT” India, SA, Russia or Thailand offers the service at a much cheaper price than his American/European Counter-part?

    Thursday, February 19, 2009 at 5:58 am | Permalink
  19. Eskil wrote:

    This post was an interesting read. Ther problem with assymetric information is very true. I come from the other end and have tried to buy seo services. It is really hard to tell if the deals I have been offered are good or bad. Is high cost seo always good and low cost always bad?

    Saturday, March 14, 2009 at 6:33 pm | Permalink
  20. Rahul wrote:

    I agree with the whole thing. SEO is a still a ‘service’ no?

    Sunday, March 22, 2009 at 12:16 am | Permalink
  21. As Harvey as rightly pointed out with couple of clients, i have also walked out. These clients failed to understand the value of SEO and the long term returns or i failed in convincing them.

    Tuesday, April 14, 2009 at 2:48 am | Permalink
  22. Santa Rosa wrote:

    Great post I think SEO should be taught in University’s as an additional course as well I really like your car analogy.

    Thursday, May 14, 2009 at 10:28 am | Permalink
  23. unknown spammer wrote:

    should be taught in University’s as an additional course as well I really like your car analogy.

    Saturday, June 13, 2009 at 7:15 am | Permalink
  24. seobro wrote:

    In the movie “Boiler Room” Vin Diesel is a super salesman who scams clients. He trains other “brokers” how to steal money. The current SEO biz needs more regulation. Too many fraudsters are poisoning the well for us all.

    Thursday, August 6, 2009 at 7:35 am | Permalink
  25. Loose lips sink ships!

    Keep your secrets. I explain the true value of SEO to my clients, and they trust me. When the time comes to bring in the SEO pros, I know who to call :)

    Tuesday, August 25, 2009 at 2:43 pm | Permalink
  26. CET Chews wrote:

    “Unlike a used car, SEO is a service. Nobody has to sign an SEO contract that does not include a 3 or 6 months performance evaluation with hard metrics of success and a cancellation clause.”

    I think that this is a valid point, and that no one is holding a gun to anyone’s head here. People need to ask the right questions before getting involved in business agreements, and exit strategy and performance metrics are some obvious ones.

    Tuesday, January 26, 2010 at 9:29 pm | Permalink
  27. Jack Rubin wrote:

    I don’t think anyone is trying to steal. Some are not very professional, and it is hard to tell who is and who isn’t. I would say, get references before you hire anyone.

    Friday, January 29, 2010 at 1:30 am | Permalink
  28. Butler wrote:

    I suppose we can expect SEO firms to start hiring pretty women and smart dressing, friendly “SEOs” instead of the geeks that actually understand search engine optimization.

    Funnily enough, that’s exactly how some top, well-respected angencies hire.

    Thursday, April 28, 2011 at 6:51 am | Permalink
  29. i have been making sites and doing seo for 4 years now but after recent changes, i feel lost. all my sites lost rankings and i lost 80% traffic because of this. the new online business model is to establish a Authority site rather than making bunch of small or medium 10-20 pages niche sites.

    Friday, August 19, 2011 at 7:45 am | Permalink

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