An Economic Take On Search Marketing
Economics August 20th, 2007I love reading about consumer behavior and economic theory because I enjoy making connections that apply to the search marketing industry. Aaron Wall had a post today titled ‘Socionomics & The Wave Principal’, where he references how pessimistic and optimistic emotional states cause a repetitive wave-like flux in economic markets. He then takes this wave principal and applies it to search, publishing, and monetization.
I sent Aaron’s post over to an economist friend (we’ll call her Econo Guest) to get her take on this. Below is her analysis.
Econo Guest: Skeptical about the economic principle, this blog’s interpretation of wave theory, and the exact correlation between the two… The whole idea that markets go in 5 cycles like that contradicts the efficient markets hypothesis, which says markets are efficient (information is readily/immediately accessible, so prices reflect all known information in the market… if people knew there was a “cycle,” they would predict the price declines/jumps and it’d be a moot point). While there are many critiques of and alternatives to market efficiency hypothesis, wave theory is probably one of the less widely academically accepted ones. Regardless, I certainly would have more confidence in one’s ability to game Google than to game the stock market (even if I’m not totally sold on the efficient markets hypothesis).
Mr. Wall also seems to misinterpret wave theory, based on what I’ve read… wave theory is a mathematical principle that tries to analyze pessimism/optimism/”herding” trends in the overall stock market. This blog describes it as though it totally relates to fraud and redefining of rules. Thus I’m skeptical of the correlation — in one case, you’re trying to manipulate information (and the dissemination thereof) directly w/ SEO, while the other strategy attempts to profit from the existence of informational asymmetries ( i.e., people not recognizing there is a market cycle) but does not seek to change them.
Regardless, an interesting idea.
Squareoak: If wave theory is not that academically accepted, what efficient market theories would be more applicable?
Econo Guest: The Fama-French Three Factor Model is said to be able to explain 90% of stock returns. If you can somehow apply this model to SEO then you may have something. Although you might have better luck looking at political and law-making theories. Come to think of it, the Common Pool problem may apply well.
Squareoak: What is the Common Pool Problem?
Econo Guest: The whole idea evolved because oil pools move around and so in Texas they found that people extracted oil much faster than was good for the reserve and the recovery rate (how much oil you could get out of the pool) would wind up lower because everyone would drill too fast so they could get the oil before someone else did. The idea expanded such that people have applied it to pollution where when there is a common resource that cannot be held as property (such as the internet) people will abuse it for their own good (with things like spam), such that the overall utility of the resource is lower, but certain individuals benefit in the short term.
Squareoak: The Common Pool Problem could definitely apply to the internet but the search engines are becoming increasingly better at differentiating quality content from spam. From a search marketing perspective, the best way to keep the resource (internet) from becoming muddled is to create quality content.
Econo Guest: So even though the internet’s not privatized, it can be regulated…interesting.
Econo Guest does some quick research and comes back with this reference to Wikipedia:
Analyzing the design of long-enduring CPR (common property regime) institutions, Elinor Ostrom (1990) identified eight design principles which are prerequisites for a stable CPR arrangement:
- Clearly defined boundaries
- Congruence between appropriation and provision rules and local conditions
- Collective-choice arrangements allowing for the participation of most of the appropriators in the decision making process
- Effective monitoring by monitors who are part of or accountable to the appropriators
- Graduated sanctions for appropriators who do not respect community rules
- Conflict-resolution mechanisms which are cheap and easy of access
- Minimal recognition of rights to organize (e.g., by the government)
- In case of larger CPRs: Organization in the form of multiple layers of nested enterprises, with small, local CPRs at their bases.
Econo Guest: So Google is basically a monitor…I’m clearly not the first with this idea
Analyzing the Internet as a Common Pool Resource: The Problem of Network Congestion (pdf)
Squareoak: Very Interesting. So if one can somehow monitor a high demand CPR then this would be an ideal business model?
Econo Guest: Definitely.
Squaroak: Well, I want to thank you for your time today this has been a great session. Will we be hearing more from you in the future?
Econo Guest: Of Course, I’m happy to help.
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