Paid Search Marketing vs. Search Engine Optimization: Analytical Models of Search Marketing Based on Search Engine Quality
Kai Li, Chunyang Shen, Mei Lin, Zhangxi Lin
This study uses an analytical model to examine the competitive relationship between paid search marketing (PSM), offered by search engines, and search engine optimization (SEO), offered by third-party firms. The research analyzes how a search engine's quality, in terms of effectiveness and robustness against manipulation, influences the strategic decisions of search engines, advertisers, and the survival of SEO companies. This analysis is conducted through a game theory framework to model the interactions among these market participants.
Problem
Dominant search engines like Google seem to tolerate the existence of SEO firms, even though these firms compete for the same advertising revenue and can sometimes compromise the quality of search results. This raises a key question: why don't search engines use their market power to eliminate SEO companies? This study addresses this research gap by investigating the market dynamics and conditions that allow SEO firms to coexist and even thrive in a market dominated by search engines.
Outcome
- A search engine can achieve higher profits by allowing SEO firms to operate rather than driving them out of the market. - The competition from SEO firms creates a "constructive competition" that can push the search engine to improve its own algorithms and pricing, ultimately expanding the overall market. - Improving a search engine's effectiveness does not always lead to higher profits; it can sometimes make SEO services more appealing to advertisers, which intensifies competition and can lower the search engine's revenue. - There is not always a positive correlation between advertisers' willingness to pay for ads and the final click price; under certain competitive conditions, the price may decrease as willingness to pay increases.
Host: Welcome to "A.I.S. Insights — powered by Living Knowledge". I'm your host, Anna Ivy Summers. Host: Today, we're diving into the competitive world of online advertising with a fascinating study titled, "Paid Search Marketing vs. Search Engine Optimization: Analytical Models of Search Marketing Based on Search Engine Quality". Host: Here to unpack it all is our expert analyst, Alex Ian Sutherland. Alex, welcome. Expert: Great to be here, Anna. Host: This study really gets into the nitty-gritty of how businesses get seen online, doesn't it? Expert: It certainly does. It uses an analytical model to examine the relationship between paid search ads—the sponsored results you see at the top of Google—and Search Engine Optimization, or SEO, which helps websites rank higher in the organic, non-paid results. Expert: It looks at how a search engine’s own quality influences the strategic decisions of the search engine itself, advertisers, and even the survival of the SEO companies that offer these services. Host: So Alex, what’s the big problem or puzzle this study is trying to solve? Expert: Well, the puzzle is this: dominant search engines like Google seem to tolerate SEO firms, even though they compete for the same advertising revenue. Host: Right. If I'm a business, I can either pay Google for an ad, or I can pay an SEO firm to help me rank high without paying Google for every click. They seem like direct competitors. Expert: Exactly. And sometimes, aggressive SEO tactics can even compromise the quality of search results, which is bad for the search engine. So the big question is, why don’t these giant search engines just use their market power to change their algorithms and essentially eliminate SEO companies? Host: That is a great question. So how did the researchers get to the bottom of this? Expert: They used an approach from economics called game theory. Essentially, they built a mathematical model to simulate the marketplace as a strategic game between three key players: the Search Engine, the Advertisers, and the SEO Firms. Expert: This model allowed them to analyze how the decisions of one player affect the others, all based on two key characteristics of the search engine's quality: its 'effectiveness' and its 'robustness'. Host: Can you explain those two terms for us? Expert: Of course. 'Effectiveness' is how good the search engine is at giving users relevant results. Higher effectiveness attracts more users. 'Robustness' is how resistant the search engine's algorithm is to being manipulated by SEO. A more robust engine makes it harder and more expensive for SEO firms to work their magic. Host: Okay, so with that model in place, what did they find? What were the key outcomes? Expert: The first finding is the most surprising. The study concluded that a search engine can actually achieve higher profits by *allowing* SEO firms to operate, rather than driving them out of the market. Host: That seems completely counterintuitive. How does competing with SEO firms make a search engine more money? Expert: The researchers call it "constructive competition." The existence of SEO as a real alternative for advertisers puts pressure on the search engine to innovate, improve its algorithms, and keep its ad prices competitive. This dynamic can actually expand the entire market, ultimately leading to more revenue for the search engine. Host: A rising tide lifts all boats, in a sense. What else stood out? Expert: Another key point is that simply improving a search engine's effectiveness doesn't automatically lead to higher profits. Host: How can getting better be bad for business? Expert: Because a more effective search engine attracts a much larger audience. That huge audience makes ranking high in the organic results incredibly valuable, which in turn makes SEO services much more appealing to advertisers. This intensifies the competition for the search engine's own paid ads, which can, paradoxically, lower its revenue. It's a delicate balance. Host: So this all leads to the most important question for our listeners: why does this matter for business? What are the practical takeaways? Expert: For the search engines themselves, the message is that crushing the competition isn't always the most profitable strategy. Embracing the SEO ecosystem can force innovation and grow the whole market. Expert: For advertisers, this is crucial. The tension between paid search and SEO creates a more competitive landscape, which gives them more options and more leverage. It means you’re not just a price-taker for ads. A smart digital strategy likely involves a balanced mix of both paid search and SEO to maximize your return on investment. Expert: And for the SEO firms, this study validates their role in the ecosystem. It shows they are not just gaming the system, but are part of a competitive dynamic that keeps the major platforms honest and can deliver real value to clients. Host: So, to summarize, this study reveals a surprisingly complex and almost symbiotic relationship where we might have only seen a rivalry. Host: It shows that allowing SEO to compete can actually make search engines more profitable, that improving search quality is a careful balancing act, and that this "constructive competition" ultimately gives businesses more strategic choices. Host: A fantastic lesson that in a complex digital market, the most aggressive move isn't always the smartest one. Host: Alex Ian Sutherland, thank you so much for sharing your insights with us. Expert: My pleasure, Anna. Host: And thank you to our listeners for tuning in to A.I.S. Insights. We'll talk to you next time.
Search Engine, Search Engine Advertising, Search Engine Optimization, Paid Search Marketing, Search Engine Quality, Game Theory
