DIGITAL DUE DILIGENCE – In AdWords, there’s a pretty simple rule: the winner is determined by the underlying economics, not by a superior AdWords strategy. In most parts of SEO, that’s true: if someone negotiates a better affiliate payout for the term “mortgage refinancing,” they can probably be the high bidder on a great domain name, and they can afford to pay more for great SEO talent.
But there’s a twist: sometimes, the economics of accumulating links will swamp the economics of monetizing them. This shows up in a weak form in plenty of affiliate-dominated verticals: AdWords ads point to a product page, but organic results point to a review that then pushes the searcher to a product page.
There’s one vertical where this model used to work quite well, but broke down in the late 2000s: searches for people’s names. A few years ago, nearly any name search would lead to an affiliate page promoting one of these services:
- Background checks.
- Family tree information.
Now, a search for most names will yield a different mix:
- A smattering of high-tier social networks (likely Facebook and Twitter).
- A paid social network like MyLife.
- LinkedIn, which will often be #1.
LinkedIn is not a natural top result, in the sense that it monetizes far worse than background checks or family trees. But it’s a natural top search result in the sense that LinkedIn has relentlessly focused on SEO for names.
Their entire site architecture is focused on passing link equity from the homepage to as many profiles as possible, and their homepage naturally accumulates links (LinkedIn is a newsworthy topic). Moreover, their embeddable widgets create targeted links pointing directly to an individual user’s profile page. And the most common place to embed one of those links is on a domain that the user controls—which will be authoritative on the topic of that person’s name.
Essentially, LinkedIn has learned to arbitrage vanity in order to replace high-monetization clicks with high-interest clicks. The revenue is a fraction of what their older competitors would get; things look better from a lifetime value perspective, but probably not by much.
The paid social networks are an interesting exception. They monetize well, but aren’t especially linkable. The answer here may be advertising: MyLife runs banners and TV ads, cranking up their name recognition and thus their click-through rate. The margins are tighter and the revenue is front-loaded compared to LinkedIn, but in a sense it’s a similar strategy: their are linkable enough and clickable enough to get by without monetizing quite as well.
Could LinkedIn’s and MyLife’s competitors implement these strategies? It’s unlikely: LinkedIn has accumulated a massive head start, and the value proposition for embedding a link to a generic social profile is weaker than the value prop for embedding a link to a professional profile.
MyLife is in a weaker position, but there’s a paradox here: their strategy requires more care, investment, and fine-tuning to run profitably. A competitor would have to take bigger risks with more capital, just for a chance to be even. As with Groupon, doing a land-grab and then making the business worse can be a good way to build a competitive moat.