The Role of Search Engine Optimization in Search Marketing

17 Pages Posted: 23 Jan 2011 Last revised: 7 Sep 2014

See all articles by Ron Berman

Ron Berman

University of Pennsylvania - The Wharton School

Zsolt Katona

University of California, Berkeley - Haas School of Business

Multiple version iconThere are 2 versions of this paper

Date Written: November 6, 2012

Abstract

In this paper we study the impact of search engine optimization (SEO) on the competition between advertisers for organic and sponsored search results. We find that a positive level of search engine optimization may improve the search engine’s ranking quality and thus the satisfaction of its visitors. In the absence of sponsored links, the organic ranking is improved by SEO if and only if the quality provided by a website is sufficiently positively correlated with its valuation for consumers. In the presence of sponsored links, the results are accentuated and hold regardless of the correlation. When sponsored links serve as a second chance to acquire clicks from the search engine, low quality websites have a reduced incentive to invest in SEO, giving an advantage to their high quality counterparts. As a result of the high expected quality on the organic side, consumers begin their search with an organic click. Although SEO can improve consumer welfare and the payoff of high quality sites, we find that the search engine’s revenues are typically lower when advertisers spend more on SEO and thus less on sponsored links. Modeling the impact of the minimum bid set by the search engine reveals an inverse-U shaped relationship between the minimum bid and search engine profits, suggesting an optimal minimum bid that is decreasing in the level of SEO activity.

Keywords: Search Engine Optimization, Search Marketing, Online Advertising, Game Theory, Contests

JEL Classification: C70, D83, O14, M31, M37

Suggested Citation

Berman, Ron and Katona, Zsolt, The Role of Search Engine Optimization in Search Marketing (November 6, 2012). Available at SSRN: https://ssrn.com/abstract=1745644 or http://dx.doi.org/10.2139/ssrn.1745644

Ron Berman

University of Pennsylvania - The Wharton School ( email )

3641 Locust Walk
Philadelphia, PA 19104-6365
United States

Zsolt Katona (Contact Author)

University of California, Berkeley - Haas School of Business ( email )

545 Student Services Building, #1900
2220 Piedmont Avenue
Berkeley, CA 94720
United States

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