Most people in the market for SEO services are price sensitive and don’t have knowledge of the intricacies of the algorithm or its updates. Often SEO firms must educate buyers to make them more knowledgeable in a way that helps them understand the benefits of their services. It’s prohibitively expensive, however, for buyers to determine how quality and price vary across firms. This asymmetric information leads to problems of opportunism, whereby the SEO firm benefits at the expense of the buyer with less information.

If buyers cannot distinguish between high and low quality SEO offerings before purchase, it raises the possibility that only low quality SEO services will be sold to them. Furthermore, the presence of high quality SEO firms in the market raises the price received by sellers of low quality SEO. Similarly, the presence of low quality SEO firms lowers the price that sellers of high quality SEO firms receive. In effect, sellers of high quality SEO services are implicitly subsidizing sellers of low quality SEO services.

The 2001 Nobel Prize winner in Economics, George Akerloff, called this “a market for lemons” due to the persistent presence of lemons (cars found to be defective only after they are bought) in the market of used car sales.

There is incentive for sellers to market poor quality merchandise, since the returns for good quality accrue mainly to the entire group whose statistic is affected rather than to the individual seller.

Low quality SEO can mean not just ineffective but in some cases damaging for a website. It’s one thing if a SEO firm makes use of the long-ineffective tactic of adding meta keywords, but quite another if it spamdexes or engages in paid link schemes. Black hat SEO tactics, tricking the algorithm from its intended purpose, like the latter will in the long term damage a website’s standing. Low quality SEO has a short shelf life.

High quality SEO, on the other hand, can be an unfair competitive advantage and involves those strategies and tactics that are effective at increasing the visibility of a site in search results while conforming to the search engines’ guidelines. Even as algorithms become smarter and faster, the computational problem they’re chasing after remains the same: quality. For websites that get (or want) traffic from search engines, quality tends to come with a higher price tag.

With each algorithm update, however, some SEOs continue with the old (now ineffective) tactics and charge the same, as indicated by the lower red price line in the diagram below.

SEO quality difference over time

Compounded over multiple algorithm updates, this approach is unsustainable as the SEO tactics would gradually become ineffective or go against search engine quality guidelines.

Search engine algorithm updates (quality vs time)

Companies that engage such SEO firms may find pretty good, pretty consistent returns — until a single disaster comes along and wipes the strategy out. It’s always a matter of time before the strategy suddenly and viciously stops working.

Organic Performance Index of jcpenney.com

Google lowered the ranking of JC Penney in response to tactics employed by an SEO firm on its behalf.

Google penalizes Overstock.com

Overstock.com used a link scheme that got it penalized by Google.

Google blacklists BMW

Google removed BMW’s German site from its index after the site included “doorway pages”.

The big problem is that until there’s a crisis, the returns from engaging these SEO firms look better than anything else out there. And that means they attract lots of money from clients looking for consistent returns with their SEO budget. Unfortunately, they attract more and more money until they blow up.

Buyer beware.