I am a regular reader of Seomoz. Fewdays back Rand was wondering why webmasters spend more on PPC than on SEO, considering the traffic potential and conversion numbers. His diagnosis “Because PPC is easier for advertisers and agencies to value, agencies and businesses are spending many multiples of dollars to get that traffic”. I have very high regard for Rand. However Rand has got it wrong this time.
There are 2 basic rules of finance that means PPC will always be more valuable than SEO. The 2 principles are 1) Time value of money and 2) risk and return
Time value of money: In very simple terms time value of money means people prefer now to the future. If I can have an icecream now or 2 days after, I will prefer now. And hence I will pay more for the option that offers results now. PPC is now. Organic SEO is in future. So people will pay more for PPC.
Risk and return: Risk in finance means uncertainty. Higher the risk or uncertainty, higher the return expectation. For a given average return, I will pay less for a risky option than for a less risky option. When I bid on adword, I know for sure that my search term will show up on the results page. The same can never be said about organic search.
There is a third reason why people pay more for PPC. That is called word of mouth. If I am out with a new product, I want to reach to the early adopters as fast as possible and not wait for google to remove its sandbox effect.