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The world of search engine marketing has been rocked in the past month with events surrounding the link building strategies of JC Penney and Overstock.com. You can click on the links for more information about each situation, but for the purposes of this article suffice it to say that each site was caught purchasing links to manipulate their site higher in Google’s search rankings for select lucrative phrases. It should be noted that this was not a case where Google’s alorithm caught something fishy going on and raised a red flag. No, these sites were outed publicly (JC Penney by the New York Times and Overstock at WebmasterWorld) – forcing Google to either penalize the actions or condone them through inaction. Cutts & Co. chose the latter with the result being that neither company ranks high for many of the terms where they previously held number 1 positions. Most of the analysis of this has been done to death by others in my industry, but I wanted to take a look at this from a different perspective – that of Wall Street.
We see an interesting difference in the reaction of investors to the news surrounding these two companies. Overstock has seen a solid dip (almost a 3% dip in their stock price) since they were penalized. After an initial drop of almost 1%, JC Penney rebounded and has barely skipped a beat. The likely difference here lies in the nature of the retailers’ respective businesses. JC Penney claimed that organic e-commerce makes up a small portion of their business (less than 7% according to the Times article) and apparently stockholders agree. Of course, that begs the question of why do it in the first place if it’s not going to have a measurable effect on business, but I digress. Meanwhile, Overstock is obviously a dot-com who does most of its business online, and thus would be laughed out of the room if they made the same claim. We likely will not know the full effects of Google’s penalties on either company until the next set of financials are released.
While neither of those ticker movements would be considered extraordinarily volatile, they were movements nonetheless. The ability to predict these movements is what makes or breaks Wall Street careers. Analysts must do a better job of valuing the stock price than the market as a whole. Countless factors weigh in to determine stock prices – everything from company balance sheets to the possibility of a terrorist attack. The question I ask is this: Is it time to start valuing SEO into these stock prices?
Should Goldman Sachs be hiring SEOs to go over link profiles and analyzing tracking data to effectively predict whether or not a site’s search engine exposure is at risk? Can anyone say comfortably that a stock (especially for an e-commerce company) is accurately priced if this has been ignored? For companies that have the brand strength of JC Penney and Overstock, the non-branded organic traffic may only make up a small portion of the bottom line. But for smaller e-commerce companies, such as many of the dot-coms that erupted into the NASDAQ during the 90s, that only have limited brand strength, the possibility of facing a Google penalty is an enormous risk for any potential investor. Yet, I would find it hard to believe that many investors are accurately informed as to this level of risk. Investing in an e-commerce site without analyzing their link profile would be akin to investing in a restaurant without knowing anything about their food supplier(s).
As I wrap here, I would be remiss not to point out Forbes actually felt the wrath of the Google hammer recently as well. However, since that site was nailed for selling (not buying) links and is also a private company (non-traded) that does not have real-time valuations, it was impossible to include Forbes accurately into this discussion.