How not to do SEO

Search Engine Optimisation (SEO) is an unfortunately necessary part of driving traffic to discover a website. Good content is necessary but not sufficient.

Why SEO is necessary

A large percentage of web traffic is directed by search engines. After all, this is how Google has become the giant company that it is. I tried to track down some hard statistics on this, but they varied widely and didn’t seem all that credible. Nevertheless I think it is clear that this traffic is signficant.

Search engines use algorithms and automated scripts (“spiders”) to understand the importance, quality, relevance and popularity of content on the web. A radiographer takes xrays without being able to see directly the same picture as the xray will produce. A photographer taking black-and-white photographs needs to ignore the colour in the viewfinder and imagine the light and shadows and shapes of the final photograph.

If your website has excellent content, but structures it in a way that is not readily accessible to a search engine’s spiders, then the spider will pass on by without sending humans to visit your site. Two easy examples may help:

  1. Flash content – the content may look great and be ground-breaking and useful, but since most spiders don’t currently “understand” Flash content, it will be ignored.
  2. Login, registration and forms – if large parts of a website are accessible only after filling information in a form or registering and logging in, the spiders won’t get in the door.

There are other considerations that are postulated to be relevant:

  • Duplicate content “dilutes” the scores of any individual page
  • Many links to irrelevant, poorly rated pages can suggest that your site is not providing useful info to the user. This effect is stronger since search engines try to separate “link farms” and rings and other methods to make a collection of websites appear more connected than they are in reality.
  • Poor choice of keywords that searchers may often use, or targeting terms that are widely targeted by a range of other websites.

A typical SEO strategy is quite complex and takes times, effort and money

A typical SEO strategy would cover analysing the target audience of a site, understanding the site content, understanding the site structure, doing keyword analysis, checking out competitors, generating a few good quality inbound links if applicable, possibly generating some linkbait content, installing appropriate tools (e.g. Google Analytics) to monitor traffic and then repeating the cycle once the customer behaviour is better understood. Key metrics are site traffic generated, low bounce rates, long time on the site, repeat customers, higher sales (or more contacts if online sales aren’t part of your service) and higher search rankings.

All of this takes time (both from the SEO but also from the website owner). There are many fly-by-night organisations claiming to do SEO with neither the knowledge or the business ethics to get it right. It is probably because it is a poorly understood, sometimes arcane speciality, that these companies get into business with low starting capital costs.

How not to do SEO in ten easy steps

I received an unsolicited email from Zenteq recently. I’m not providing a link to their website as I have no reason to believe they can deliver anything useful.

  1. Sending unsolicited email (aka SPAM). This is typically a bad idea. Best case scenario you get a few new customers. Worst case scenario you irritate a huge block of potential customers, have your mail server and/or IP blocked as a source of spam, have your ISP close down your website for abuse and so on.
  2. Use bright (as in reflective safety wear) green text and truly ugly formatting. Not a professional image by far.
  3. Offer to “SEO” the website by submitting to 600,000 search engines monthly. This is irrelevant and a giant waste of money.
  4. Charge R350 per month. In the short-term, this is far too little. The work involved at the outset of optimising a website for search engines requires several full days of work. However, in the long-run, this may well be too much. Since there appears to be no reason for the client to stay with Zenteq, we have a familiar problem where the business model doesn’t make sense for a serious operator and thus it’s likely that it isn’t a serious operator. (on trawling their webpage I see there is a R1000 upfront fee as well. Nice not to include this in the email. It still isn’t enough for serious upfront work)
  5. No description of other components of SEO strategy, or examples of prior successful work.
  6. “From” email is marketing@fire-equipment.org, “Reply to” is newheights70@telkomsa.net but the content directs the reader to info@zenteq.co.za. So which is it?
  7. Structure your email so that it gets stopped by the spam filter built into both Thunderbird and Apple’s Mail application.
  8. Include icons on their site claiming valid XHTML code, but then fail the test when the button is clicked.
  9. Analysis of google results shows no links to zenteq.co.za.
  10. And my favourite – a search on google for “seo site:za” which searches for the top websites relating to “seo” within the “za” domain doesn’t have zenteq listed in the top ten pages. A first-page listing is almost an requirement if you expect any number of click-throughs.

So who guards the guards, and who optimises the optimisers?

Visagie still around?

A comment came in today on an old article about the dodgy lending scheme Rudie Visagie was proposing.

The reader “trymore” provides some details of a new deal apparently being run by Rudie Visagie. As I stated last time this gentleman’s name came up, I have no personal interest or involvement here at all. My interest was just to show how the deal made no business sense to Visagie given the significant interest rate, currency and credit risks involved. Thus, it sounded like a scam. At the time, I quite enjoyed hearing all the supporters claiming I just didn’t want him to succeed. Meanwhile, several regulators started to probe the dubious claims, and it became clear that apart from anything else, Visagie wasn’t licenced to carry out the business he was proposing.

They quickly quietened down when the whole thing fell apart and Visagie’s clients lost money. Several readers of this site gave their own stories to this extent.

“Trymore” had the following to say:

Our company was also approached to do bussiness with Mr Visagie’s new company , which is now called Better Life. Our clients would get Loans from them and on final approval would have to pay R5700.00, on enquiring about their company eg contact no’s , name of directors, physical address ect we were continuously stonewalled and eventualy given the name of their “attornies?(who had no knowledge of them) and their buss address in Blouberg Str(they are merely renting desk space).So my advise to anyone wanting to do buss with Better Life is, DONT GO THERE!!!!!!

This is a little out of my area of knowledge, but it sounds like the wheels are turning yet again. One doesn’t need sophisticated risk models allowing for the interaction of multiple risks, individual behaviour and an estimate of one’s risk appetite to know that a business that isn’t proud to show itself off isn’t one you should trust.

This reminds me of the example of the business premises of banks versus supermarkets. Banks typically spend large amounts of money on fancy head-offices, marble floors, giant pillars and so on. Supermarkets don’t. The key differentiator is that at a supermarket, you don’t care if they are in business tomorrow or not. You can tell the quality of the products by inspecting it and if they aren’t around tomorrow you aren’t affected. A bank, on the other hand, needs to show that it is not a fly-by-night operator. It needs to show that it has the resources to withstand economic crises, interest rate shifts and tilts and butterflies, poor credit events and the operational risks associated with any business. A bank needs to convince customers that it is solvent and good for the long term.

I don’t deal with financial institutions that look like supermarkets. No matter how low the prices are.

Make A Million competition encourages financial meltdown

[There is an additional post for the 2010 competition on how to not lose money in the make a million competition.]

The Make a Million competition is in its fourth year. The aim? Take a personal investment of R10,000 and compete with other “investors” to earn the highest return over a short period of a few months.

The competition itself has always struck me as a little strange. No doubt the purpose is to raise the profile of PSG and encourage new clients to begin share trading with them. However, it is also positioned as an educational programme where newbies can learn to invest in the stock market.

Invest? Oh, you mean speculate like crazy?

The irony is the strong use of the word invest in all of this. Investing is taking carefully considered long-term positions in great companies at reasonable or cheap valuations to benefit from the improving prospects of the underlying business and be rewarded for providing capital to the business.

The nature of this competition can be likened to a exotic type of binary option. Whoever makes the highest return in this short period (far too short for the economic and business fundamentals involved in real investing to play a serious part) wins the “pay-off”. The sensible strategy is to find the most volatile assets possible and plough all the cash into these few positions in the hope that they skyrocket. The downside is limited to R10,000 (ok, R10,650 if one includes the entrance fee) and the upside has the 7 digits of a million rand.

The competition is at least partially marketed  at those new to trading. This is NOT the right way to introduce investors to the stock market.

Introducing MaM4 with Single Stock Futures

This year, the competition has outdone itself in terms of promoting irresponsible speculation through introducing Single Stock Futures (SSFs). In this way, investors get to increase the volatility of their positions several times, to increase the possible (not expected!) value of their portfolios. Again, the downside is limited, so strategies that ramp up volatility (at the expensive of expected return) can be shown to be optimal.

The sneaky thing is that as participants increase the volatility of their portfolios, the expected value of the winning portfolio increases! The average return of all portfolios will be unchanged, and may quite likely even decrease. However, the winning portfolio (which both I and Nassim Taleb would both call the luckiest portfolio) is likely to be more impressive. A misleading, if attractive advert for stock speculating and PSG. As the volatility of individual portfolios increase, the range of outcomes (positive and negative) increases. Since the largest portfolio will win, we have increased the expected size of the winning portfolio.

All sounds horribly like the cause of the current financial meltdown

The current global financial disaster was largely created  through excessive gearing, poor understanding and management of risks, arguably weak regulation, and performance incentives that directly motivate risk taking for decision makers.

One of the key lessons of economics is that incentives drive action. Executives and traders were given huge upside potential in terms of bonuses and stock options for good performance, and the relatively limited downside of a still-significant salary and maybe a polite “moved on to new challenges”. We reward for upside performance and ignore risk in the process.

Nassim Taleb’s (if anything more relevant now that a few years ago books, “Fooled by Randomness” which I strongly recommend and “Black Swan” which is just ok) core point is that their is so much randomness and uncertainty in investment results that it is nearly impossible to identify real skill.

So the old Make a Million competitiion promoted risk-blind speculation over short time horizons. The new one takes this several steps further into the irresponsible.

Change Make A Million, save your soul before it’s too late

PSG, Moneyweb, Galileo Capital, JSE, ABSA Capital, Satrix and Deutsche Bank, do the right thing. Change the competition to one that is responsible.

Some interesting ideas for an alternative, less unconscionable competition:

  • Be based on at least performance over a full year (I accept a 10 year competition isn’t viable!)
  • Allow investors to choose a portfolio at the start and NOT trade. (oh, this doesn’t encourage brokerage and adrenalin and excitement? Pity.)
  • Not allow investors to use geared products such as warrants and SSFs. Serious investments in underlying equities only please.
  • Change the prize to be split amongst every investors who makes a return of Inflation + 15% over the period. This way, participants aim to generate very good returns with high probability (this target is still difficult for a real-world asset manager!) rather than go all-out for maximum return.
  • Alternative performance targets could also be offered. Best risk-adjusted return, with risk-adjustment by traditional standard deviation, or downside variance, or maximum draw-down. You could also consider performance relative to the index as a whole, which would prevent scenarios where nearly everyone or hardly anyone wins the prize because of movements in the overall market.
  • Abolish the abominable practice of allowing more than one account, more than one entry, and the ability to re-enter if one’s funds drop low during the competition. What were you thinking anyway?

These are just a few thoughts I had. Virtually anything must be better than what you’re doing at the moment.

Country Foods, mushrooms and still not the Z

Would you lend money to Country Foods Limited? According to the Z score perhaps you should have participated in the listing in October 2007. Based on their prospectus and audited financial results for the year to September 2007, their Z-score was high within the grey zone, within reach of the coveted “safe zone”. As recently as June this year, Business Report was describing their winning recipe.

Now, with complaints of non-payment from suppliers, a resigned founder and CEO, vague comments about restructuring and now a request to be suspended from the AltX. Not an ideal scenario. The Z-score now? Well into the danger zone based on the interim numbers I have.

The cause of the decreased Z-score? Two primary items account for most of the change. First, from Business Report:

In its first-half profit statement it reported that profit fell 96 percent to R219 000 because of a late crop and power cuts.

The second is the share-price and thus implied market value, down from a listing price of 100c to 15c.

So, the Z-score certainly demonstrates consistency with the change in fortunes of the company. To this extent, it is a success. As for the use of the Z-score to manage a turnaround,  the two useful suggestions the formula spits out to the acting CEO?

  1. Increase earnings
  2. Increase market value

Because I know I wouldn’t have thought of that without the Z.

Rating agencies behind the curve

American International Group (AIG) fell by more than 30% Thursday as concerns about Lehman Brothers and the credit crunch deepened. This is in spite of many experts claiming (yet again) that with the Fannie and Freddie bailout the end of the credit crunch was in sight.

Standard and Poor’s response:

On Friday, credit-ratings firm Standard & Poor’s threatened to downgrade American International Group Inc., citing the significant decline in the company’s share price and the increase in credit spreads on the company’s debt.

Increasing spreads and decreasing equity value are both good indicators of a deterioration in credit quality. Moody’s KMV model is based on the “Merton Model” approach to estimating probabilities of default by explicitly considering the market value of assets (typically derived through the market value of equity and debt) and the market implied volatility of assets (also derived through the market implied volatility of equity and the level of gearing).

  • If AIG becomes insolvent, shareholders are unlikely to get anything out of the company. As probability of ruin (insolvency) increases, the value to shareholders decreases.
  • Increases in volatility of assets increases the probability of default.
  • The VIX (Volatility Index) has a strong record of negative correlation with overall market performance, reinforcing the rationale for high volatility being bad for share prices.
  • Decreased equity implies higher gearing. This is often put forward as a possible reason for the equity volatility skew (or “sneer” as some describe the not-quite-smile). Higher gearing implies higher risk of financial distress.
  • As the value of underlying assets decreases, not only the probability of default increases, but the Loss Given Default also increases since there will be less to return to bondholders in the event of default.

Higher yields on corporate bonds imply higher credit spreads. Unless there is reason to believe that liquidity in AIG’s share has dried up (which would increase the spread but not necessarily indicate a deterioration in default probabilities), this implies the market views the bonds as more risky.

So, S&P’s rerating consideration is sensible to the extent that there is clear evidence of credit deterioration.

But if S&P waits for the market to assess these risks then follows several weeks later with a change in rating, what is the point of the rating agencies in the first place?

Don’t use Altman’s Z-score for managing a turnaround

I attended workshop presented by the famous credit analyst and model builder, Professor Edward Altman. He is probably most famous for the invention of the seemingly immortal Z score, which is still in use 40 years after its creation in 1968.

During the workshop, Professor Altman recounted a story about how a company managed themselves out of near-failure using his Z score. I’m not denying the facts of the story, and I’m not even saying that use of the Z-score at this company (GTI Corporation) didn’t help the turnaround. I am proposing that using Altman’s Z-score to manage turnaround would be ill-advised.

Download the full Viewpoint below.

Don\'t use the Z-score to manage a turnaround

5 Mistakes you make when you leave the science out of marketing

Marketing is naively thought to be mostly art and very little science. While it is true that there is are elements of inspiration and creativity and passion involved, the balance of an effective strategic marketing role is heavily in favour of science.

As a further point to consider, I put forward the proposition that much of really great science involves inspiration and creativity in passion in more than equal measures to a successful marketing decision. Newton’s development of the laws of motion and gravity, Copernicus’ solar-centered world, Pasteur’s painstaking experiments to support and understand germ theory are all well known examples of brilliance and flair combined with method and rigour.

But where does science contribute to marketing? Is it possible to reap the benefits of logic and analysis and rigour without damaging the creative process?

The answer is “absolutely without a doubt” for numerous reasons. I will touch on just one in the next few paragraphs to demonstrate the idea.

Introducing analytics

The most commonly thought of analytics when it comes to marketing is customer analytics. Better understanding of customer behaviour, preferences and ultimately buying decisions is enormously valuable. Take what was done in the past, compare the success rates of the different initatives, and stop doing the ones that don’t work.

Any organisation can benefit from understanding what works and what doesn’t, and shifting resources to those functions that work. Good organisations also understand the value of play and experimentation, and will continue to allow an element of trial and error. Truly excellent organisations combine experimentation with analytics to truly understand on a measurable level which experiments work and which should be tossed.

A real life example of the place of analytics

Let’s consider a very specific example. An old university friend of mine has started a new venture with a unique offering that clearly means a great deal to him. He has the passion, and presumably the product, to make his idea a success. He also had the good sense to plug into social networking platforms such as Facebook to spread the word of his new website and associated content. So far we have an excellent platform for success.

Mistake #1: Ignoring pre-existing science and analytical results

However, the design of the website appears to have been performed without understanding the hard, measurable evidence from a range of pre-existing studies and material. The website makes it difficult to buy. A long slide-show intro precedes access to the main page, frustrating regular visitors to the page (the intro cannot be skipped) and severaly damaging the ability of his site to be spidered and highly ranked by search engines.

So several mistakes have been made by disregarding the clear evidence that has been accumulated through analysing customer behaviour on similar projects.

Mistakes #2: Not performing analytics on web page at the outset

An excellent first step in understanding how customers will interact with your sales channel is to watch customers interact with your sales channel. Before a site goes live, invite some representatives from your target market (friends and family will do in a pinch if budget is tight, as long as you are confident they will give honest feedback).

Watch them interact with your website (or other sales and information channel). Where are they confused? Do they ask many questions? You won’t be there in person for most of your customers. What do they say is good, what do they say is ugly. If one guinea pig says something doesn’t work, that could be personal preference. If all 3 or 4 give similar feedback, the scientific evidence is mounting and a wise marketer would make changes.

This can be a very quick and easy, but amazingly valuable way to understand the strengths and weaknesses of your approach. Don’t assume you are just like your customers.

Mistakes #4: Not starting to collect analytics and data from the start

It is so easy to collect useful information, if you plan it in from the start. Once the system is set up and the process is working, invaluable information will flow with every visit, every call, every surf and every purchaser.

Not setting up to collect data is usually the first sign that the marketer doesn’t understand the value of understanding the customer.

Mistake #5: Thinking science cheapens the experience

Perhaps this should be mistake #1. Many people with great ideas feel that their ideas should sell on their own merit. They view logical, analytical understanding of customers to be beneath them. If the product is good, if customers will benefit from purchasing the good or service from you, then you owe it to them to make it as easy as possible for as many as possible of them to effortlessly find their way from oblivious potential customer to satisfied repeat customer.

If your aim is to build the perfect mousetrap, perhaps it is worth finding out what customers want in a mousetrap, where they like to buy it and how they like to buy it.