Running and Chasing -- The Competition between Paid Search Marketing and Search Engine Optimization

Abstract

As search engine is leading the revenue growth in online marketing field, the competition of search engine marketing between paid search marketing (PSM) by search engine providers (SEPs), and search engine optimization (SEO) provided by search engine optimization firms, is white-hot. While PSM is simply for advertisers to buy the top ranks in sponsored links, SEO tries to optimize advertisers' websites by free-riding search engine's organic searching results. This study aims to investigate this competition by analytical modeling regarding organic search quality. We focus on sustainability conditions of SEO firms, investment analysis of SEO firms, and profit analysis of SEP. We find that a search engine advertising market is led by SEP, and the competition between PSM and SEO is a game of running and chasing. Specifically, better algorithm effectiveness of search engines promotes profitability of both PSM and SEO, and algorithm robustness of search engines negatively affects the survival of SEO firms in the market.