Yes. You can lose 30%, 50%, 70% of the traffic, it’s not uncommon. And if you use black-hat methods, you can lose even 100% of the traffic.
If you are a first-time buyer and have no SEO expertise to do proper due diligence, you are almost certain to find trouble. In such a case, you are easy prey for those who sell websites “built to sell fast”. Some sellers optimize the website to get a quick boost using gray-hat methods, which are effective as soon as Google hasn’t learned yet to detect them.
Moreover, any website can lose traffic to its competitors. Not even such giants as Facebook or Google are secured against it. This risk is the reality of online business – and as with any risk, there are proper risk management tools to deal with it.
Can SEO optimization put your website at risk?
Investors ask us this question very often.
To answer it, we need to explain the model first and come to common terminology. This question is structurally similar to “can eating food put your health at risk”.
1. Align your purpose with Google’s purpose to be successful in the long term
Google optimizes for what is best for people. If you produce great content and do not engage in gray hat SEO (do not try to mislead Google), you have nothing to worry about in the long term. If yours and Google’s goals converge – specifically, to bring unique value to the end-users, sooner or later, you will win over those who invest more in gray-hat techniques than they invest in creating value.
2. Diversify to cancel out the fluctuations in the short term
In the short term, there will be fluctuations (for example, we lost about 10% of the traffic when Google stopped displaying FAQ sections in snippets, and someone else has won that traffic), but these fluctuations will cancel out if the portfolio is large enough.
If we have 10+ unrelated websites in different niches with different types of content, promotion, and monetization models, it’s highly unlikely that they will all magically lose traffic altogether. I love this video from Ray Dalio; 15-20 uncorrelated assets will improve the returns-to-risk ratio by a factor of 5.
3. Know what SEO is preferred by Google, and manage the risks of the non-preferred SEO
In essence, SEO consists of two parts: internal optimization (having correct titles, descriptions, interlinking, a fast website, etc) and external optimization (building citations, or “backlinks”).
Google loves internal SEO, and it has mixed feelings towards external SEO: it is urged to rely on the backlinks to determine the authority of the website, but it hates when we pay for the backlinks. Quote from Google: “Additionally, creating links that weren’t editorially placed or vouched for by the site’s owner on a page, otherwise known as unnatural links, can be considered a violation of our guidelines”.
Yes, it is possible to build links organically by contributing useful content to trusted media and by PR activities – for example, check Le Bijou coverage (Bloomberg, Forbes, The New York Times, etc), and this is what we do in our proof-of-concept team. Quote from Google: “The best way to get other sites to create high-quality, relevant links to yours is to create unique, relevant content that can naturally gain popularity in the Internet community. Creating good content pays off: Links are usually editorial votes given by choice, and the more useful content you have, the greater the chances someone else will find that content valuable to their readers and link to it.”. The bad news is, Google has no means (and will never have) to distinguish between editorial and sponsored content.
Therefore, an investor should not take Google’s guidelines for the actual rules of the game, which they are not. A business that considers the possibility of violating Google’s guidelines as its core risk will find itself at a huge competitive disadvantage, as it will, not without a surprise, realize that Google not only lacks the means to enforce the guidelines, but also struggles to detect the violations, rarely reacts to clear black-hat SEO techniques even if reported directly, and does not guarantee that it will not penalize a business that uses only organic link-building. There is no mechanism for transparent conflict resolution and the definitions given in the guidelines are vague. The algorithm constantly changes, oftentimes, clearly rewarding the websites that practice everything except what the guidelines suggest.
Google can’t determine if the links were paid for or generated “naturally” (as Google has no means to determine if a financial transaction has actually happened, and will check other proxies instead – for example, how many outgoing links does a donor website already have – which we can check, too, before purchasing a link). Also, the definition of a natural link is vague – what if we asked a blogger to review us for free? What if we contributed our quotes to his article? What if we wrote 10%, 50%, or 100% of his article, and he liked it and has published it for us? Were links in those articles editorially placed? And what if we pay the media to “editorially place” the links on our website?
Therefore, we may conclude, that at this point the guidelines serve more for increasing the profits of Google itself, which is interested in cutting the expenses on algorithm improvement, rather it serves to maximize the profits of content producers.
Hoping that others will quote your website just because “it is good” is a strategy that leaves you at a competitive disadvantage. Being successful in the ecosystem takes understanding the actual rules of the game. Most of the competing websites, small and large, including those run by such companies as Red Ventures (worth over $2 billion), Future PLC (over $3.56B in market capitalization), and even The New York Times (which purchased The Wirecutter) are purchasing backlinks. There is obviously nothing illegal in purchasing links, it is just something that the ecosystem participants are obliged to do to get traffic from Google.
The proper framework to think about link-building
Choosing a link-building strategy is nothing else than risk management.
There are several “100%-organic” link-building strategies are essentially leading to getting natural links, by any definition. These strategies are PR, non-paid guest blogging, or suggesting renowned media your materials as research sources.
Some other lightweight strategies are essentially the same as the previously mentioned strategies, but they include financial incentives. These lightweight are indistinguishable from the “100%-organic” strategies for any external observer but are much more financially efficient.
On the other side of the spectrum are black-hat SEO strategies, such as getting links from websites that were hacked, and gray-hat SEO methods, such as creating PBNs (private blog networks; some webmasters “resurrect” abandoned websites to link out from those to their own websites, and thus pass some of the domain authority).
Within certain industries, such as betting, dating, and adult websites, gray-hat SEO is a norm. The owners launch dozens of websites every month, apply the same old methods, and hope that at least one website will survive. This is their business model.
And in the middle of the spectrum sit websites that just massively get links for money. Google aims to discover the sponsored links and make sure that they do not impact the search rankings.
Google has an algorithm that helps it to see which links were likely purchased for money, and which links are likely organic. It checks the other links that the donor has placed, their relevance, and the quality of the destination websites. Therefore it can spot some of the paid links, but it also is likely to misfire, therefore discarding some of the purely organic links. As soon as Google can’t verify if a link has been incentivized (by money, or other benefits), and it is impossible in principle, it can not tell for sure if the links are organic, and therefore it can not in principle penalize websites for having links that “look not organic”.
There is only a penalty for creating PBNs (explained above) and other clearly black hat techniques. The penalty is reversible – you have to just stop using those techniques, and you can continue promoting your website, however next time, only using white-hat methods. If you purchase links, especially from websites that sell links inconsiderately, you risk only that the links will be discarded by Google (thus you will lose the investments in the specific links), and also experience volatility – the loss of the traffic that has been supported by the links that are now discarded.
Summarizing this part, we state that if a website is looking to maximize profitability, it should invest in white-hat link-building, while making sure it’s indistinguishable from non-paid link-building. As soon as there are no irreversible penalties, there is a lot of room for creativity. The more aggressive is the link-building strategy, the more volatility in terms of traffic and revenue should a business expect. The businesses that use conservative link-building and bring a clear value to the end-users however enjoy a steady traffic growth, only occasionally shaken by inevitable updates.
The more diversified is the portfolio, the more will the differences even out – as if one website loses traffic, it only means that someone else has now received it. If you own a dozen of different websites which use different strategies, you will have both winners and losers after every Google update. As investors, we can not control the updates, but we are completely in control of how vulnerable we are. If you hold three affiliate websites with different sources of monetization, three marketplaces, and three media websites monetized by ads, you are not likely to experience huge volatility, if any.
Putting things in perspective: Affiliate websites vs FBA business as an investment
The smaller websites we look at trade at around 3x EBITDA. Larger businesses with over 1M in EBITDA trade for 11x. And the companies that acquire the latter to meet their growth projections are valued at 40x EBITDA or more.
This represents a window of opportunity for both investors like us, looking to apply the aggregation strategy in order to profit from the multiples increase, as well as for investors simply looking for cash flow.
The closest type of assets that offers similar profitability, scalability, ease of management is Amazon FBA stores. There are large investors (Thrasio, $1.75B in financing) who purchase and run them for profit or refurbish and flip further up the chain.
We invested in several FBA stores to test our hypotheses and formulate our opinion. As the store operations happen in the physical world, in contrast with the fully virtual operation of affiliate websites, we had an added source of volatility that comes from the instability of the manufacturing and shipment processes.
While the larger business has more leverage and thus more stability over the distribution channels, logistics and manufacturers, the smaller business should generally fit themselves in the terms provided by the larger players.
One of our FBA stores with 300 SKUs had a one-week store-wide service disruption, caused by a mistake on our side in copywriting following by an overreaction from Amazon and a lengthy process to resolve the issue. We also were close to having one or another store blocked, three times in 12 months, as a result of customer complaints. On top of that, our private label products were repeatedly counterfeited, which hurt sales, especially during the 7 most valuable days of the high season.
As an investor, we were not confident keeping our capital in stores that can be temporarily blocked or irreversibly deactivated by the support department, which, roughly speaking, does not have an MBA-level people resolving the sellers’ questions.
Compared to FBA stores, affiliate websites do not have the source of volatility that comes with supporting physical operations. Unlike operating an FBA store, human effort is not necessary for the day-to-day operations of an FBA website. Affiliate websites do not have a counterfeit problem, neither are they likely to be blocked due to an overreaction from Google’s side or a handful of complaints.
1. Google provides guidelines, not rules of the game. They are vague, unenforceable, and unstable. In no way can a business strategy make compliance with them its key priority.
2. Instead, you should understand what actions lead to what consequences, overall in business and in SEO in particular, and properly manage the risks; otherwise, you will stay at a competitive disadvantage
3. Can you lose traffic? Yes, if you intentionally do a black-hat promo. Otherwise, you’re likely to experience 10%-50% volatility during each update (usually once or twice a quarter), depending on the quality of your links.
4. The traffic doesn’t disappear from a website; if one website loses it, another one gets it. There are the winners and losers in each update; make sure you own at least 10 websites with different business models and verticals.
5. Be on Google’s side, when it comes to focusing on creating value to the end-user
Looking to buy an asset? Feel free to contact us and get a second opinion.