The previous post attempted to assess the current economic nature of the search market, and the positions that each of its participants were in. The article's conclusion was that the cost of SEO was rising -- and thus a likely disruptor would be one who can lower that cost.

This post will attempt to show that the transaction cost of SEO is simply too high, and so the best way to disrupt the industry is to focus on reducing the transaction cost. Transaction costs are typically reduced by firms that serve as brokers; in other words, intermediaries. So, the thesis is that the most likely disruptor of the SEO market is a firm that can serve as a broker/market maker/platform for the SEO industry. This is ultimately the kind of platform that is characteristic of the term "Web 2.0."

Now, rewinding to the point of this post: assessing the cost of SEO. To clarify, I do not mean cost in the sense of cost of production or final price; I mean cost in terms of transaction cost. In other words, how easy is it to buy an SEO service?

There are four factors that go into transaction cost. The costs, as well as the nature of those costs with respect to SEO, are outlined below.

Information costs. How much information is needed to make an informed purchase? With SEO, a lot -- like A LOT. It is not always clear what the SEO is promising, what they are expecting, and how much the cost will be. Information that is very open in other transactions is obscured in SEO.

Bargaining costs. These are also extraordinary. Pricing SEO can be quite complicated, and there is no standard calculation.

Decision costs. Making the wrong decision can cost a lot. In fact, in some scenarios (like a company being overly dependent upon its existing organic search traffic) it can kill a company. The higher the decision costs, the less likely someone is to make a decision.

Enforcement costs. This one is also high in the search marketing industry. When a transaction is made, who ensures that both parties keep their terms? When bargaining costs can be so high to begin with, enforcement costs can only be high as well.

Who can reduce all four? A broker; an intermediary that can focus exclusively on uniting companies and SEOs and reducing all costs on all four fronts.

The next post will look at some models for how such a firm could be created and introduced into the market.

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