Posts tagged ‘Barriers to Entry’

If You Give a Mouse a Cookie..

Does this sound like you? You have heard of cookies on computers. You may have heard something about deleting them and preventing websites from putting them on your computer, but when you did that, you found it very difficult, if not impossible, to effectively navigate the web. Then you resigned yourself to being cookied because you didn’t know what else to do. So what are cookies? And why do we have to have them? And how are they relevant for selling online?

What are cookies?

Cookies are simply small text files placed on your computer by a website that you are visiting (or may not be, as we will learn) that store information about you on your own computer so that it can be accessed later. This is how the computer “recognizes” you when you return (or when you visit other sites affiliated in some way with the website you visited). If you delete these cookies, then the website(s) will not know you when you visit again. Since nearly all ecommerce websites these days will place cookies on your computer, how your browser handles cookies will affect your use of these websites.

The Good, the Bad, and the Really Ugly

Cookies were “cooked up over a weekend [by Marc Adreessen and Vint Cerf] … because there was no way to do a shopping cart”.* They learned that if a website could put a small file on the customer’s computer with an ID that would help identify the customer for the entire visit to the site, then shopping would be easier. The cart would remember all the goods placed in it by that customer ID while the customer shopped. While this idea created convenience for customers and eliminated a huge barrier to selling online, it also created a doorway to potential privacy abuse that is still being debated today.

Cookies can be classified in several ways. One such way is to identify cookies as permanent or temporary (session) . Permanent cookies remain on your computer after you leave the website that you were visiting. Whether they remain there a week, a year, or forever, depends on whether or not the website puts an expiration date in the cookie. However, cookies are not required to have an expiration date. When you return to that website at a later date, the website will search for its cookie and learn information from your last visit, such as the date and time of your visit, your IP address, and various browser and computer information (such as the version of your browser, the resolution of the monitor you use, etc.). The cookie may also be used to store user ID and password information, as well as, surfing habits and interests. This information may be matched with the site’s own transaction log of information that it has for you on its server, such as your preferences, clickstreams, search terms, purchase history, etc. In this manner, the website develops a “user profile” for you. How the store uses this information is at the center of the privacy debate today.

Temporary, or session, cookies are deleted when you close your browser. These cookies may or may not require you to log in to a site, but they are necessary to help you navigate page to page. For example, you may desire to add goods to a cart and then continue shopping. Because of the session cookie, the site remembers items that you place in the cart. Or perhaps the site remembers you as you move through pages on forums and other social network sites.

Cookies are also classified as “first party” or “third party”. First party cookies are placed by the websites you visit and convey information only back to them. They cannot be read by other websites. One particularly nice pro is that you do not have to remember login information at many of these sites. For example, I don’t have to “log on” to the Wall Street Journal web site when I use my office computer to access it. It remembers who I am automatically. Cookies, themselves, are simply text files. As such, they cannot collect and relay private information from your computer back to the site. While this is convenient, cookies placed on my computer can store data that can be matched up with my e-mail address, phone number, and possibly my home address (if I enter personal information into a form on that site). As a note of reference, many websites will offer contests, giveaways, contact us pages, registration forms, etc., which allow them to connect your personal information with your online behavior. Then you can be targeted for email, telemarketing, and junk snail mail. While many consider that clever marketing, I would call it a hidden mouse trap. Please note that not all contact us forms and contests have this aggressive marketing intent in mind.

Third party cookies are placed on your computer by an outside website. These are common with advertising sites and affiliate programs. When you visit a site with advertising, the advertising company may also place a cookie on your computer. Then, when you visit another site that displays the advertising company’s ads, it will know more about your interests and display an ad targeted directly at you. E.g. if you visit a photography site one day and then later visit a furniture store, don’t be surprised if you see a banner advertising cameras. It’s not fate or coincidence. It’s marketing! Suppose you visit the website of your favorite movie and then click through an ad to buy the DVD which takes you to This likely means the website was part of an affiliate program. The website will get a cut of your purchase, and Amazon has found a way to track your interests and purchases based on sites you visit other than its own. Because third party cookies provide the greatest potential to exploit your online behavior, they provide a greater risk to your online privacy and security.

While cookies themselves are harmless text files, it is the websites that read them that provide the problem. The debate centers around what websites do with your private information and how securely they keep it. Congress recently sent letters to 33 companies asking what they do with the information they collect from customers. Most will claim that the information is used to provide a better shopping, search and advertising experience. Yahoo sends the customer targeted ads based what on they believe are the customer’s interests as derived from their online behavior. You can actually “opt out” of receiving targeted ads from Yahoo through their privacy page. (Note it doesn’t mean that they aren’t still collecting information or that they won’t show ads – just that the ads won’t be something that you would more likely be interested in seeing.) Google replied that it prefers to place ads to the consumer based page context information. Thus, the Google ads that you see on this site “should” be based on the context of this article or previous articles. For example, Google believes that you are reading this because you have some interest in Internet privacy. If not, then the ads might have been about golf tours or Elvis Presley albums – which may show up because I mentioned them in this article. Microsoft already allows you to turn off targeted ads.

So what is the economic relevance of cookies? (These lists are not meant to be all inclusive.)

For the consumer, cookies:

-Allow consumers to personalize their online shopping experience by stating their preferences.
-Allow consumers to navigate through a website without multiple logins.
-Allow consumers to mainly see relevant advertising.
-Allow consumers to participate in Web 2.0 activities.

For the online seller, cookies:

-Allow the seller to get to know their consumers and therefore provide a more relevant shopping experience.
-Allow the seller to target consumers who are most likely to want to see their advertising.
-Allow sellers to see what pages of their sites are relevant to consumers and which ones they can eliminate.
-Allow the seller to know the locations of the consumers, the ratio of new and returning visitors, what technology the consumers use, etc. (E.g., I recently increased the width of a web site after learning that better than 80% of the viewers had browsers capable of handling it without a horizontal scroll bar.)
-Allow the seller to fully implement Web 2.0 strategies.

How will these relate to later topics we’ll discuss?

Cookies allow for clickstream tracking which identifies individual tastes, preferences, and online behavior. This allows for targeted margeting and “personalized” pricing – both of which are viewed favorably and unfavorably. Cookies also carry the potential for security and privacy abuse. Despite the potential for unfavorable results, from an economic standpoint cookies increase the efficiency of online sales, search, advertising, and communication whose previous inefficiencies had provided a tremendous barrier to online retail sales, or e-tailing.

*, Marc Adreessen: Past and Present, Video interview of Marc Adreessen by John Battelle, May 2008

Bibliography and Other Reading:

Energy and Commerce Committee Questions Data Practices of Network Operators, August 1, 2008,

Google’s Response to the Energy and Commerce Committee,

Spyware, adware, and internet cookies. What’s Good and What’s Bad. Privacy and Removal Tips and Help,

“Yahoo’s Response to Congress on Targeting May Not be Enough”, Heather Green, Business Week, August 8,2008,

Article Farming - Food for Search Engine Optimization

While researching topics for the course that accompanies this blog I noticed a disturbing trend. I use Google Alerts fairly often to get practical applications of topics that I want to present. However, I noticed that I was coming across an abundance of low quality short article posts on various topics. Many of the them began with titles like the “Top 10 Reasons…” or “The Top 7 Ways…”, etc. Others were short how-to articles. Often the same article could be found on different web sites. Many were laden with spelling and grammatical errors. Most were replete with advertising. Eventually I began to see through the fog known as article marketing. I ran across ads for freelancers to write blog posts – by the hundreds. I found volume discounts offered to companies who purchase large numbers of articles written by bloggers. What is this strange market and from where did it come? For every good idea created on the Internet there is a market to exploit it, and that is fine. As an academic, the origins of this market seem to have come from a source surprisingly close to home.

Origins of article farming

I believe the origins of what I call “article farming” on the Internet, otherwise known as article marketing, has risen with the advent of Google’s PageRank and other determinants of SERPs (Search Engine Results Pages). An anonymous author on Wikipedia suggests these origins go farther back. This author suggests that it has been common practice over the years for newspapers, magazines, etc., to accept “How To” articles from companies in exchange for acknowledgement of the company’s authorship. This provides free content for the newspaper and free advertising for the company - an arrangement that works out well for both parties. However, this would not entirely explain the watering down of content that is occurring on the Internet. In our non-Internet newspaper example, poor content would lead to lower sales of newspapers and thus would not be tolerated. There must be more, and I believe the explanation lies in search engine optimization. On the Internet, positioning in SERPs, or Search Engine Results Pages, can make or break a small business selling online. Participating in the market for articles is a way to achieve better positioning. To see, let’s look at the idea behind PageRank.

PageRank is an algorithm used by the search engine Google to rank websites in its search results. Craven explains the mathematics behind the algorithm*, but more interesting to me is the philosophy behind it. This is explained in amazing intuitive detail using laymen’s terms in Battelle (2005). Battelle tells the story how Larry Page and Sergey Brin developed the PageRank concept (named after Page) and the early Google search engine as part of a graduate school project at Stanford. Being in academia, they had a pretty good understanding of the concept behind publishing in academia. Professors gain recognition by publishing in leading peer-reviewed academic journals. The higher the journal ranks and the more citations from ranking journals that an article receives, the more important the publication. Page and Brin developed PageRank based on this concept. A site’s “peer review” was assumed through the quality of sites that find it worth linking to.

Page and Brin sought through PageRank to reduce the ability of spammers to rise to the top of search engines and to provide more relevant results. They built in the importance of backlinks into their search engine. E.g., let’s say that your site is Site A. A backlink is a link from another site (Say, Site B) that links to your website (Site A). A backlink would be the equivalent of a vote for your website. (Likewise, your vote for Site B through linking to it is its backlink.) In other words, the more websites that linked to a website, the more important that website must be. But they didn’t stop there. That concept would be easily manipulated – just get lots of folks to link to your website. Instead they built into PageRank a way to rank the backlinks such that higher ranked websites that link to a website have more weight than lower ranked websites that link to it. So a website’s position in Google’s search engine results depend, in part, on the quantity and the quality of sites that link to it. PageRank is also affected by sites a website links to, as well (so be wary who you link to, as well as, who links to you). So on the Internet, site relevance is, in part, determined by the number of votes a site receives through links to it, as well as, by the company it keeps through sites to which it links.

So how does PageRank lead to article farming? An author writes an article rich in keyword content and posts it in an article directory, a website that specifically hosts articles for dissemination. The article contains a resource box which contains such things as the article’s author, the author’s company, and a link to the author’s website. This creates a backlink to the author raising the author’s site’s PageRank. The article directory places relevant ads on the article giving it some advertising revenue while also increasing its content (which raises its position in SERPs). A company that uses the article places the article on their own site creating new content (which raises its position in SERPs), as well as, creating a backlink to the article directory further raising its PageRank. So it’s a win-win situation for all, right? Not so fast.

The market for articles – or keyword rich content

This is a classic example of supply and demand in a very competitive market with very low barriers to entry and exit. As I see it, two closely tied markets have developed which could be seen as part of the infamous “circular flow” diagram. First, there is the market for articles and second, there is the market for resources to produce the articles.

The supply for the market for articles is produced by freelance bloggers building a name for themselves, companies trying to get their websites noticed by search engines by providing “advice”, stay-at-home workers earning a little money on the side, etc. The main barrier to entry is knowing how to market yourself online and the reputations of established bloggers. Often these articles are supplied to the market via article intermediaries, otherwise known as article directories. The main requirement for the articles is that they be rich in popular keywords or search terms.

The demand for the market for articles are time or expertise strapped companies looking for new keyword rich content to produce a steady flow of traffic to the site. SERPs change often, so fresh content helps a company maintain, as well as, raise their positions in online search results. Companies will seek articles from article directories or hire writers to create content.

In researching this article, I came across advertisements requesting authors’ services and selling authors’ services. The market price for keyword rich content is relatively low. In many cases, articles are provided for “free” as authors build reputations for themselves or their sites. The going rate for services seems to be anywhere from $10 to $50 per article, and of course, this depends on the length of the article and experience of the author. If an author is really good he/she may break out of the article farming mold. Some sites offer volume discounts to companies purchasing articles. 1-5 articles may be $45 per article, but 8-10 may be $35. Small companies hoping to build page rank need lots of articles at low cost. They can get these articles for “free” from article directories if they are willing to accept the advertising terms. The article directory is getting advertising revenue which increases with the number of articles they support and their ranking in SERPs.

The way I see it, this market produces more articles, less pay per article, and lower quality work per article. The market is being flooded with blog/article posts. One website boasts “We are looking for expert Freelance Bloggers who can write on any given topics with little research.” A major health magazine advertises “magazine for work-at-home writers / bloggers – anybody interested in writing about health, even casually, with no experience required.”

As I write this article, I am aware that my opportunity costs rise with each article per week that I put together. To write more for industry, I would demand higher pay per article – which is why I would never make it in the business. Serious writers will likely move on to other writing venues rather than continuing to participate in this market. The market does provide a good opportunity for less experienced writers with lower opportunity costs. As such, the market appears to be quite oversupplied leading to low priced, low quality articles providing content largely to fool search engines into thinking the site has more relevance than it actually does – article farming.

So in the end, this is likely a win-win situation for many of the parties involved. The potential loser is the consumer searching for information who will increasingly find low quality information available for free on the Internet. In this case I remind the consumer, you often get what you pay for, and this free lunch may leave you a little hungry.

*If you would like to play with the PageRank algorithm, try Google’s PageRank Calculator from WebWorkshop. To calculate your website’s PageRank, try this PageRank Calculator.

Articles Cited and Further Reading

Article Marketing,

“Google’s PageRank Explained and how to make the most of it”, Phil Craven,,

“The Anatomy of a Large-Scale Hypertextual Web Search Engine”, Sergey Brin and Lawrence Page, 1998,

Batelle, John. The Search: How Google and Its Rivals Rewrote the Rules of Business and Transformed Our Culture, Penguin Books Ltd. 2005.

Common Article Directories:

Examples of Authors for Hire Sites:

Tips for Authors for Hire

11 Skills That A Freelance Blogger Should Have,Raj Dash, March 9, 2008

“Problogging Tips: Get Smart, Leverage Your Research”, Raj Dash, March 6, 2008

“Freelance Blogging for Side Income: My Top 10 Tips”, Skellie, Feb. 26, 2008,,