No doubt the comments to Rand's post will reveal many reasons for this differential, but here are three that spring immediately to mind:
1. The perception that people click on natural search results when they are seeking information, but on sponsored search ads when they are ready to buy. This presumption certainly justifies proportionately greater spending if it's valid. I suspect that just the opposite may in fact be the case, but don't have sufficient data to back that up.
2. The "media cost" is inherent in PPC. Companies can spend very similar amounts for SEO activities and SEM program management--in fact, they can even spend more on the former than the latter--yet still have much larger budgets for PPC than for SEO. That's simply because PPC includes a "media cost" of paying for the sponsored search clicks from Google, Yahoo, MSN, or another search engine.
3. PPC is applicable to a broader set of search terms. Some terms (most commonly one- to three-word search phrases) are simply very, very difficult to SEO for, either because they are highly competitive, very common, or ambiguous. With SEO, you can spend a lot of money to try to rank well for these terms yet still end up with disappointing results. With SEM, you can guarantee your site will appear, then control total costs through day-parting and geo-targeting.
It's also very difficult to show up well in the natural search results for a competitor's brand name. PPC not only gives you a spot on page one for these phrases, it lets you customize the message (e.g., "consider the more cost-effective alternative").
The bottom line is that SEO is both more effective and less expensive than PPC, which makes it a no-brainer for any website.
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