Here is a true anecdote.

I have a friend who runs a business that helps clients with Search Engine Optimization (SEO). SEO helps websites rank higher in the Search Engine results. A higher rank in the Search Engine results, especially on Page 1, ensures higher traffic to a website and therefore a higher chance of getting visitors to your site and making a sale. Page 1 is prime real estate; on the other hand, they say, you can hide a dead body on Page 2, because no one ever visits it.

And how does my friend do his SEO magic? It is like working backwards. You have to figure out what Google’s search engine looks for and make sure that your website has those things – like proper headings, links, keywords and back links etc. Google Search Engine is like the tax code; because it is complicated to figure out how it works, what are the laws and bye-laws you need professionals like SEO experts or CAs to help you sail through.

So, my friend’s earlier business model was into services; let’s call this business model version 1 (v1). In this version, he used to do projects for client organizations to help them get more traffic into their websites.

In his spare time, he created a website of his own and he wrote a few blogs on them. The aim of this website was to get traffic through those blogs from the Search Engine into his website using SEO (what else) and then redirecting this traffic to partner sites. These partner sites would then pay him for every visitor who purchased their service. This is called affiliate marketing.

So while my friend was busy serving his clients for several months he forgot to check his own website; and it turns out that those few blogs on his website were earning money for him while he was sleeping. Holy cow! In fact, despite ranking on Page 3 of search results (yeah, turns out people side stepped the dead bodies), his affiliate marketing venture was churning out 1 conversion per day. That is, of all the traffic that he was diverting to the partner website, 1 of them signed up for the partner website’s services every day.

So, my friend had a light bulb moment where he said that without much attention the website was doing relatively okay, how much better would it be if he could focus on it? And so, he wound up his services business and started to focus solely on affiliate marketing; let’s call this version 2 (v2).

I was fully supportive of this move because I think it is a big shift from Mediocristan to Extremistan, from a non-scalable business model to a scalable one and more importantly from linearity to non-linearity. So let’s talk about the non-linearity in v2.

Non-linearity aspect 1: If you are a Taxi Driver and you offer 10 rides a day, you have to drive all 10 of them. But if you are an author and you sell 1 million copies of you books, does not mean you had to write all the million copies yourself. You still wrote the book only once. You may recall from my previous blog on Extremistan – Mediocristan, that businesses that exchange time for money have a cap on how much they can do. My friend’s v1 traded time for money and therefore had that kind of a limitation; he could serve only a small set of clients every month. But businesses that are putting algorithms to work have no such upper limit. In my friend’s v2, he was putting the algorithms at Google Search to work for him.

Non-linearity aspect 2: Unlike airline seats or hotel rooms or empty taxis, content is not a perishable inventory. In fact content business is like planting trees. The older trees continue to yield more fruits while the younger trees are maturing. And if you go on planting trees, you will soon have a large farm with many, many trees yielding lots and lots of fruits. But unlike trees, content can stay forever and continue to yield traffic. The effort to write those blogs, like the effort to write the book is still one-time in nature but they can continue to yield forever.

I received a comment on my last blog from a reader that was like this:

Now, I am not a prolific blogger but I found it interesting that my blog even at 70 (blog #70 i.e.) can find new readers. So regular readers can find new blogs, but new blogs can attract new readers and these new readers can discover the old blogs too. And old blogs can continue to attract new readers on their own too. The incremental value of a new blog is more than 1.

Think of the old telephony system. Let’s say there are 10 telephone users. That means each of them can potentially call 9 others or 45 connections in all. If Telephone user #11 is added, then the number of connections goes up to 55. That is 1 additional user adds value more than 1. If Telephone user #12 is added, the number of connections goes up to 66.

I heard that Jeffrey Archer’s first book (Not a penny more not a penny less) was initially a dud. But his second book (Kane and Abel) was a huge hit and therefore sales of his first book picked up. In the digital marketing world, the more traffic a website gets, the more the traffic it will continue to get. Kind of like the rich getting richer while the poor get poorer. Do you see the non-linearity?

Non-linearity aspect 3: Now, it turns out that my friend’s partner website was desperate for growth. And so it communicated to all it’s affiliate Marketing partners that the payoffs for conversions would be non-linear. That is, if 1 conversion per day fetched $ X, 10 conversion per day would fetch, not $10 X, but $40 X!

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So what is my friend’s game plan? Simple; write 1 SEO compliant blog everyday. And chill for the rest of the day while Google’s search engine algorithms do all the work of driving traffic into his website and his website redirecting the traffic to the partner website through links.

My friend who is also a subscriber to my blog would probably say to me – “you think writing a blog, getting traffic and all that is easy?“. No I don’t think it is easy at all. But, why don’t we compare him with him? That is compare his business model v1 with his business model v2.

Did he even have a possibility of increasing his revenue in v1 by 40 X in such a short time? No, way! He was working 8 hours every day; he couldn’t have possibly worked 320 hours every day! But, he could aspire to a 40X growth in v2. I asked my wife if she put in twice the effort at work, could she get twice her salary? Of course not! In fact she said she was already putting twice the effort and still getting paid the same. I have never heard an employee say that before 🙂.

In v2, my friend is trading a small amount of time everyday and then letting the Search Engine algorithms magnify that effort. Like the author who doesn’t have to write a book a million times because the printers are magnifying that effort. A teacher on Udemy or a YouTube influencer has the technology magnifying that effort. If you think of the economic value per unit of effort created by these digitally savvy people, it would be a very high number tending to infinity.

A humble taxi driver has access to no such advantage. Therefore in order to produce additional economic value, he needs to put in additional work. And hence the economic value created per unit of effort tends to be fixed at a small number. And this applies to every profession or business that trades time for money.

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Ever since I read about Netflix paying $500 M to the producers of Seinfeld for the streaming rights, I can’t seem to let go off this idea of non-linearity. And because I am obsessed with this idea, I am seeing this pattern recur in our daily lives.

My next blog would be on non-linearity. Ideally that should’ve been the first blog in this series, but if and when I decide to convert my blogs to a book, I will arrange the chapters linearly. Like I said the last time, I am in the mood to write a book, but I will stop with a blog.

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Cheers!