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According to the Efficient Market Hypothesis, an Efficient Market is “informationally efficient”, meaning that the price of a good reflects all known knowledge. The internet as an Efficient market would be a very different place.

Previously I did a quick post on the Cost of an Efficient Market about PPC and the changes wrought by the Yahoo and Microsoft deal. When I wrote this post, it was with the assumption that those in the market will structure their bids around maximising profit per sale or lead. Another assumption was that there is a value in bidding for brand value.

A truly efficient advertising market would be dominated by those who can justify spending the most money per impression, either through a high perceive value of an impression or through a reasonable rate of click through and profit per sale or lead. In an Efficient Market, no-one is getting a deal and no-one is getting ripped off.

For both sellers and those in the arbitrage market, and efficient market would have a negative effect. There is a lot of value in SEM in finding queries that are undervalued or are not very competitive. In an efficient market, this would no longer be possible. An efficient market would favour those selling the traffic over those buying.

An Efficient internet advertising market where the value of branding is inflated is even better for the seller. An inefficient advertising market with an efficient market value on branding however would favour those buying on cost of acquisition.

For bonus points, if you agreed with that last sentence I have one more question; do you know you are making an assumption regarding the value of branding? If you are not aware, well you are, if you are, where did it come from?

I have a web background firm rooted in the pursuit of the best possible conversion ratio, so I know where my prejudices come from. Where do you get yours?