Visibility-at-Risk: An Approach to Measure a Firm’s Risk of Losing Visibility in Organic Search
Authors: Christian Doppler (McKinsey and Company), Gabriela A. Werb (Chair of Electronic Commerce, Faculty of Business and Administration, Goethe-University Frankfurt) and Bernd Skiera (Chair of Electronic Commerce, Goethe-University Frankfurt)
Title: Visibility-at-Risk: An Approach to Measure a Firm’s Risk of Losing Visibility in Organic Search
Abstract: Organic search clicks already constitute the most important source of online traffic for firms in several industries, such that a loss of visibility in organic search may severely affect a firm’s ability to generate profits. We propose an approach that uses a value-at-risk model to estimate a firm’s risk of losing visibility in organic search results, with the aim to provide insights into its size, heterogeneity and economic consequences. Half of the firms in our sample of more than 1,000 firms face a 5% probability of losing more than 55% of their visibility within one year. This result suggests that many firms that rely on organic search clicks to drive traffic to their domains have a considerable risk associated with their future profits. Our estimates also reveal that the risk of losing visibility is highly heterogeneous across industries. A backtesting analysis with out-of sample data suggests that our developed risk measure, Visibility-at-Risk, is a valid measure for the risk of losing visibility in organic search results. Finally, our results outline that changes to a firm’s visibility index have significant and prolonged effects on profits. These results have important implications for managers and investors.