One of the recent fads is to search for keywords and niches based 
on an R/S Ratio.  The 'R' is the number of websites found with 
that keyword as reported by a search engine search (the supply), 
and the 'S' is the number of searches on that keyword (the 
demand).  


Here is How This Works

In fantasy land the number of searches would be 100,000 and the 
number of websites would be 1 (your website), resulting in an R/S 
ratio of .00001. 

In reality, the number of found websites is about 1,000,000 and 
the number of searches is 10,000, resulting in an R/S ratio of 
100. 

Theoretically, the lower the ratio the better, which is why 
numerous marketers suggest that low R/S ratios be searched for 
and then targeted.  Keywords with high R/S ratios are immediately 
discarded. 


Why the R/S Ratio is Meaningless

Theoretically, the ratio works, but now let us get back to the 
real world.  If you are ignoring keywords or niches with high 
ratios you are missing highly profitable markets. 

The number of websites reported as the 'supply' is usually 
meaningless.  This is why the ratio does not work if it is based 
on the number of computer generated results.  So Google says it 
found 10,000,000 other websites with your keyword.  Hope is not 
lost.  You are not competing against 10 million websites.  Hardly 
any of the websites will have anything to do with your target 
market. 


Compare the following:

Example 1

Search results	 - 100,000
Searches - 10,000
R/S Ratio - 10

Example 2

Search results - 5,000,000
Searches - 100,000
R/S Ratio - 50


Which example is potentially more profitable?

You have no way of knowing!  If you automatically fail to 
consider Example 2 in your marketing efforts because it has a 
much higher ratio you may have made the wrong decision and 
discarded 100,000 potential customers. 

You need to actually review the websites listed in the search 
results to see what value they hold.  This is important.  The 
'supply' side of the equation that needs to be evaluated is not 
the number of websites containing your keyword, but the number of 
websites that are actual competitors. 

If the top websites are giving away your information for free, 
like government sites, then maybe it is time to find a different 
keyword to target. 

But more likely you will see only a few, or maybe a few dozen 
websites that actually provide meaningful content or products 
that compete against you.  Instead of a theoretical 5,000,000 
websites, in reality there may only be 50 - or less. 

The R/S ratio analysis is also primarily only important for 
natural search engine results.  Through pay-per-click programs 
you can jump your website to the top of the search engine results 
page, and your competition for PPC keywords will be even less.  
Sometimes it will be nonexistent. 

You also need to remember that a high R/S ratio in Google may not 
be high in Yahoo, 7Search, or another search engine.  Similarly, 
keywords for which bidding competition is fierce on Google may be 
wide-open in Overture.   

As a result, do not be quick to disregard an entire keyword 
market due to your initial evaluation that the keyword has a 
terrible supply and demand ratio.  Dig a little.  Review the 
actual search engine results and act as a potential customer to 
better assess what the real competition is.  Compare different 
search engines, and evaluate different PPC programs.  This extra 
effort will often unveil profitable markets that your 
competitors, using a flawed analysis, will neglect.