Rap Genius’ Dumb Move a Lesson for Smart Investors

Even if you'd never heard of Rap Genius before last week, the news that Google  (NASDAQ: GOOGL  ) made the lyrics-annotation site disappear from search results probably got your attention. Rap Genius was exposed by a blogger for search-engine optimization tactics that Google doesn't allow, trying to come out on top when people search for popular song lyrics online. While Rap Genius is privately held and venture-capital funded, its tale is instructive for investors looking to put their money into online businesses.

Mistakes were made

Rap Genius admits—in an annotatable open letter on its site—that it messed up by sending a blogger a specific set of links (for Justin Bieber song lyric searches) to add to a post in exchange for social-media exposure. After the blogger shared the email online, Google stepped in to investigate and removed Rap Genius' site from its search results.

The site's traffic promptly crashed, and has stayed low ever since:

Quantcast

If Rap Genius depended on advertising for its revenue, this would mean money trouble. But Rap Genius runs no ads, doesn't charge a membership or subscription fee, and doesn't seem to have any source of revenue outside venture capital—Andreesen Horowitz gave the start-up $15 million in 2012. (In a July interview on CNBC, Mandy Drury asked Rap Genius co-founder Ilan Zechory how the company makes money. His response, delivered with a smile, "I'm sorry, I don't understand the question.")

Based on the falloff of traffic, Rap Genius doesn't seem to have a huge loyal following yet, either. According to web info site Alexa, more than 60% of Rap Genius' traffic comes from search results—or would, if the site still showed up in Google searches. And that leaves Rap Genius at the mercy of Google's rules.

In its absence, lyrics site AZLyrics appears at the top of search results for Beyonce, Justin Beiber, and Nas lyrics. AZLyrics, like most other lyrics sites, just posts the words and doesn't allow for annotation the way Rap Genius does. But AZLyrics, which gets 70% of its traffic from search results, does have ads on its site.

'But everybody else is doing it'

Perhaps unsurprisingly, Rap Genius' online mea culpa also accused AZLyrics and similar competitors of dubious SEO tactics, too—even including a handy chart based on search results from Open Site Explorer, which we'll talk more about below. Google hasn't taken any action against the sites listed, but it's a heads-up for advertisers and investors, because Google has shown that it can and will boot sites from its results for underhanded SEO moves.

Investigate before investing

Rap Genius is hardly the first to get on Google's bad side as a result of questionable SEO practices. J.C. Penney (NYSE: JCP  ) was punished by Google in 2011 after the New York Times revealed black-hat tactics that Google's spam-buster, Matt Cutts, said violated his company's policies. That same year, Overstock.com  (NASDAQ: OSTK  ) was penalized for a strategy that included discount-program links from colleges and universities, which Google tends to rate as more trustworthy than commercial sites.

Even Google has been caught off guard. In 2011, it bought UK price-comparison site BeatThatQuote.com. SEO pros had a field day calling out BeatThatQuote's Google guideline violations, and Google had to pull the site from search results. Twice.

An SEO due diligence toolbox

So before you put money into a company that relies on search traffic to generate revenue, or one that spends a lot of money advertising online, it's a smart idea to check their links—and it's easy to do.

  • Open Site Explorer is the tool that the New York Times used to check J.C. Penney's links in 2011. Anyone with a free account can check a site's external links to see if they're from valid, on-topic sites or from off-topic, foreign language, or abandoned URLs. (For instance, an auto site with lots of external links from handbag sites or Ukranian dating sites should raise questions.)
  • Majestic SEO, which also requires a free account, creates site link profiles that let you compare citation and trust flows. According to Brian Dean at Quicksprout (where he posted a video tutorial for assessing Google penalty risk), if a site's trust flow score is less than half its citation score, that's cause for caution.
  • Ask the company about its SEO practices and linking strategies before you put your money into it.

Google's SEO rules are always evolving as companies try new strategies to boost their search rankings. And investors have plenty of other data to consider before making a move. But it's worth taking the time to scope out the links and trust flow of any company you have a position in or are thinking of buying. That goes double if the company is in a crowded niche that depends on ad revenue and on search traffic that, if generated the wrong way, could disappear overnight.

Way better than Rap Genius

Earlier this year, Rap Genius cofounder Mahbod Moghadam started a bizarre feud with Warren Buffett. We'll side with the Oracle of Omaha. 

Warren Buffett has made billions through his investing and he wants you to be able to invest like him. Through the years, Buffett has offered up investing tips to shareholders of Berkshire Hathaway. Now you can tap into the best of Warren Buffett's wisdom in a new special report from The Motley Fool. Click here now for a free copy of this invaluable report.


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