Friday, August 18, 2006

Alexa as a Research Tool

Most readers are familiar with Amazon's Alexa website. It tracks Web traffic at various sites and offers rankings as to the popularity of those sites. Thus, a site that has a ranking of 100,000 is the 100,000th most visited site on the Web. The Alexa toolbar can be downloaded so that you see all the rankings of sites you visit (as well as user reviews; Alexa rates Websites like Amazon rates books). It also enables your visits to register with the Alexa rankings.

A little while back, Random Roger passed along a post regarding Alexa as a research tool. The idea struck me as interesting. Alexa, to be sure, is not a perfect methodology, as James Altucher recently noted with respect to the Alexaholic site. One site owner passed on to me some strategies for manipulating the rankings by bombing target sites with visits; I also know from the relative rankings of my two sites that the ratings imperfectly correlate with actual logged visits. Still, the growth in visits in my sites has correlated with rises in the Alexa rankings, leading me to believe that the methodology has some merit.

Above, for example, we see the long-term Alexa rankings for the site. There is a cyclical pattern to visits, but not a significant downtrend as one might expect, given the weak residential real estate market. Visits definitely tend to wane in the last quarter of the year, perhaps reflecting the hesitance of families to move after the school year has started and winter is under way. Mid 2003-early 2004 represented a high water mark for visits; late 2005 through 2006 has been relatively weak. One possibility: it's a glut of supply and not a significant waning of demand that is weighing on the housing market.

Dell's site shows a different cyclical pattern on Alexa, with visits spiking toward the end of the year. This, presumably, is attributable to holiday season gift buying. There is an overall positive trend to the visits from 2002-2006, with big spikes at year's end in 2004 and 2005. Thus far, 2006 visits have dipped below the levels seen in 2005. One research application: monitor Alexa carefully as we approach holiday season to see if the expected spike materializes.

Still yet another application: Not only has there been an exponential growth of trading blogs, but the Alexa traffic to those blogs has expanded significantly. Go to Alexa and check out, for instance, the traffic to the Seeking Alpha site. Like many established sites, it went through a parabolic rise into early 2006 before settling back a bit. This may in part be a function of the Alexa methodology, which presumably (like Amazon) weights recent visits more highly than past ones in generating rankings. Nonetheless, the growth across multiple blogs is impressive: this is becoming a major form of publication in the financial world.

Take a look at the list of market blogs included in Ticker Sense's poll. I'm in the process of assembling a composite Alexa index that includes many of these sites, so that we can track overall traffic to the trading blogosphere. Will traffic vary with market conditions? Will jumps and declines in traffic correspond to increased/decreased public participation in the markets? These are a few of the issues that we might investigate with Alexa, as well as with blog search engines such as Technorati.