Alexa Ranking: What is it? Does Alexa matter?

If you are a regular netizen and have been associated with the Internet for some time now, perhaps I do not need to reintroduce Alexa to you. Alexa has been there, is still there (in fact with a new look now) & hopefully would remain there for a long time now. Apart from being a search engine (which is powered by Google), it does offer a unique service called "Alexa Traffic Rank". Well, I agree it is not exactly unique, keeping in mind Google offers something in the same line, known as Google PR (or Page Rank), but it is indeed special on its own terms.

Those who are in Indian Media or Indian Publishing industry should be familiar with the terms TRP (or Television Rating Points) and TAM (Television Audience Measurement) or INTAM. These are similar classes of rating mechanism (well of course, for Indian Televison), where different authorities come up with their own benchmarks and technologies of providing ranking.

How does Alexa define the traffic ranking?

Firstly, we need to understand that Alexa's ranking is driven by the fact that it calculates browsing pattern of the segment of Internet population who uses Alexa Toolbar. In other words, the browsing habits of a small portion of the Internet population are monitored through Alexa's client-side installed browser toolbar and then multiplied by the estimated total Internet user population to determine total traffic to a particular website. Want to see a live example? Check the top 100 website from India (as on May 15, 2007).

The story sounds quite reasonable so far. We should be happy now and start some research on how to get a good position on Alexa. Isn't it? But does the above logic really stand strong? Or does it have any pitfall?

Let us go through a scenario:

Assume, out of the Internet population across the Globe (& beyond - if any) 100,000 people are using the Alexa Toolbar. Now, on an average ONLY 1 of them go to your website. Under this situation, as per Alexa's logic, your site will have a pretty pathetic ranking. However, what this rank won't portray is the fact that perhaps every day, you actually have 1000 visitors on your website (and as said before, only 1 out of this 1000 actually has Alexa Toolbar installed). So, from your perspective you will understand that Alexa has a poor Toolbar penetration amongst the Internet population (as only 1 out of 1000 visitors to your site actually has Alexa installed). Whereas, from Alexa's perspective, your site is pathetic, as out of its toolbar user-base of 100,000, only 1 went to your site. :) Now do we get the facts straight?

Does Alexa ranking matter?

In order to understand the importance of Alexa ranking, we need to put ourselves in the shoes of the Internet Advertising fraternity. Assume, you want to place ads on good websites, which has appropriate content and attracts descent traffic. The question here is, how do you validate a site as "good"? How do you know the traffic pattern? How do you get information about its reach to Internet users? The raw server stats can well get manipulated (as the server is not in your control). Right? This is when Advertisers are generally left with no other option but to rely on a 3rd part tool (like Alexa) to measure the effectiveness of potential advertising sites. The logic from the publishers point of view is simple, they are using the same tool to measure all sites. So, be the tool be good or bad, it would affect all sites and the winner will get the deal. Though quite reasonably some will dispute the validity of Alexa Rankin, major advertising networks such as AdBrite and Text Link Ads use Alexa ratings regularly to price advertising on publisher websites. Even in India, the not-so-matured Online Marketing would go by the Alexa ratings before taking a call on setting the price cap on advertisement pricing. I must also add that in India the online advertising industry is still in is infancy and is largely driven by Agencies like Mediaturf et al.
So, end of the day it does mean that you should care about your Alexa rating, and check it regularly! It could well become a deciding factor for your next probable advertiser. :)