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What is SEO? What is SEM? Which one should I choose?

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This answer to this can be found on Google AdWords FAQ The answer is copied below as I could not say it any better myself.

Search engine optimization (SEO) is the process of adjusting a website to improve its visibility in search engines under the natural (a.k.a. unpaid or organic) search results.

Search engine marketing (SEM) is paid advertising that appears next to or above unpaid search results. AdWords is a form of search engine marketing. Please note that advertising on Google does not in any way affect the ranking of a website in natural search results.

Both SEO and SEM can complement each other, and have very distinct advantages and disadvantages:

With SEO clicks are free. However, it requires technical expertise and can be challenging. You also have very limited control over factors such as which search terms show your site or what the text snippets will say. There are Google guidelines which have to be considered. If you work with an agency, make sure your partner is reputable.

With SEM you pay for clicks. The key advantage with SEM is the control you have over when your site shows up, what you highlight in your ad texts, and how much you want to pay. Results are much easier to measure and tend to be more immediate.

Which one should you choose? Google recommends that you try both!

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