Alexa Toolbar Accuracy and Uses  Alexa is a website ranking service, www.alexa.com/help, that bases its data on website traffic as gathered from people who have installed the Alexa Toolbar into their web browser. This toolbar then informs Alexa of the websites that you visit giving Alexa valuable traffic data which they then use to rank websites against one another based on the traffic from you and others with their toolbar.
Philipp Lenssen at Google Blogoscoped posted on July 29, 2007 about the poor quality of the data given by the Alexa tools. The specifics of his post are really a spoof as all the "data" is made up. Philipp Lenssen is in fact spoofing the Alexa methodology itself as he shows that the data, "uses gut feeling from a selected sample group (me) as data source". Alexa's accuracy problems are well known.
The issue comes down to the fact that the audience is just not large enough, and the dependency on a willingness to install the toolbar introduces a natural bias into the date. I have found that this problem becomes worse when you deal with lower traffic sites. Add to this that unless you have a site that gets 20,000 plus visitors per day you are not really on the map with Alexa.
However, you can use the Alexa feature that shows comparative traffic levels to compare your site's traffic to that of your competitors and then get an idea of what you are working with, except that the data is still taken from too small of a mix.
As your competitors are in the same business as you are, the bias problem no longer is a factor to worry about as the bias will affect all the sites equally. For most businesses this will provide a quick way to compare the relative web site traffic levels in their industry. So the accuracy problems are real, but there is still a way to use the tool to extract useful information... sort of.
The real issue lies with the fact that there is no way at this time to get true traffic data for a website unless you can look at that specific website's server logs, and if you can do that then you have no reason to use the service that Alexa is providing. So until something comes along that is more accurate than Alexa, we have no choice but to use flawed data as it is the only data we have to work with.
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