Yes, I said “wrong” instead of “right”. Not a typo. Let me explain.
With a few days of difference, I run into two very extreme and very opposite approaches to the criteria for selecting keywords for niche sites.

The Clasical View

The traditional take for keyword selection is to find a convenient balance between a decent amount of traffic and a beatable competition. The idea is to resign the massive volume keywords, because they usually carries extreme competition; and to target keyword that still provide some traffic (although not that much) but at a much lower competition.

Let’s not get for now into how do we evaluate competition (here’s a whole series of posts on that issue), and let’s assume that you have a reasonable method to measure it.

Now let me play devil’s advocate, and tell you why that’s the wrong way to go.

The Problem With The Classical Approach

First of all, when you follow the classical method, you lose the big traffic right from the start. Forget it. Gone.
Then you enter the battle for the middle sized traffic. Let’s say somewhere between 800 exact searches a month and 5000. Even if you get to number one in Google, you are probably not going to receive more than 40% of the traffic. So you can expect between 320 and 2000 searches a month, or 10 to 66 a day, roughly. Granted, you will get some long tail traffic also.

What About The Competition ?

What kind of effort will you have to make to actually reach that number one spot ? Not minor at all.
Because like it or not, other people will have made the same choice that you did. And even worse, many of them will be Internet Marketers. Many of them will have backlinking power and social bookmarking at their disposal, and they will not settle for anything short of a top 3 ranking. They want their money back.
So let’s make some numbers.
Let’s say that you are outsourcing your efforts to rank for that keyword. And let’s assume that you are getting mid quality articles, at $1.5 each.
Then, let’s say that you create some buzz around your article, writing about it in several well known resources. I think it’s fair to say that you will spend somewhere around $10 on a “layer 1” of articles talking about your money site content.
Finally, you will probably be making some social media, bookmarking and syndication promotion on all your material. That’s at least 5 more dollars if you do it right.
Keep in mind that unless you are really neat in what you are doing, and unless you have a VA that is totally willing to share your clean approach, you will be dreaming pandas and penguins.
So you are probably between $15-$20 for each money site article. And you have no warranty whatsoever.
Keep that number in mind, we’ll get back to it.

The Extreme Approaches

1 – Go Extra Small

Any keyword with over 30 searches for month and under 200 is a good one. Write rich, valuable content. Optimize for that keyword. Same budget on each article: $1.5. No panflets. Good 450+ words articles. Include some images targeting the same keyword. No backlinking.
Repeat 10 times.
You will be targeting between 300 and 2000 searches a month. Purely white hat staff. Truly low competition.

2 – Swing For The Fences

Don’t bother with anything lower than 50k a month. What ??? Yes, you read me right. So what if there’s huge competition, there’s also many searches to fight for. High competition means lots of opportunities. Usually long tail keywords (related to this type of mammoths) are big in searches also. And you will receive local traffic.

Move your budget at $5-$10 each article. Make each one top notch material. Nothing under 1000 words. Anyway you won’t be spending it on backling.

Conclusion

I have run a few tests, and while I can tell you that you can definitely get traffic both ways, I’m not yet in a position to evaluate which strategy is better in the long run. I’ll keep an eye on it and let you know.
Regardless of that, I think is interesting to adjust the content strategy to take better advantage of the volume of searches. You can produce better stuff (or alternatively, more) for the same money if you are not going to spend so much on “promotion”.

Let me know what you think !