Comment on The SEO Value of Private Blog Networks by Mike Friedman.
Your competition is the top 3 results. That is it. That is where the majority of search traffic goes.
Using your method for judging competition, you will find a lot of keywords that show a huge number of results, but have really weak sites at the top, and you’ll skip them and miss out on what could be profitable campaigns. You will also find the opposite to be true. There are search terms with few results, but really competitive webpages at the top.
Think of it like a runner in a race. If you are the 3rd fastest runner in a race, it doesn’t matter if there are 50 competitors in a race or 50,000 competitors in a race. You are still 3rd.