It’s a question I get asked a lot. Normally on the quiet and in the bar, mind you.
Search arbitrage doesn’t have a great reputation and to be honest it’s also a pretty obsolete activity in what was the original form. Arbitrage is also a term that’s bandied around in certain circles in discussions about “spamming”, “gaming” and other such under-the-counter remedies.
Arbitrage, is quite simply a business model whereby profit is derived from the margin of difference between two very similar commodities. Trading currencies, derivatives and stocks being the most classic form.
To understand how that played out in the European paid search marketplace (yes before there was Google there was a marketplace *feins shock*) we need a bit of a history crammer….
Once upon a time in the UK, there was eSpotting and there was Overture (or Goto.com as it was at the time). Two paid search advertising marketplaces. One day, a very bright spark noticed that there was a healthy margin of difference between the keyword price of a term from one marketplace to another, and that by purchasing traffic from one source, then making an ad landing page that consisted of purely sponsored links for the other source, one could make a profit.
Time went by and there was a lot of movement in this sector as the incumbent pioneer’s experienced rapid growth and profit, and the web giants took note. Yahoo acquired Alltheweb and AltaVista to power their own search engine; then later Overture so they could own all of the profit from what was at that time a partnership (whereby Overture powered pay-per-click advertising on Yahoo! search).
Google: never ones to be left behind, saw that they were missing a trick with their AdWords CPM model and switched to the hugely successful pay-per-click model and got sued by Yahoo! for patent infringement. Yahoo! settled the 361 patent case out of court for a sum that (with the gift of hindsight, was so light) it was heavy enough to whack down the first nail in the Yahoo! search coffin.
If you’re still with me it’s around 2002 and there are now a number of credible paid search marketplaces for an arbitrageur to ‘buy’ and ‘sell’ between. With a growing trend for consumer search activity, and the big players to drive the volume; there was serious scale and serious money to be made.
This is How it Looked…
Bargain Hair Straighteners
Get brand name hair straighteners
On clicking (typically a Google) ad such as this, the user would then land up on a page of ads like this…
This would typically be a page of sponsored only listings, using an Overture feed.
The user, obviously a bit confused and possibly disorientated, would be highly likely to click a top- listing either to get to a destination site, or just to get away from that butt-ugly landing page.
So that was early days ‘vanilla’ arb. Still around in some places, hated by advertisers and users alike. Of course, those days are gone, and you would be hard pushed to find a traditional arbitrage site like this still around. Search engines responded to usability feedback and advertiser quality concerns in time, meaning the model shifted into two camps. Firstly; those who wanted to offer a blended search experience, quality traffic for advertisers and a sustainable business for themselves and secondly; the spammers. Let’s imagine what types of things the spammers could possibly have done first, (because it’s always more fun…)
1. Mismatched Arbitrage – Buying ads for “plant pots” and directing to listings for “0% APR Credit Card”
2. Broad Match Arbitrage – Buying cheaper terms, further away from the conversion process e.g. “borrow money” and driving to a landing page with “get instant loan online”.
3. Margin Spamming – Where a great margin of difference exists (usually fleetingly) between two similar or exact terms on both your buy and sell source, then load all of your budget on it.
4. Mis-labelling listings – Putting a “Web Results” or similar heading on the landing page.
5. High PPC Recycling – showing position 1,2, 3 and then repeating, ad infinitum.
Of course if any such activity ever occured with any of the paid search giants, such activity would (I imagine) be met by loss of feed and relationship… permenantly.
On the other hand, reputable businesses, that understood the search marketplace and wanted to work a long-term strategy ensured the following types of behaviour.
1. Ads on highest quality purchase sources (Google and Bing)
2. Ads that would convey further analysis and comparison to the user, such as “compare leading online retailers for [keyword] at…”
3. Landing pages blend results, incorporating paid search, algo, price comparison, content feeds, polls, features, original editorial content etc
4. Any commercial listings clearly labelled as such.
In terms of operating in this sphere, nowadays it is extremely difficult. Margins between quality ‘buy’ and ‘sell’ (Google, Yahoo! and Bing) sources have eroded, and the kind of volume and data required to make this a successful operation mean entering this late in the game is extremely difficult. (I’ve known of people lose tens of thousands in a week.) Google penalises sites which they determine to offer little or no additional value to a user, including blended search arbitrage, price comparison arbitrage and general affiliate style websites, meaning participants can find themselves “Smart-priced” out of the market. Getting the required feeds can be difficult as the paid search partner networks do not want to risk the quality of their networks by taking on unknown sites and unknown business relationships, although there are a couple of trusted partner organisations that Yahoo! as an example use to distribute paid search feeds, whereby reputable long term partners such as Click.net refer and manage smaller site relationships as an intermediary.
So there you go… Controversial and almost extinct. Search arbitrage.