Search Arbitrage: Web Blight Or Brilliant Marketing Strategy?

Few words in the online marketing world raise more diverse opinions than the single word “arbitrage.” Be warned before you say it in mixed company. The reactions will range from vehement cursing to shrugged shoulders to sly smiles. Everyone has an opinion; some are based on facts; others on conjecture, but the word is guaranteed to start a heated discussion.

Search arbitrage is most commonly seen in PPC advertising. A site will buy search ads and send the unsuspecting searcher to another page full of ads. The arbitrager is paid when searchers click out on yet another ad. The arbitrager pockets the difference between what they paid per click and what they get paid per click.

While the concept of arbitrage is simple, the execution can be sophisticated. An arbitrager has to know what they are being paid per click, understand the clickthrough rate on any given phrase, and combine that information with what they are paying for the traffic. If any of those numbers suddenly change, it’s possible to lose a lot of money very quickly. Few arbitragers know their revshare percentage, so they may have insight into what a click is worth, while others fly blind in this regard. Many people try arbitrage, though few are ultimately successful.

Caught in the middle are advertisers. Advertisers often don”t have insight into where their ads are being shown on partner search sites of Google and Yahoo. Once you move past search sites into the content networks, the visibility becomes even murkier.

Most advertisers find their ads on arbitrage sites by actually clicking on an ad and seeing one of these ad pages. it’s the sight of their ad displayed on a page where the only content is advertising, and then the realization that their ad dollars are funding these sites that quickly lead to emotional responses. In the end, many have opinions on arbitrage that are often based more on feelings than actual figures. Before jumping to conclusions, it’s worth looking at both sides of this seemingly ambiguous story.

In Defense Of Arbitrage

One of the advantages of arbitrage sites is that advertisers can receive traffic from ad positions they don’t control on a search page. Usually an advertiser only controls a single ad position, and if the advertiser didn’t attract the first click, then it becomes increasingly difficult to receive traffic from that consumer. Since an arbitrage site is displaying a page full of ads, if an advertiser appears in one of those they have a second chance to receive the click. In essence, advertisers can receive traffic from ad positions they don’t control.

Arbitragers often bid on tens or hundreds of thousands of keywords. Due to their long tail bidding, the advertiser can receive traffic for keywords they didn’t realize were relevant. Hence, the advertisers are receiving traffic from someone else’s work.

Some arbitragers even go to the extremes in making sure that the keywords they are buying are closely aligned with the ads they are serving, so that they deliver quality traffic to the advertiser. This is definitely not true for all arbitragers. However, there are arbitragers who want to make sure that their sites aren’t blocked by advertisers, or thrown out of the network, both of which reduce the arbitrager’s revenue.

These are some of the advantages of employing search arbitrage. However, the general reaction from search marketers is usually quite negative.

A Blight Upon The Web

Some advertisers consider arbitrage an offense akin to spam—and not necessarily just search spam, but the vile kind that fills up your email inbox. These advertisers want arbitrage sites thrown off all advertising networks, and ultimately, would like to see them banned from the web. With such strong feelings, one needs to examine the arguments behind these statements.

The first argument against arbitrage pleads for the user experience. The search experience is about finding answers. If a searcher is taken from a search result to a set of ads without any meaningful content, then they really didn’t find any answers. The searcher now has to click on yet another ad to get to an advertiser’s page. Following the logic of these arguments, if the page full of ads wasn’t in the middle between the search result and the advertiser’s page, the searcher would have found the information one click sooner and had a better experience.

One way of being profitable with arbitrage is to buy inexpensive words and send them to a page of similar, yet more expensive words. Thus, the second argument against arbitrage resolves around ad relevancy. When a page shows ads for a different keyword than the one just searched, combined with the fact the advertiser is being charged for the more expensive keyword from the arbitrage page, not the cheaper keyword that occurred on the search page, there’s a sense of being cheated.

Advertisers want both control and relevancy. If the search was “lawyer”, one can assume it’s a fairly ambiguous query. Because this is an ambiguous query, it’s often not an overly expensive click compared to other legal terms. So, an arbitrager will buy the keyword “lawyer” and send it to a page about “personal injury lawyers,” a click cost that is often four or more times more expensive than “lawyer.” Should an advertiser be charged for a “personal injury lawyer” click when the search was just for “lawyer?” Why should a company be able to buy an ad about one keyword and send traffic to ads about an entirely different keyword?

The last argument against arbitrage is about the proverbial “middleman” taking his cut. Advertisers don’t wish to pay someone who is not adding value to the search chain. They feel these arbitragers are stealing money from their search budgets. These advertisers often have ethical reasons for not wanting to see arbitrage proliferate no matter what the actual ROI may be. They often have other arguments regarding relevancy and search experience; however, no type of positive performance will ever matter. They feel they are being cheated, and they don’t want to put money in a thief’s wallet.

In Search Of ROI

The last group of advertisers just doesn’t care about arbitrage other than it’s yet another potential source for traffic. These advertisers measure each site or network individually, and bid based upon actual numbers. Feelings don’t matter. Opinions don’t matter. The only piece of information that matters to these marketers is reaching their advertising goals.

If an arbitrage site is converting well, one may consider advertising exclusively on that site. This can be done with Google’s site targeting or a direct deal with the site in question.

If an arbitrage site is not converting well, then the advertiser will either try to block that site from the network or lower their bid to compensate for these low converting clicks. In cases where sites cannot be blocked (such as search partners of Google and Yahoo), an advertiser will have to request that their ads don’t show up on these sites.

The largest barrier to becoming an ROI bidder in terms of arbitrage sites is collecting enough information about your ads and conversion metrics to make these decisions. Often systems that can receive full visibility into these metrics are expensive or require technical skills, so not all businesses have access to this information.

How To Solve The Arbitrage Dilemma?

With one set of advertisers liking arbitrage, another vehemently against the practice, and yet a third who just views it as inventory, what’s to be done about arbitrage sites?

As with many arguments about improving PPC advertising, the answer lies in visibility and control.

Google has added the ability to block sites in its content network, and they have stated they are working towards more visibility. However, will that same visibility be available for the search network?

Yahoo has become more Google-like with Panama in respect to quality score. Will they come forward with visibility and blocking controls in their ad distribution?

Microsoft adCenter has slowly introduced new traffic sources which they control, and hence can measure quality. Arbitrage hasn’t greatly affected adCenter yet, but when it does, how will they react?

Arbitrage is a word that is sure to evoke a response in any internet marketer. However, the responses will vary as greatly as those found in a heated political debate. There isn’t necessarily a magic answer, but advertisers clearly want more control and a greater visibility into how their ad dollars are spent.

When marketers have full visibility and control of ad dollars, they will have the ability to not just debate arbitrage—they will have the power to act on their feelings.

Brad Geddes is the Director of Search for LocalLaunch, a blogger at eWhisper.net, and a frequent conference speaker. The Paid Search column appears Tuesdays at Search Engine Land.