Arbitrage Made Simple.. How You Can Get Rich in 4 Easy Steps

http://money.cnn.com/magazines/business2/business2_archive/2007/07/01/100117061/

Paul Sloan lays another beauty on us with his recent piece on paid-search arbitrage.  If I was 18, just getting out of school and I read this piece, I would put college on hold and get into this business in a big way.

There is going to be a lot more paidsearch-to-paidsearch arbitrage in the years ahead. I know there have seemingly been efforts on the part of Google to stamp out wholesale MFA arbitrage plays, but make no mistake..  the arbitrage machine is alive and well on the net. The bigger the play, the more likely Google is to tolerate it. But even smaller operators continue to make money at it..  and I do not see it going away.. ever.

For one thing the paid search keyword marketplaces need the money that arbitrageurs slosh back and forth..  it is a significant driver of quarterly revenues and it underpins the buy side of emerging keyword marketplaces such as that of Facebook and MySpace.

Secondly, it's too hard to police arbitrage.. and what's to police when the line between arbitrage and genuine PPC purchase is so fuzzy. Can you buy traffic from Google if you sell it to lead gen?.. How about if you sell a product or service? Obviously "Yes" .. That's what Google's ad-network is all about. So why can't you sell the traffic to others who are selling a product or running lead gen if you can find an inefficiency in the market and make money in the process?.. That's keyword-keyword arbitrage.

Lastly ..  there are always inefficiencies in a market..  I've been spouting on about the domain business for years..  the industry has 3 magazines, a dozen bloggers and there are "still" opportunities in this business to exploit inefficiencies.  Arbitrage has even bigger holes...  too many to plug.

The danger is "too much of a good thing"..  Like a boat-load of derivatives, that this will somehow pervert the purity of the marketplace and create an artificial world of overbids in one category or underbids in another... You could end up with a keyword marketplace where the arbitrageurs run sophisticated software to outbid genuine bidders that keep the marketplace healthy..  lowering search quality.  And publishers with high quality traffic who plug into a keyword marketplace over-run with Arbitrage players risk selling their traffic at a discount to its true value.

I'm a believer in the marketplace, so as long as the traffic quality holds up, let's let the market sort it out.  If an ad market brings too many low quality arbitrage only partners into the mix, then the high quality publisher partners will leave and find a new home, or become arbitrageurs in their own right to change the mix.

Comments

[Robert]

Thank you for sharing Paul Sloan's article.

Arbitrage may be a fact of life. It may also serve a useful purpose -just like Adam Smith's invisible hand- by clearing out market ineficiencies. However, what hasn't been mentioned is that this process can also claim victims. Take the case of a site that is rich in content, performs great in all search engines and is visited by highly qualified traffic, but greatly underperforms as an adsense publisher. This is because arbitrageurs also bid -not stated in the CNN piece- in the content network for cheap traffic.

When this happens, visitors to a high quality site are exposed to ads that lead to pages with even more ads, as opposed to pages that will satisfy their informational/shopping needs. Wouldn't you say that this somewhat degrades users' experience as they were expecting the authority site to recommend good and *final* resources? Now, they land on a different publisher's page who in turn is re-recommending other links... The first publisher who they *trusted* has now been demoded by the process.

One good way to protect sites that get caught in the arbitrage process would be to let the owners -the real publishers- set a minimum bid for any ad appearing on their domain, rendering the arbitration ineffective in this particular cases (content network).

[MedinaWA]

Nice, easy-to-read article. Now I know what you guys are talking about when you refer to "arbitrage". Thanks for sharing.

[Phil]

Nice article. Seems to be if you buy links, then its up to you how you use it. The whole concept is based on traffic generation; you buy the traffic then its yours to profit from.

These search engines are middlemen, I don't think they can complain about another person being a middleman.