Arbitrage Defined

Posted by peter on October 31, 2007

Here’s an interesting blog post that I read about the making money from your domain using PPC arbitrage.

The was orginally posted at MarketingPilgrim.com

Arbitrage is a hot topic these days. American Heritage Dictionary defines arbitrage as “The purchase of securities on one market for immediate resale on another market in order to profit from a price discrepancy. ”A YouTube video titled Adwords Abuse which was uploaded back in April has begun re-circulating. The video highlights some of the issues surrounding arbitrage but it only discusses one form of the problem. Arbitrage is not a one size fits all practice.

So let’s look at the different types of arbitrage.

PPC / Adsense Arbitrage 1.0
A website or web page which contains no content. The page is filled with PPC ads such as Adsense or Yahoo Search Partner Ads. This is the most blatant form of Arbitrage and the one the majority of people are talking about.

    

Arbitrage 2.0
A web page that contains some form of content but who’s true purpose is to generate clicks on the ads within the page. These ads are mostly Adsense with some YPN Ads mixed in. They are Made For Adsense (MFA) sites relying on PPC traffic instead of organic.

Shopping Engine Arbitrage
A web page that lists product prices enabling customers to see the same product priced at multiple stores. They then send the consumer to the merchant’s product pages via PPC links or affiliate links.

Affiliate Arbitrage
Affiliate marketing is a form of CPA arbitrage. The landing page for the affiliate marketer is designed to cause some form of action which the marketer gets paid for whether it happens directly on the landing page or happens when the consumer clicks through to the merchants website.

User Experience
So what does all this mean? Arbitrage isn’t going anywhere. It has always existed and it always will in some form or another. That said, Google, Yahoo & MSN need to get a handle on the situation and enforce the rules they have already set out. All three are explicit that landing pages should contain relevant and meaningful content.

It’s up for debate how shopping, affiliate, and version 2.0 arbitrage fall within these guidelines. How on the other hand they have not already started banning arbitrage 1.0 sites just blows my mind. I get the feeling they are afraid to lose the revenue. What they fail to realize is the work around has already been invented. As soon as all the arbitrage 1.0 sites are banned, arbitrage 2.0 sites will just pop up in their place. If any money is lost, it will only be for the short term.

So what then is accomplished? A better user experience. While MFA sites appearing in the sponsored results may not be the perfect solution, it is still 10 times better than then arbitrage 1.0 junk that is appearing now.