Puppy Arbitrage
If we step back and take a longer-term view of the world, the business landscape is dotted with companies and services that did well for a while but ultimately ceased without evolving. It reminds me of a joke. A woman was giving birth and going through extreme pain. Her husband was standing next to her trying to help but doing what husbands do, i.e. not really helping. By the time the doctor enters the room, the wife could barely contain the pain and asked for more medicine. The doctor said he had already prescribed the maximum allowable amount, but if she was in that bad of pain they could try an experimental technique. The hospital began testing a machine that transfers some of the pain from her to the father. Wanting to do anything for his wife, the husband agrees, so they hook her up. The husband, looking steady, agrees to accept more and more of the pain until finally, the wife delivers. The husband, feeling pretty good for having handled it so well, heads home for the night only to find the milkman dead on their sidewalk.
In other words, the husband wasn’t the father, which is why he didn’t feel the pain. The milkman, on the other hand, only makes sense in the punch line for someone who either lived in a time before wide spread pasteurization / refrigeration or as heard about it from someone who did. The joke though just serves to highlight that something as seemingly as ingrained in American culture as milkmen can go away and with relative speed. Their demise, which must have been quite obvious and painful for those doing the delivers, happened as better refrigeration became accessible to the average household. The supply and demand for milk didn’t change, but a technology innovation disrupted how the two sides came together. Is that going to happen to us? Our industry doesn’t appear at risk from a technology innovation. Ours is more like the dairy farm than the person delivering it, but that doesn’t mean we aren’t at risk. And of all places to look at an example of how we might be at risk, we need look no further than dog breeders. Yes, dog breeders. For those wondering how affiliates and those breeding dogs overlap, here is a not a joke but a story involving a young, not-neutered chihuahua and a Bob Barker toting animal owner.
The owner of the small pack of all fixed pups, couldn’t understand why the chihuahua still had his chihuahua sized male organs. Not one to hold back, the fan of the fixed asked the chihuahua why? Those from other cultures and/or those who didn’t watch Wheel of Fortune religiously would think the preference has to do with the personification of the animal and believing that they should get to experience sex. The chihuahua owner definitely wanted the animal to engage in sex but more the way a pimp wants a prostitute to engage in sex. For him, there was no reason to get the dog neutered because people pay good money for the puppies. That’s not how you run a scalable breeding enterprise, but it has the first steps that are needed – ready liquidity. Puppy arbitrage is literally a whole other animal to cpa arbitrage (where "a" stands for action not animal), but the mentality is the same. There is very little barrier to entry so an average person would think it reasonable to try their hand. Those who want to do it big, might invest in a store, with pet stores being the super affiliates of the breeding world.
Almost everyone who walks by a puppy store wants to look at the puppies, and the vast majority don’t think about the process by which they end up there. Assuming, though, that the ecosystem around these stores and the animals that come to them is fundamentally flawed, it is not an easy machine to change. The demand for puppies won’t decrease, so those against it must disrupt and alter the current liquidity so that individuals like the one who wanted to pimp his own dog, don’t have ready buyers. That’s pretty hard to do in the dog world, and at times it might seem like it is hard to do in the online world as well. It seems as though there will never be a shortage of places to spend money and that those in favor of ad neutering won’t have much influence. But, they are. We only need to look at Google to see what can happen. Thus far in display that hasn’t been the case, but times are changing and not for the better if you are a flogger.
While not publicly announced, which makes sense, but known enough to cause ripples through those buying remnant display (from advertisers to networks), Yahoo has put the kibosh on those wanting to promote not jut flogs but any part of the diet / teeth whitening ecosystem. They have gone so far as to adjust sales people’s goals, knowing full well the impact that will come from a complete shut down. And, unlike search where Yahoo doesn’t mean that much, they play a huge part in display. Not only do they have an incredible amount of inventory across Yahoo.com, but they have an extensive network of partner sites for whom they handle display. And, just so happens to be the exact type of partner sites that convert well on run-of-network offers, e.g., cable company homepages and newspapers. As with any trend, the hardest part is the precedent, and it’s not as though a bit player put their foot down. Yahoo did. Now, others who have been less liberal will have less of an excuse if pressured. That could mean a quick move by the other players and the expected but unknown factor that puts an end to fakevertising.
