Search Arbitrage Strategies

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Those not in the direct marketing space tend to have an antiquated notion of what it really means and associate search engine arbitrage only with affiliate marketers, generally in a negative light. Search engine arbitragers span the gambit from the stereotypical work from home affiliate to more than half billion dollar companies. Those practicing it comprise at least 40% if not almost two-thirds of Google’s revenues, and while certain variations of it add less value than others (think of paid search listings that send users to a page full of other paid search listings), in the end, search engine arbitragers do something amazing. They help others acquire clients, and in the case of affiliates, lead generation companies, to comparison shopping sites, just to name a few, they not only acquire new customers, they take all the financial burden in doing so. Take a lead generation company for example. Their clients pay them per lead, yet they spend per click to generate traffic, with no guarantee that the traffic will turn into leads and at a ratio where the lead generation company makes money. Given the tremendous importance of search in direct response advertising, the prevalence of search engine arbitrage, and the changes that have taken place in the landscape, we decided this week to prepare an overview of the strategies being employed today and information about each to put it into perspective. As you read the descriptions of the various forms of arbitrage, you will notice that the next one down requires a greater level of complexity than the one before it.

  • Redirect to an offer

    • Description – Let’s say you wanted to start doing arbitrage, this is where you’d start. This is the oldest and certainly the easiest type of arbitrage (with respect to set up time), and if you learned about this in the early days of search engine marketing, you could have made some significant money. This type of arbitrage generally refers to a form of affiliate marketing. Redirecting to an offer requires only that you sign up to become an affiliate and that you create an advertiser account in Google. The example that comes to my mind are the eBay and Amazon affiliates from several years ago. Before there was the notion of the long tail, many affiliates figured out that little competition existed on longer, more specific keywords. The companies themselves did search, but they did not have the level of exposure that we think of today. Additionally, during the growth phases of this type of arbitrage, a specific company could have more than one listing. It has become significantly harder to earn money doing a redirect because of competition among affiliates, increased sophistication of the merchant (they have fewer gaps in their keyword set), and rules imposed by the engines, namely Google. As mentioned, the engine formerly allowed more than one listing from the same provider. They later required affiliates distinguish themselves by adding "aff" to the display URL. Then, they said only one occurrence of URL per listing, which meant merchant and affiliate competed for a listing. With the introduction of Quality Score, listing an offer using a redirect became more expensive than it had. Today, instead of being the majority of arbitrage, this form represents only a fraction of the total volume.

    • Set up time – Less than a day

    • Longevity – Low

    • Estimated % Total – 5%

  • Dressed up offer / offer as a page

    • Description – Affiliates tend to be the main practitioners of this form of arbitrage as well, and for the most part, this type, the dressed up offer, has replaced the redirect as the dominant form of arbitrage for affiliates. It requires a greater level of effort and complexity than a straight redirect, but not much. The end conversion still takes place on the advertisers’ page, but since you cannot simply send a click to their page off the bat, you instead send a click to a page that you create. This means that you must register a domain name and design a simple site. This site has one main goal, to get a user on to the advertisers’ page with the least amount of loss. The behavior behind the offer as a page mirrors that of the redirect but complies with Google’s policies and maximizes the chance of an affiliate getting listed on a particular term on which the advertiser and other affiliates bid, while minimizing the cost. You will commonly find this type of arbitrage for specific promotions as opposed to a strategy used across an entire vertical. It is the best strategy for an affiliate that wants to test out promoting an offer without committing extensive time or resources and makes a good fit for offers that will become very competitive or has a narrow window of time. Want to see this type in action? Go to Google and perform a search on "blockbuster video online." More than half of the listings (at the time of writing) fall into the dressed up offer category.

    • Set up time – One to two days

    • Longevity – Low

    • Estimated % Total – 10%

  • Branded landing page

    • Description – The branded landing page requires a moderate increase in the level of effort from the previous two forms but more so from a risk / creativity perspective. The ringtone players have made this type of arbitrage particularly well known. In the previous example, the pages being promoted tend to look like dressed up versions of an ad, and in some cases the pages simply contain the HTML email ad from the affiliate network. Branded landing page on the other hand don’t necessarily display the end brand to which the user goes. Similar to the first two types of arbitrage, the conversion takes place on someone else’s site, but unlike the other two, in this form, the design of the page and marketing message lead to a click as opposed to the draw of some big brand, e.g. eBay, Amazon, Blockbuster. Overall, it doesn’t take much to create this type of page for arbitrage, but unlike the the dressed up offer and redirect, it has a greater longevity as it looks to add more value to a user.

    • Set up time – Two days to one week

    • Longevity – Moderate

    • Estimated % Total – 20%

  • Data collecting landing page / branded landing page on content site

    • Description – While there might not sound like a big difference between a branded landing page and the data collecting one, if anything, that has more to do with the naming convention we use. Creating a ringtone landing page doesn’t require that much work. Those like it might have some content (to try and increase their quality score), but the sites tend to have only that one page. If they have more than that page, they seem like an after thought. Not so here. Similarly, the biggest practitioners of this type are not affiliates. Lead generators rely on this form quite heavily. While they ultimately promote someone else’s brand, the conversion does not occur on that other person’s site. The action is a self-contained event, and in the end that is what separates this from the other forms. Almost every size business uses this form of arbitrage if they look to acquire new customers. If Blackberry wants to promote a phone or just get sign-ups to its newsletter, it will go this route. Ultimately, the level of integration separates this from the previous types. These pages have a distinct marketing goal but are not nearly as disposable, and if current trends continue, more and more arbitragers will migrate to this form of marketing.

    • Set up time – One week to several months

    • Longevity – Moderate / High

    • Estimated % Total – 20%

  • Standalone business

    • Description – eBay, Amazon, Shopping.com, Nextag, Local.com, True.com, Best Buy, etc. Quite a few multi-billion dollar businesses fall into this category of arbitrage, so to compete, some clever affiliates that have taken the plunge to build a fully functioning business, such as Pletnyoffish.com. Those who do arbitrage at this level still buy traffic with the aim of earning a quantifiable and immediate return on their spend. These companies have hundreds if not thousands of revenue generating pages. That doesn’t mean they don’t leverage some of the more classic and low hanging forms of arbitrage, e.g. buying clicks to send to advertisers paying clicks. It just means that they often have extensive backends and a large number of relationships that make the business work. In the case of a dating site, they have millions of users of the site. eBay has millions of buyers and sellers. Shopping.com has thousands of merchants that it must manage across hundreds of thousands of products. Their size and scope make them the most complex and ultimately the largest buyers of arbitrage traffic. And, despite their status as destination sites, they are still direct response companies at their core, and thus arbitragers.

    • Set up time – Two months to a year

    • Longevity – High

    • Estimated % Total – 45%

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