Trends

This week marks the two month anniversary of Google AdWords Affiliate Policy Change. It focused on and impacted a very specific type of activity – that of search engine arbitrage. In this edition of Trends, we revisit the policy and look at what changes it has had on those practicing search engine arbitrage and the policy’s efficacy as measured by the search results users see.

While often cliché to do so, it might help those who have often found the notion of search engine arbitrage (SEA) confusing to read the dictionary definition of “arbitrage.” According to m-w.com, arbitrage refers to “the nearly simultaneous purchase and sale of securities or foreign exchange in different markets in order to profit from price discrepancies.”  While a word more easily associated with the financial markets might not seem applicable to search engine advertising, its use in our space makes sense when realizing that the purchase of keywords (as well as other ad space) is very much like the purchase of securities. More importantly, besides internet advertising containing many market characteristics, multiple pricing options exist too.

As it pertains to our industry, people more commonly use the term arbitrage to refer to any risk taking activity where one pays out on a different metric than one is paid. This is exactly the case with SEA. Those practicing SEA will purchase keywords on a CPC basis yet get paid on a CPA basis. Many search firms will work in this manner, but the distinguishing characteristic between search firms held accountable to a CPA and those practicing this type of arbitrage is the level of exclusivity the agent has with the advertiser. Arbitragers are one of many rather than the exclusive representative.

Those practicing SEA could be the only bidder for a keyword, but more often than not they are one of many driving traffic for an advertiser. What this means is that were a person to type “dental insurance” into Google, they might see several paid ads for the same product (site). Those doing SEA would have had an “aff” in their ad text to signal that they did not own the site to which traffic was being sent.

At the ten thousand foot view, when setting up AdWords Google had the option of either accepting traffic for the same root URL for the same keyword from more than one advertiser or not. They opted to allow it, a decision consistent with their overall flexibility and free-market nature. The ultimate decision for when policies change depends on the user experience. If Google perceives any of their actions reduce the level of user satisfaction, they will take action. Unhappy users mean fewer visits and en masse a significant drop in their reach. And no matter what others might think, without traffic, Google is not Google. Therefore, in order to stem any exodus of users, Google decided to implement the Affiliate Policy Change.

One can surmise from the change and their desire to improve user experience that Google saw the proliferation of the “affs” as leading to decreased loyalty and less money. Were there only one “aff” per term, chances are that they would not have made any changes. Instead of one or two ads for a particular ad, for many terms almost all ads were various pitches for the same end product. Google’s policy change addresses the confusion by now only displaying one ad per URL being advertised. Again, in a smart decision, rather than simply ban any affiliate from advertising, they allow the same number of people to bid, but increase the competitiveness. Google users now see only one ad per site and affiliates no longer have to include the “aff” designation.

Given that the policy has been in place for two months, the next logical question to ask is how well it is working. From an affiliate perspective, the policy has made a difference. Those relying on Google report increased difficulty getting clicks and lower overall earnings. From the end-user perspective, the policy’s efficacy is somewhat mixed. A quick test suggests that the change has made a difference but that abuse still exists. That abuse exists does not come as a surprise. Google should ultimately catch the abuse quicker than most. They are Google and automation and deployment is their specialty. As such, it would appear that they, probably with ease, can look at the display URL entered by the advertiser and compare that with the actual destination URL. They can then compare their results easily across all advertisers and campaigns. Since no human reviews each posting, the barrier to abuse is still quite low, and like natural search spam it becomes a game of cat and mouse.

Unfortunately, those choosing to abuse the system only hurt our industry as a whole and like email hasten an industry’s demise. We can only hope that the advertisers and networks with the offers can help insure the survival of this arbitrage as it adds value and enables market inefficiencies to be reduced.