| PPC Arbitrage |
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| Sunday, 05 August 2007 | |||||
But first, what exactly is arbitrage ? If you are a merchant and offer an affiliate program, arbitrage refers to affiliates bidding on your keywords on the PPC engines (ie. Overture, AdWords, Knoodle, etc.) and sending that traffic to your website via your affiliate program. They make money on the traffic that could have gone to your commercial website direct if you or your competitors never had an affiliate program. It also means merchants probably have to pay more for their own keywords. There will be less arbitrage as advertisers get more sophisticated but it will never go away entirely. Reasons being: 1. Many affiliate programs are used by merchants as a low-cost sales channel. It is always certain merchants are paying affiliates less than what they are making them. 2. Affiliates can help push competitor listings down. A merchant would much rather have their listing on top followed by several affiliates rather than the listings of their competitors. Arbitrage helps a merchant to indirectly occupy more than one position. 3. Affiliates can sniff out additional keywords or phrases. Their incentive is to drive traffic to the merchant at the lowest possible cost. They will seek out niche or low-volume areas that might be low priority for the merchant. 4. There is some level of risk-mitigation in that the merchant's ad budget is spread over fewer terms and ads. If the affiliates ads starting have lower ROI or if there is some kind of click-fraud, the merchant sees fewer sales or leads, but does not lose any of its ad budget. Arbitrage is good as long as it is managed properly. Affiliate programs need to be structured carefully so that affiliates can never out-bid the merchant. Bidding on brand names and company terms should not be tolerated, etc.
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