Click Arbitrage – a worrying sign of Yahoo! in decline

I thought click arbitrage had died a long time ago.  3 or 4 years ago it was reasonably common for affiliate sites to buy cheap clicks from one search engine, display search results from a more expensive keyword on another, and make a profit based on the partner revenues they received.  But then Espotting/Miva began to die out, a major source of both the cheap clicks and the partner programme used to make money, and the search engines began to apply quality score metrics which penalised this practice on the basis it didn’t produce a positive user experience.

An illustration of how click arbitrage works is below.  Basically the website owner buys low cots clicks from long tail search works such, for example uk secured loans company, then displays to the user a page of search results for a similar, bu more expensive keyword, e.g. secured loan, as the publisher they get a percentage of click cost from the search engine whose results they dispay, and so long as CTR is at the right level, they make a profit.

Clicks from uk secured loan company

CPC

Cost

CTR to new search results

Clicks on secured loan

CPC

Rev share

Money in

Profit

100

£0.15

£15.00

15%

15

£10.00

50%

£75

£60

Apparently though, it is still around, and some people are still able to make it work.  In a list of the December 2008 top advertisers by search engine, ranked by ad impressions, the number one Yahoo! Advertiser was business.com, the business directory site who’s direct source of income is the Adsense links it displays in each of its categories.

If business.com are making a profit on this activity, and you would assume they must be to appear in the list, they have got to be one of the last click arbitrage sites out there.  Many companies use PPC to drive page impressions and ad revenue but very few are still acting as middle man in this way and selling on the inbound traffic for a profit.

It also bring into question the solidarity of Yahoo!’s client base.  If their top advertiser, admittedly by impressions and not spend, is a business is built on this model what does it say about their future as a PPC provider.

The changes in Google’s gambling policy have already removed Yahoo!’s one advantage in the PPC stakes, and no doubt significantly hit its PPC revenues as gambling companies shift funds across to their Adwords accounts.  And now this announcement saying that one of their biggest advertisers is an affiliate!  It doesn’t fill me with confidence that they are going to be providing any sort of stiff competition to Google in the near future.

For me this is further evidence that a partnership/merger between Yahoo! And Microsoft is the only way true competition for Google is going to materialise.

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