Advertising Arbitrage: Another Case Study in Death by Algorithm

The New York Times has an interesting summary of the demise of profits for a website called SourceTool.

The site was buying Google Adwords pay per click traffic to the tune of some 500,000 per month and then monetizing that traffic for a profit of about $110,000 per month using Google Adsense pay per clicks (where Google shares revenue with the site).   This form of PPC Arbitrage is no longer encouraged by Google – in fact I think this was related to the Comscore fiasco earlier this year, where Google announced fewer clicks and the Comscore analysis led to Google stock tanking until Google announced a higher revenue per click which made the stock soar.

SourceTool, along with a handful of heavy hitting online advertisers like Proctor and Gamble, has written in favor of the justice department denying Google and Yahoo’s proposed advertising partnership arguing that the combined Yahoo Google ad empire would control some 90% of the market.

3 thoughts on “Advertising Arbitrage: Another Case Study in Death by Algorithm

  1. Well, this online advertising confuses me anyway but it seems that the rates were arbitrary and while the definitions of quality were vague its undoubtedly clear that actual quality was lacking. The site was simply a middleman that presented links to the viewer, sort of a content-deficient would-be portal that presented “canned search results” but no real content about ball-bearings or any other search term.

    While we might all favor clarity and openness as far as page quality it seems this is not required. I see Google as having been unwise to allow this to have ever existed and certainly see nothing wrong with them having eventually pulled the plug.

  2. I agree with the first commenter. I have zero sympathy for the arbitrager. I’m supposed to feel sorry for someone who made hundreds of thousands of dollars without actually providing any kind of service to anyone? I don’t blame people for going after the easy money, but don’t go crying to me about how your free ride is over. Time to get a real job, buddy. Arbitrage pages are a major annoyance to both the consumers and other advertisers who have legitimate sites with actual content on them.

    I do agree with the author’s statements about the size of Google’s ego. My experience with their account reps has been largely negative. Despite their high opinions of themselves, half the time they show that they’re astoundingly ignorant about how AdWords and AdSense actually function (I find myself having to educate them). The other half of the time they give you these fuzzy “platitudes” (to use the article’s word) or what might be outright lies about why your account is encountering certain issues. We’ve encountered two likely confidentiality breaches with them (unproven, but highly likely). I know there have been some rather ill-intentioned policies from “above” that have screwed advertisers over on prices under the guise of “improving user experience.” Also, while I am on board with the concept of Google’s “quality score” and using it as an instrument to rank higher quality pages in better positions and using the score to weight the advertiser’s cost per click relative to the bid of whom they are out-ranking, I strongly suspect that Google is also using it to conceal price-setting practices.

    Unfortunately, the article is right – where else do we advertisers have to turn? We can’t exactly bite the hand that feeds us. I hope someone else comes along and gives them a run for their money one of these days.

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