“Finance. the simultaneous purchase and sale of the same securities, commodities, or foreign exchange in different markets to profit from unequal prices.”
As we can see above, arbitrage is nothing new. It has been used in regular commodities markets for a long time and now has made its way into the domaining world.
I, and others, tend to refer to arbitrage as alchemy — you start with a few pennies, setup an advertising campaign, and end up with a few dollars. How does it work? Well, before we discuss arbitrage in depth, let’s explore how current PPC advertising methods work.
PPC for Search Engines
Pay-per-click is based on bids for certain keywords. People who buy ads bid certain amounts for key ad positions in hopes of getting prominence on whatever platform the ad is displayed.
In essence, if you bid $5.00 for the keyword “domains,” and the next highest bid is $4.00 for the same keyword, then you have the top advertising spot on whatever platform you have based your advertising campaign. Quality scoring, among other things, also affects bid amounts/placement. Quality scoring is too deep to go into here, but a quick Google.com search should yield more information about that topic.
Once you have the top spot, your ad is more likely to be clicked on first. Lower bidders on this same keyword will still have their ads shown, but they won’t be in an area of prominence, which results in fewer clicks.
Every time someone bids on an ad, he has a maximum “spend” for a particular time period, usually per day. That max spend is nothing more than a budget.
For example, if the “spend” is $100 and the bid per click is $5.00, the owner receives 20. (Since the max PPC is $5.00, the owner gets at least 20 clicks; however, because of quality scoring and next-highest bid adjustments, the advertiser will probably receive more than just 20 clicks.)
PPC for Content
Other advertising platforms such as Bidvertiser.com or Google.com’s “Adwords for Content” don’t have search engines attached to them. Ads on those sites appear directly on the webpage and are tailored to the content of the pages where they reside. So the highest-bid ads on those types of pages will be shown first, but once the highest-bid ads are “spent”, the lower bid ads rotate in.
Now let’s explore arbitrage.
Arbitrage
Normally, for arbitrage to operate, you need at least two different PPC providers: One that you buy ads from and an ad provider that pays you when the ads you display are clicked on.
In a domainers world, the second provider is usually a parking company, although it does not have to be.
To participate in arbitrage, we need:
1.) An ad provider that allows arbitrage
2.) A parking account that allows arbitrage (This could be substituted for a CPL or CPA program as well)
3.) And a domain name related to the industry we are targeting
Let’s, for example, say we are targeting the auto-loan industry. The domain we use: auto-loans-and-finance.com.
First, we make sure that our domain is displaying high-paying ads. “Auto loan rates” would be a good keyword to optimize on because of its history of paying highly, usually around $2.00 or so per click.
Second, we need to find cheap keyword(s) that are related to the auto-loan industry. If we use localized terms, such as “auto loans
Louisville Ky.,” we could probably expect our per-click cost for the keyword to be in the 5-cents to 15-cents range.
Finally, we will start an ad campaign with the cheap keyword(s) we’ve found, such as “auto loans
Louisville Ky.” Whenever someone types that into a search engine, our ad will pop up. If someone clicks on it, we will send the visitor to our highly optimized domain name: auto-loans-and-finance.com.
Essentially, we’re hoping that the user clicks through the ads we’ve bought, which should cost us below 20 cents, and then clicks through again on one of the ads displayed on our parked domain name, which pays around $2.00 per click. Remember that traffic quality will have to remain high in order to receive high-paying clicks. Again, high-paying clicks are based on the quality score given to the traffic the domain receives.
If we buy ads on the cheap and send visitors to ads that have historically been high paying, then we can assume that we will turn a healthy profit. We also can expect to see some visitor abandonment after the first click, since the visitor will be met with an unexpected second set of ads. But depending on how savvy we are with our math and the way we target keywords, we can still turn a healthy profit, even with a very poor conversion rate.
Example: 20 clicks at $.05 each is $1.00. If one person clicks through the second set of ads, a $2.00 payout, then the click netted $1.00 in profit. If 5 people click the second set of ads, we then have a $9.00 profit.
With the above model you can understand why this would be a lucrative venture, but it is disliked by some in the PPC industry. The probability that a visitor is actually going to buy something from the end advertiser will likely be very low. In that instance, it would cause advertisers to pull their ad campaigns, because they see little conversion.
Also keep in mind that arbitrage is not allowed by many parking companies and is against the Terms of Service at many different ad providers. And, lastly, you need to understand that arbitrage is coming under fire from ad providers such as Google.com and Yahoo.com, which have almost entirely banned the practice from their ad networks.
If you choose to engage in arbitrage, keep a backup plan. Should you enter the arbitrage business, best of luck! But keep in mind that fluctuating ad prices, along with miscalculated ad bids, can cost a lot of money. Pay attention to your campaigns and keep a sharp eye on your ad bids!
Happy Domaining!
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Source: Sean Stafford writing for DomainNews.com - Author of DomainGraduate.com - Tapping the Onlines Mines
