What the Hell is Arbitrage?
Posted on February 12, 2007 by
Adie 
PPC (Pay Per Click) 
8 Comments
After posting What the Hell is AGLOCO and What the Hell is MyBlogLog, I still am in the ’splaining mood. So I figured I’d take a stab at trying to go over what arbitrage is for those of you who never heard of it and possibly clarify some details for those who have. I’d like to say before I start that I don’t condone arbitrage, but the more people know about it the better the chance that someone like Google will actually put an end to it.
ar·bi·trage -noun
the simultaneous purchase and sale of the same securities, commodities, or foreign exchange in different markets to profit from unequal prices.
Arbitrage is very simply “buying low, selling high” in any market: stocks, real estate, automotives, and consumer goods. We’re of course only focusing on the internet market. So what can you buy low and sell high online?
The most common practice of arbitrage is the buying and selling of traffic. In the internet world every visitor is worth money. At your typical website more traffic equals more page views, more ad clicks, and more money; it’s no different on an arbitrage site. Arbitragers buy traffic through CPC or CPM via ad networks such as Google AdWords. They then direct these visitors to pages trying to get them to convert directly into ad clicks, leads, or commissions. What separates arbitrage pages from conventional websites (and even niche minisites) is that these pages serve the sole purpose of getting users to click ads, have very little to no content, and are laid out in a way to fool the user into thinking the displayed ads are actual content.
An example you say? Lets do it!
It doesn’t take long to find an arbitrage site. Just by typing in “pianos” into Google search the top Adwords result for me is an arbi site.
This is a little screenshot of OnlyPianos.com (Piano Lessons page) which is a prime example of an arbitrage site. This template is used on a number of other sites as well. Notice how there’s absolutely nothing on the page aside from ads.
So How Do These Make Money?
It’s hard to believe that a site like this can produce any kind of income. There’s nothing on the page, no organic traffic, and usually absolutely no natural traffic (which is what domain parkers typically rely on). Since arbitrage sites provide nothing to users, arbitragers have to trick people into visiting and using the site. They purchase very cheap advertisements through low-quality ad programs similar to Adwords. One of these cheap ad programs, for example, is 7search. They usually bid .01-.10 cents per keyword with potentially thousands of keywords and keyword phrases that they purchase. They send this cheap traffic to their arbi sites where they are displaying higher-tier ads such as Google Adsense. Their hope is that users will exit their site through ads rather than hitting back or the X button.
Considering most arbi sites generate a high CTR (typically 50% or higher) they’re able to turn $.05 traffic into $.25 ad clicks.
What’s Wrong with Arbitrage?
I personally think arbitrage is a poor method of earning online. One reason is that it provides absolutely nothing useful for the user. When people click on ads they expect to be taken to a place where they can find what they’re looking for. Instead they just get more ads. A lot of people say this is no different than domain parking; however, ads displayed on a parked domain collect from natural traffic only (if they purchase traffic to point to their parked domain it then becomes arbitrage). A domain’s natural traffic would be lost without ads; therefore, it isn’t harming anyone to show them. With arbi, however, users are taken out of their way to be presented with ads.
Secondly, it lowers the value of contextual networks overall. When a typical user clicks on an ad they’re looking for a product or an answer to a question. When they don’t find it and instead are presented with more ads they keep clicking. If they’re taken to more arbi sites then they continue to click. This means that networks such as Adsense are showing a bloated amount of clicks relative to the amount of people searching. This lowers the cost of clicks across the network which hurts legitimate publishers as well as arbitragers.
Further Research
I only really have one resource you should use to learn more about arbitrage: Jon @ WickedFire. Go learn.
If you’re more of a visual person, I suggest you watch the video below (read more). It’s a great breakdown of arbitrage.
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Great explanation. To be honest, I wasn’t always 100% sure what arbitrage was. Thanks for clearing that up.
I’m glad you said it. I suggested on a forum that arbitrage wasn’t the best plan for making a living on the net. I got flamed so bad it still burns!! It is an unsustainable business model as practiced by most people currently doing it! I’m not judging anybody. Just don’t quit your day job yet. I do think the business model of “click flipping” which is purchasing clicks to send to affiliates is a little better. Anyways….Good Post!
This is a good article and I agree that I don’t see how they can make money, at least anything worthwhile. Just so you know, I submitted this article to the ProBlogger project. Hope it helps you.
Hey Matt,
This is a good into to ppc arbitrage post.
That’s the thing about web 1.0 arbitrage sites. It’s a unsustainable business model. Once google (if ever that day comes) decides to put a stop to it, there goes the moolah.
A better alternative would be to build content-based sites, but employ the arbitrage model. Get ranked well on the SERPs, buy cheap traffic on the 2nd tier search engines and drive the traffic to those arbitrage sites.
[...] What the Hell is Arbitrage? via Scott [...]
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Good article.
I have been hearing the word arbitrage mentioned a lot since I put up my site, but was not sure what it meant in the internet traffic space.
It is always amazing to me that these people do not think about how their efforts will spiral downward until there is ZERO value left.
This type of practice could ultimately discourage people who take the time to generate unique content to stop if they cannot compete with the “arbitragers”
it may not be a great way to monetize, but apparently it does work if done properly. Michael Plante of course is making a name with his Arbitrage ebook, plus there’s a new book recently out called Arbitrage Voodoo which claims some 2007 techniques that actually work.
i’d say like Mike says, start with $5.00 and test. it may not make you rich, but it could pay for an extra tank of gas, or offset some other “marketing costs”
One more method I personally want to test out, but haven’t taken the time yet.