Marketers Speak Out on Search Arbitrage

How big a problem is search arbitrage—and how effective are the measures the search networks, especially Google, have deployed to combat it?

To some, search arbitrage—the process of using low-cost paid clicks on one search network to drive visitors to a page that’s virtually nothing but higher-return search ads, usually from another network—can be a smart way to bootstrap a Web operation until it can develop its own revenue stream. To others, it so degrades the quality of the clicks that search networks have sold to advertisers that they risk being charged with ad fraud.

Last year, Google took steps to cut back on the “Made for AdSense” Web sites that use Google PPC ads to send visitors on a wild goose chase through more pages of PPC ads, collected revenue with each click. The network imposed a quality score for ad landing pages that hiked click bid minimums for content- and relevance-poor pages. The aim was to break the economic model that sustains search arbitrage by making those initial clicks too expensive for most players.

Google’s express intent was to prevent users for having a bad search experience. Of course, some observers have noted that fighting back by raising prices is also a convenient way for Google to replace lost ad revenue.

In all this angry talk—search arb panels have been on the agenda at the last two Search Engine Strategies conferences—it’s sometimes hard to hear the voices of ordinary marketers who may have felt the impact of arbitrage on their campaigns.

Melissa Mackey is search marketing director for MagazineLine, an online subscription sales agency. She was in the audience at the last SES arbitrage session and said afterward that her company has taken a big hit from those “Made for AdSense” pages.

Mackey says her employer, a division of Lansing MI-based American Collegiate marketing, got its start more than 30 years ago via direct marketing but ramped up its online efforts in the late ‘90s. The company got into search marketing in a big way around 2002, using Google AdWords, what was then Overture (later Yahoo! Search Marketing) and MSN’s Search Feature program, predecessor to its current adCenter listings.

Overall, MagazineLine has done very well using PPC ads and without much threat from outright click fraud, Mackey points out. “We’re not in an industry like pharmaceuticals with high-cost keywords, so it doesn’t really pay anyone to defraud us. Except at the busy times of the year, we pay about 50 cents a click, and we get a positive ROI from that and a qualified customer.”

Mackey says she can’t be sure if the click quality problem has gotten worse recently because while MagazineLine has been monitoring click traffic for a while, it only recently signed with Click Tracks, a full-fledged tracking service that can trace traffic back to its source and build a coherent quality view. “I feel like I’m seeing more poor quality clicks, but I don’t know if that’s because I now have a better detection tool,” she says.

But Mackey has begun to see a decline in the quality of incoming clicks from some Web sources, and attributes that drop to traffic from arbitraged pages. “They are probably biggest source of poor quality clicks for us— sites like ‘Cozmopolitan.com’, where people think they’re going to the site of the actual magazine but instead get this page full of ads,” she says. “And the search engines are lumping these pages into their networks. But that’s not search.”

“Parked” domains like Cozmopolitan.com play a part in the search arbitrage issue because so many of them hold these “Made for AdSense” pages that consist of nothing but more ads. Even if this second level of ads leads consumers to an actual site where they can buy a product, a company like MagazineLine may find its PPC ad grouped in with a slew of competing subscription-service ads.

As a result, while even these arbitraged ads may occasionally convert for MagazineLine, they don’t do so at anything like the rate the company’s sponsored ads do on either search results pages or on standard Web content pages.

Mackey believes these arbitraged pages are more a problem on Yahoo!’s publisher network than on Google’s, simply because Google allows advertisers to exclude specific parked-domain sites in their content and search networks. So far, Yahoo! doesn’t.

As a result, MagazineLine last March opted out of advertising on Yahoo’s publisher network in an effort to reduce those poor quality clicks. “I thought that would solve the problem, but it didn’t,” Mackey says. “It got rid of a lot of junk traffic, but by no means all of it.”

The ability to control which content sites showed her PPC ads would benefit both MagazineLine and Yahoo!, she points out. “I’m not paying as much per click as I might if I could get rid of some of these garbage clicks,” she says.

Mackey says that in an SES Chicago session on domain parking, she asked Josh Myers, senior director of the Yahoo! Publisher Network and general manager of domain match, when the company would allow site exclusion in its content network. “He gave a kind of non-answer during the public session,” she says. “But he came up to me afterward and told me that while that’s not currently a feature in the new Panama [bid management] platform, it’s going to be in the future.”

For Mackey, search arbitrage is a problem that the networks need to help marketers solve. But for PPC advertisers like Frank Watson, director of search marketing for online currency trading site FXCM.com, that cure—specifically, Google’s linking of landing-page quality to minimum per-click bids—has actually been worse than the arbitrage disease.

Not that search arbitrageurs haven’t been a problem for Watson’s company. He spoke at the first arbitrage panel, held during SES San Jose last August, and said that while FXCM shares its highly regulated industry vertical with only 40 other companies, he counted 162 marketers advertising with the term ‘currency trading’.

“That means there are 122 people arbitraging that particular term, which is worth about $15,” he said at the time. “Slowly and slowly, they keep costing us money.”

That was a few weeks after Google announced its landing-page quality strictures, which Watson said might prove a helpful corrective measure. But by December and the next SES arbitrage session, he had drastically changed his mind.

Google’s quality index includes a mechanism that renders inactive keywords that have particularly low bids and relatively low clickthrough rates, on the theory that these terms are disproportionately used by arbitrageurs. But the primary impact of that mechanism, Watson told the Chicago audience, was to force both arbitrageurs and legitimate marketers to raise their minimum bids while building up clickthrough rates in order to get those keywords activated.

“I’m in currency trading, and fair enough, it’s competitive,” he told the Chicago audience. “But it’s not like plastic surgery. And yet we had words that we were getting for 50 cents turn into $10 clicks.”