Thursday, March 31, 2011

The fourth arbitrage: retargeting traffic

JörmungandrImage via WikipediaI’m a big fan of ad exchanges, real-time bidding and demand side platforms. They’re like a dream come true. I can take two of my early favourites; search and affiliate marketing, put them together, mix them up with the previously horrible display advertising channel and get produce a thoroughly satisfying style of digital marketing.

It gets even better. Add to the mix techniques like retargeting (both search and display) and even social media and you have a powerful, effective and thrilling combination. I’m a strong advocate and because of that I also tend to look for problems, pit falls and areas to be cautious about. Recently I’ve been mulling over what an evolved form of arbitrage might look like and unfortunately the fourth arbitrage is as insidious as it is likely.

The first arbitrage: search traffic

There will be people who disagree but I’d argue the first true and done-on-any-scale arbitrage was search. The concept is simple. Sites would decorate themselves with adverts. Google made this possible for the masses. These sites would then run search campaigns to make a profit from search ads.

No longer did new webmasters have to try and convince one of the old ad networks that your site was significant enough to join their ranks – and I can remember a time when both DoubleClick and ValueClick ran pay-per-click commission deals via TradeDoubler’s affiliate network but you still had to apply for program membership and hope for the best – all they had to do was join AdSense. Joining AdSense was much, much easier. Google’s AdSense would pay those webmasters on a revenue-share-per-click basis.

Some webmasters found that if they wrote about expensive keyword topics – like insurance, some medical terms, telephony, etc – that their earnings per click were pretty good. At the time, Google’s AdSense terms and conditions prohibited them from sharing the actual analysis and details with anyone else.

Furthermore, some of these webmasters released that they could buy related but specific and long tail keywords via AdWords for less than they were being paid by Google for clicks on generic topics. Other webmasters worked out that some visitors would click on two or three ads from their site; especially if they thought it was the sort of page that helped guide their choice on which site to visit next.

Search arbitrage was born. These webmasters would buy traffic from Google as cheaply as they could and effectively sell it straight back to the search engine at a mark-up. The result was not for advertisers who, in effect, had to pay multiple times for the same visitor nor for searchers.

Google’s done a good job on the crackdown but depending on how liberally you wish to apply the arbitrage label you can still bump into situations that look similar.

The second arbitrage: display traffic

As search arbitrage became harder to do it became easier and more worthwhile for webmasters operating these ‘click recycling’ sites to venture into display advertising. Under the second arbitrage these webmasters would by CPM traffic (or perhaps land the occasional CPC deal if a network was needy) and funnel that towards sites geared up to sell that traffic straight back to the ecosystem.

The hay days of this form of arbitrage were only a few years ago and we are not far off the peak. As the economy tanked and advertising money shrank the effect was to push CPM rates down. Sure, some ad networks managed to hang onto rare, exclusive and valuable premium inventory but more broadly speaking the average CPM dropped like a stone. At the same time CPA rates, especially outside of the large ad networks and in areas like affiliate marketing and lead generation, remained largely unaffected.

An example of where this occurred was in early YouTube, even before Google bought the video site and for a while afterwards. There was a time when the big brands hadn’t heard of YouTube, agencies who did display too slow to get there and yet the impression tally was rocketing through the roof. CPM deals where a steal. A good banner could gobble up traffic (bored at work or college traffic) and pump it straight into sites ready to monetise it.

Companies have made extremely attractive amounts of money by buying on cheap CPM deals and turning that traffic into lucrative CPA successes.

The third arbitrage: social gaming

It is more controversial to suggest that this is a form of arbitrage but I’ll stick to my guns. Right now, at its high, we see a form of social arbitrage where sites, games and apps make their money by giving visitors and players a reason to engage with an ad or submit their details into a lead generation form.

Imagine a Facebook game that gives you more of its virtual currency to spend for just watching a video, or by filling in a form to get %10 off your subscription to example.com.

Imagine, also, that the same game advertises on Facebook. In this scenario the game, app or site is trying to take traffic as cheaply as possible from Facebook and then sell either that traffic or the details generated from it back to advertisers at a mark-up.

Sure, it’s not arbitrage in the sense that Facebook itself is buying the traffic back but it is still a system that essentially recycles people through an advertising ecosystem.

The fourth arbitrage: retargeting traffic

You will have seen a retargeting banner by now; an ad for a site that you’ve been on recently and didn’t buy from that seems to follow you around the web where it does its best to lure you back. You know this is early days yet because a far too high percentage of these ads are for sites where you did buy the product or book the holiday, but the retargeting is poorly set up and still tries to entice you back to the brand.

The sites that are showing those retargeted ads are often being paid on a per impression basis. That’s right; they don’t need to get visitors to convert or click, they just need to display the banner.

It’s quite easy for a decent blog to join an ad exchange. Once there the site owner can happily suggest a floor price that the brands (or their agencies) need to meet in order to show their treasured retargeting ad. Should there be no one willing to make that real-time bid then most ad exchanges let site owners display an alternative ad – such as a CPA or AdSense alternative.

If the easiest way to get money, though, is to earn on a per impression basis then sites should be very interested in doing what they can to qualify for the retargeting auctions.

In order to qualify for retargeting banner impressions sites need visitors who have previously visited a brand running a retargeting campaign. That’s not so hard though. It’s easy enough to link off to a site who often run retargeting campaigns, or advertise on those sites, or produce content that is likely to come up in search by people researching products likely to be the focus of a targeting campaign.

What is retargeting arbitrage? It’s simply a collection of techniques designed to ensure the visitors to a site will bring with them lucrative retargeting impressions.

Here’s the catch. I’m not so sure this is a bad thing. Other forms of arbitrage have offered very little value to advertisers or users. This form of arbitrage is kinder and perhaps more helpful. It’s about positioning content and ad placements strategically on the user journey. It’s not just about recycling. Advertisers benefit from being given a genuine second chance to win the sale and that’s a stark contrast to advertisers paying twice for the same visitor.

Or am I beating the wrong drum here? What do you think?

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