Aaron Wall recently wrote a blog post about how click arbitrage is killing Yahoo! Search Marketing. His arguments make a lot of sense and if you consider that buying keywords through Yahoo! Search Marketing is less expensive than buying those same keywords through Google then you might think that advertisers have a door to instant profits. But the search engines have actively fought click arbitrage and have met with some success. They will likely get better at this. Still, the opportunities are still there.

The way click arbitrage works is like this: An advertiser pays for low-priced keywords at a pay per click company with cheap clicks - all of them except Google. And they drive that traffic to a web page with Google AdSense ads. This has worked really well in the past for high-priced keywords. When visitors get to the web page with the ads on it, they don’t find much valuable content and click away - on an AdSense ad. These AdSense ads have earned the publishers thousands of dollars in revenues for clicks that they’ve paid just a modest amount for at Yahoo! Search Marketing and other PPC providers.

So when Aaron Wall says this is killing Yahoo! Search Marketing, he makes a good point. Yahoo! Search Marketing didn’t get serious about fighting click arbitrage until February of this year. Now it may be too late because the company is in deep trouble after having spurned Microsoft’s buyout offer and experimenting with placing Google ads on its network of websites.

The big question for PPC advertisers going forward is, Will Google be the main show in town or will Yahoo! Search Marketing turn it around and be more competitive? Will other players learn to compete? It won’t fare well for anyone if there is only one reliable PPC provider and I’m hoping that Yahoo! can find solutions to its internal problems that keep them in the game.

Pay per click arbitrage is the practice of buying ads on one pay per click search engine or through one pay per click advertising provider and making your destination URL a web page with pay per click ads, affiliate program ads, or flat fee display ads on it. The success of this marketing strategy depends on the arbitrageur making more per click when visitors click on their ads than they pay in clicks to get the traffic to that page. Many Internet entrepreneurs have used arbitrage to game the pay per click advertising system for several years and it’s reached critical mass. The search engines have taken notice and are working hard to address the issue. They now claim that they have done so.

Google, for instance, has changed its pay per click policies to include:

(Source)

• manual reviews, smart pricing discounting (of publisher clicks), and quality scores (increasing the cost of advertising junk)
• improved duplicate content detection
• decreasing the clickable area in many AdSense ad units
• killing sub-syndication of their feed with companies like Ask
• keeping a greater percentage of ad revenue from each click
• requiring advertiser display URLs to match ad destination (starting April 1st)

Regarding that last point, Search Engine Land just yesterday published a post that explains how Google has had that policy in place all along but starting April 1st, 2008 will begin enforcing it.

Yahoo, too, is taking action to kill PPC arbitrage. These policies are making some people very happy. In fact, legitimate pay per click advertisers are ecstatic over these changes and most of us are saying that we’re glad the search engines are finally taking a stand against pay per click arbitrage. But there will be people losing a lot of money over the changes.

Nevertheless, I don’t think arbitrage is completely dead. Nor do I think it die off completely. There are still small pay per click companies out there that will need to survive and in order to remain competitive with the larger companies like Google and Yahoo, they will need to keep their click prices low and have more lax policies. Otherwise, they risk going out of business. This will create new opportunities for pay per click arbitrageurs. It may mean that they can’t do business with Google or Yahoo, either as a publisher or an advertiser, but they can still profit from the differences in click prices at the small search engines. I believe it’s just a matter of time before they figure this out and there’s probably a handful of arbitrageurs who are working on their first e-book right now.

When it comes to making money online, there is more than way. Not all of them are considered legitimate by those in positions of power and authority. But not all are frowned upon by the entire universe either.  Pay per click arbitrage is one of those areas that has strong adherents and equally strong critics. Google and Yahoo may be driving a stake in its heart, but it will be a long time before it dies completely.