Funny business searching for Milan-Rome flights in Google – AdSense Arbitrage at work.


The traditional August break in Italy is a wonderful time to work on projects which linger on the back burner during the rest of the year. Last August led to the release of a free keyword selection guide (in Italian); this year’s focus is a Course on using the AdWords PPC paid search marketing program.

While capturing some updated screen shots for the PPC Course, I came across an interesting example of a search marketing phenomena known as PPC or AdSense arbitrage.

Search for Milan – Rome Flights

Consider this search for Milan – Rome Flights: Search in Google for Flights between Milan and Rome
Figure 1: Search in Google for Flights between Milan and Rome

Travel is one of the most highly competitive business sectors on the web. It shouldn’t then be a great surprise that we have 3 sponsored results (with the beige background) above the organic results in addition to the standard sponsored results on the right. The results at the top appear when there is a high chance of the ad being very profitable for Google – the maximum bid is high, as is the historic click-through rate.

The first four sponsored results (top and right side) are all for established players in the travel market – Edreams, Lastminute.com, Expedia and Opodo. What is particularly surprising is the 5th sponsored result.

I can apparently fly to Rome with Roma.it.Ask.com for just €20.

Ask.com rings a bell somehow… I seem to recall ask.com the search engine. Since Rome for €20 is too good to pass up, I clicked on the ad. The result wasn’t what I expected. Rather than a co-branded travel agency mini-site offering economical flights to Rome, I arrived at a mix of paid and organic search results in Ask.com:

Search for Voli Roma in Ask.com
Figure 2: Roma.it.ask.com Adwords landing page: ads and search results

My original query for flights between Milan and Rome has been broadened to a query for any flight involving Rome on a different search engine. I’ve been led further from my original goal, rather than closer. That’s not nice.

Would you find this a useful AdWords landing page?

Ask.com is paying a relatively low price for ads on Google with the hope that web surfers will go to the Ask.com search results and click on one of the higher priced ads which appears on the Ask.com search results page. Actually, it would be hard not to click on one of the Ask sponsored listings – the organic results appear far down the page, what the newspaper industry calls “below the fold”.

Ask.com is executing a strategy called AdSense or PPC arbitrage. The top ad bids in very competitive business sectors can be very lucrative. In many cases, there is also a significant difference in what the first few bidders are paying relative bidders in lower positions. Consider this fictitious scenario:

AdWordsBidderMaximum Keyword Bid Amount (€)
115.00
213.80
311.00
49.50
57.25
65.80
74.50
83.95
92.35
101.05

Note the large differential between the higher and lower bidders. If a website publishing contextual ads from the AdSense program can inexpensively bring traffic to their website and convince that traffic to click on more expensive ads, the AdSense publisher will pocket any difference between what they paid Google to get the visitor and what Google pays them for the click on the AdSense ad. A big player like Ask.com will have a special agreement with Google outside the AdSense program, but the concepts are the same.

Continuing our example, let’s bid an average of €1.05, with the goal of bringing traffic to our site which will then click on higher priced AdSense ads. Even if we create an excellent landing page, we’re going to annoy or otherwise lose many people along the way, so let’s assume that only 25% of the people who arrive at our landing page will click on one of the AdSense ads. We’ll get paid an average of €13.80 for these ads, but Google keeps a commission which we’ll estimate at 25% (the actual rate, which varies in part on “smart pricing”, isn’t disclosed, sigh1). This means we only see €10,35 for each click on AdSense ads we’ve placed on our landing page. If we get 1000 visitors from Google, that could still net us a hefty €9300! In reality, we have to factor in the 75% of visitors which won’t click through, leaving us with a profit of just €1538. Still, this isn’t bad if we don’t need to do much work to get the mechanism working. The table below summarizes this scenario:

Acquisition Cost (Average AdWords bid)AdSense Click Value before CommissionGoogle CommissionNet AdSense Click ValueTraffic Volume (number of visitors from Google)Average Click Through RateProfit or Loss
€ 1.05€ 13.8025%€ 10.35100025%€ 1,538

PPC arbitrage does involve risk. Consider the same scenario except Google’s smart pricing only gives us a 50% payout and our conversion, or click through rate, is only 15%. We will actually lose €15:

Acquisition Cost (Average AdWords bid)AdSense Click Value before CommissionGoogle CommissionNet AdSense Click ValueTraffic Volume (number of visitors from Google)Average Click Through RateProfit or Loss
€ 1.05€ 13.8050%€ 6.90100015%€ -15

Download our free ppc arbitrage spreadsheet to calculate your own scenarios!

AdSense Arbitrage: who wins and who loses?

WinsLoses
GoogleWhile would seem that the house always wins, this is not really so clear. Google will pocket money from the first click on Google.com and receive revenue from any additional ad click on the AdSense partner site. But at what price?Google should make more money if a user clicks directly on a high value ad on Google.com – there’s no need to share revenue with third parties. A negative end-user experience (having to navigate an intermediary site) detracts from the long term value of the AdWords/AdSense programs.
AdWords AdvertiserNo clear benefits.Users who have to pass through a potentially useless third party website will most likely be less receptive to the AdWords Advertiser’s offer.
AdSense Website Content PublisherProperly attentive to the spread between high and low bids, the AdSense publisher can pocket much of the difference.The AdSense publisher has guaranteed expenses in purchasing traffic, but no guarantee that said traffic will convert – the Internet navigators might not click on the AdSense ads.
Internet SurferNo clear benefits.Forced to explore an intermediary website which is often of little or no value. If time is money, the end-user loses.

In theory, the major search engines have been working to stop contextual advertising arbitrage. In the specific case of Ask.com, Google has many reasons to turn a blind eye to contextual advertising arbitrage. Ask.com is a significant Google customer, using Google’s AdWords service to gather advertising for the Ask.com search sites. Google has a vested interest in keeping Ask from considering alternative ad services. Google also has an interest in supporting smaller search engines, as long as they remain small, as a way of keeping monopoly criticism at bay. Google can point to a whole list of search engine competitors. That these competitors may have problems executing a search strategy (Yahoo! and Microsoft on at the top of this list) certainly isn’t Google’s fault. Indeed, we suspect Ask is using Google search technology to some extent.

A keen-eyed observer might have also noticed the ad display URL Voli-Milano.Excite.it as well. Excite’s parent group is InterActiveCorp/IAC, the same folks behind Ask.com.


1 In a January 2006 New York Times article, an average payout of 78.5% was cited. You would probably have to study SEC filings to find the current figure.

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About Sean Carlos

Sean Carlos is a digital marketing consultant & teacher, assisting companies with their Search (SEO + SEA = SEM), Social Media & Digital Media Measurement strategies. Sean first worked with text indexing in 1990 in a project for the Los Angeles County Museum of Art. Since then he worked for Hewlett-Packard Consulting and later as IT Manager of a real estate website before founding Antezeta in 2006. Sean is an official instructor of the Digital Analytics Association and collaborates with the Bocconi University. He is Chairman of the SMX Search and Social Media Conference, 13 & 14 November in Milan. He is also a co-author of the Treccani encyclopedic dictionary of computer science, ICT & digital media. Born in Providence, RI, USA, Sean received Honors in Physics from Bates College, Maine. He speaks English, Italian and German.

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