Back in 1998, a friend and I came up with an ingenious idea: we’d go to local auctions in Iowa, buy stuff that had no local market for it, and turn it around and sell it at a premium on eBay. The plan worked really well. For example, we could buy high-end beanie babies in Iowa for $100 each and turn around and sell them in a week on eBay for over $300. We once bought a Mickey Mouse toy wagon from the 1930s for $60 and sold in on eBay for $430 a week later.

This strategy worked for two reasons: 1) we were able to take advantage of market inefficiencies and 2) eBay made it really easy to quickly turn around merchandise.

The market inefficiency part simply means that the price someone was willing to pay in Iowa was generally much lower than the price someone was willing to pay in a national market. This is sort of the inverse of the phrase “selling ice to Eskimos” – Eskimos won’t pay you a penny for some ice cubes, but try selling ice in the Sahara Desert and you’ll get a pretty penny.

And eBay back in 1998 was really easy to use. You had very few choices – which category to place the item, which pictures to upload, how much to start the bidding at, and how long should the auction last.

Today, my friend and I probably couldn’t make a dime doing the same thing on eBay, simply because both the market inefficiency and the ease-of-use are gone. eBay is now a national phenomenon. As such, when you go into a local antique store or a small-town auction in Iowa, everyone knows the “eBay value” of the items for sale. The opportunity to “arbitrage” eBay is largely gone.

And using eBay has basically become impossible, unless you are a “Power Seller” a/k/a a small business. There are thousands more categories, featured listing options, different photo options, escrow, payment choices, HTML choices, “buy it now”, eBay stores, shipping cost calculators, and on and on and on. If you are a novice and try to list a few items on eBay, it’s very likely that your items will get lost amongst the dozens of competing items placed by professional eBay sellers.

The history of eBay mimics the history of paid search, for exactly the same reasons. First, let’s look at market inefficiency. There are still thousands of people out there by paid search ads and either a) sending users directly to an AdSense page, or b) sending users to an affiliate page for a bigger brand. This is pure arbitrage, and it works well simply because the search engines haven’t aggregated all of the buyers of paid search. Just like an Iowa auction versus a national auction – there are only so many people in Iowa who want a “Mickey Mouse wagon”, but there are plenty of people nationwide who will compete aggressively for this toy.

Over time – and we are already seeing this – paid search will become more efficient. The opportunities to buy keywords and send them to AdSense pages will become less and less, as bid prices go up (and frankly, as Google starts to crack down on these sites, which they have recently begun to do). And affiliates will find it harder and harder to find keywords where the parent company isn’t playing. Since the parent company will always make more revenue from a conversion (no rev share with the affiliate), this will knock affiliates out of the prime bidding spots.

Ease-of-use is also rapidly disappearing from paid search. In the beginning, there were two choices – Overture and “AdWords Select” (who remembers the days when “AdWords” regular was a CPM product! I do!). Now you have Google, Yahoo, MSN, Ask, Miva, Kanoodle, Industry Brains,, 7Search, Mamma, and on and on and on.

Even on Google, the complexity is starting to spin out-of-control. You have to choose from match type, content versus search, distribution versus Google, CPC versus CPM, text ad versus image ad, print ads, radio ads, demographic targeting, negative keywords, tracking URLs, Google analytics, and on and on and on.

Frankly, I feel bad for a small business person trying to manage multiple search engine accounts – each which their own nuances and rules – while also trying to keep up with their business. Maybe there still is a need for traditional search engine marketing agencies!

The bottom line is this: business becomes more and more complex over time, either as the stakes get higher, or as people specialize and sub-specialize. The inevitable result is that the part-time players get pushed out, or farm out the work to professionals. A search engine marketing agency is really no different than all of the local “sell it on eBay” stores that charge you a commission for selling your junk on eBay.

I know that there are still people out there that watch “Antique Roadshow” on PBS and dream of walking into a dingy antique store in rural Iowa and finding an original copy of the Declaration of Independence. There are also a lot of people who think that they can slap together a Web site and become an overnight millionaire buying “tiny classified ads” on Google.

I can tell you from experience, if you think you are going to pull a fast one on a small town antique dealer, guess again – they all have Internet access and eBay is the first bookmark on their computer. And while there is still some opportunity to game the system for profit on search engines, the window is getting smaller by the minute. One year from now, like eBay, search engine marketing will largely be the domain of professionals.

Tags: SEM expertise, marketing experts, ebay, power sellers

1 Comment

  1. Steve March 11th, 2006

    David, are you trying to say that the world needs… wait for it… “AdFlow?” For those who don’t remember the hot auction management software company “CommerceFlow” – it was kind of like Andale. Where are the tools that allow small businesses to manage SEM operations across disparate platforms? If they are out there, seems like that would be a good post topic. If not, sounds like it’s time to start coding up some kinda Web 2.0 super-app.

Leave a Comment

David Rodnitzky
David Rodnitzky is founder and CEO of 3Q Digital (formerly PPC Associates), a position he has held since the Company's inception in 2008. Prior to 3Q Digital, he held senior marketing roles at several Internet companies, including (2000-2001), FindLaw (2001-2004), Adteractive (2004-2006), and Mercantila (2007-2008). David currently serves on advisory boards for several companies, including Marin Software, MediaBoost, Mediacause, and a stealth travel start-up. David is a regular speaker at major digital marketing conferences and has contributed to numerous influential publications, including Venture Capital Journal, CNN Radio, Newsweek, Advertising Age, and NPR's Marketplace. David has a B.A. with honors from the University of Chicago and a J.D. with honors from the University of Iowa. In his spare time, David enjoys salmon fishing, hiking, spending time with his family, and watching the Iowa Hawkeyes, not necessarily in that order.