If you aren’t familiar with the term “arbitrage” except as a vague, slightly maligned concept, here’s a little background: it’s a term generally used in economics and finance and described a situation where a party purchases a product and immediately sells the product for a profit in another market. The crux is capitalizing on difference in market prices.

In the SEM sphere, arbitrage is when a party bids on low-value keywords and serves ads that direct the customer to another website/search engine that serves ads with higher CPCs. The first party benefits from the difference in the low-cost/high-payout ads and simply shepherds users from one to the other.

If/when the user clicks on the high-payout ads, the buying/selling party gets paid by Google a portion of the money that Google got for the high-paying click.

How does arbitrage work?

Let’s use an example.

– Customers search for the term “california insurance company ratings”

– They see:

serps with arbitrage

– There is an Ask.com ad (top right) with the query in the ad that will redirect to Ask.com search results for that term and will serve the higher-CPC ads:

high cost arbitrage ads

– When/if the user clicks on the high-position ads (high CPC), Google triggers that as a click and charges the business serving that ad (in this example, let’s say that’s AAA, which is serving the top ad). Google will then pay Ask a portion of that money for getting the user to click on the AAA ad through their website.

If you practice arbitrage

There are plenty of arguments for not practicing arbitrage, and we’ll get to those in a second. But if you’re intrigued by the idea, here are some best practices (note that they relate directly to the best practices for regular search ad copy):

– Customizing the original ad for the query promotes relevance and drives clicks (if the user thinks the ad is just going to redirect them to another search engine, they may not click on it)

– Having the query in the ads (original and second-click) improves the CTR with bolding and relevance

– The more the ad directly relates to the query, the more often the user will continue to click through on the second layer (high-CPC) ads

Why you might choose not to practice arbitrage

That said, there are a whole lot of considerations to take before jumping into arbitrage. These include:

–          An industry consensus that arbitrage is bad and hurts the SEM field because of increased costs for businesses/clients on queries that used to cost less.

–          The idea that arbitrage could change how users browse Google. Depending on how prevalent arbitrage becomes, users could lose interest in paid ads as a whole and avoid clicking on them to prevent being redirected to a page full of ads or a different search engine.

–          It’s a risk for the buying/selling party, which must stay on top of the CTR and CVR (where a conversion = a high-value click) of the low-cost ads to make sure money isn’t being lost.

Google’s man-in-the-middle position

Complicating matters is that Google itself seems to have a conflicted relationship with arbitrage. Some reasons:

–           Aside from harming Google’s image and search results quality, arbitrage nets Google a profit from the overall rise in costs and bids for queries, as well as the increased volume of users clicking on high-payout ads.

–          Though Google could keep making money with arbitrage, it needs to keep clients/businesses happy with their ad placements and costs.

–          If there are complaints about arbitraging ads, Google seems to protect clients/businesses much more than the arbitrager.


Search Arbitrage seems to be a very touchy topic among the SEM community. There are many who vehemently oppose it because it harms their clients and their own bottom line and raises costs as a whole. There very well could be a place for arbitrage to be done correctly and help fill some gaps that Google does not cover.

If enough time and energy were spent on building a well-made arbitrage system, it could be possible to great a strong user experience that made arbitrage less obvious to the average user. This could be done with custom-focused ads on specific proven terms that perform well with arbitrage and a clean well-made search engine/landing page which legitimately helps the user find what they are looking for better than Google.

For now? It’s still an enter-at-your-own-risk game.

1 Comment

  1. Adam July 1st, 2014

    Thanks for the help – I was trying to understand how arbitrage was used with Google Products, and your article seems to have clarified it. I’m guessing this is a lot like what Shopping.com or other shopping aggregate sites do. They charge advertisers a fee to advertise on Shopping.com and then pay Google Products to send customers to them . So lets say Shopping.com charges $0.40 for a click on their site. They can bid $0.10 on Google Product Listings clicks and then pocket the $0.30 difference if the user clicks on the listing on shopping.com after being directed there by Google.

    At Tekspree.com we don’t advertise on aggregate sites for that reason – it just drives up the cost of our PPC programs. Why not just advertise on Google Products directly instead of through Shopping.com?

    Anyhow – just want to say thanks for your post!

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Spencer Fair graduated from University of Redlands, where he majored in Business Administration and Sociology/Anthropology. Before joining 3Q Digital in September 2012, Spencer worked at a small SEM company and at Agilent Technologies, where he managed and built servers, virtual machines, websites, and forums. Spencer is from the Bay Area and enjoys working on his classic car, hanging out with friends, exploring new places and restaurants, and playing and building video games.