Written by Brook Schaaf

The term “arbitrage” comes to us from the Latin “arbitrari” via the French, both meaning mediation or judgment.  In the early 1700s, a French mathematician used it to refer to buying low in one market and selling high in another, ideally simultaneously so that the profit is risk-free. Examples include stocks, currency exchanges, and even physical goods. 

The term has been borrowed by online marketers, usually to refer to free or low-cost traffic that is redirected to earn higher-value CPMs, CPCs, or CPAs, especially unpaid, organic search traffic, especially from Google with billions of daily searches. 

It is now said that the “age of arbitrage” is over and newsletters might be next. MarTech Record centered last week’s event around this. In January, media commentator Brian Morrissey of The Rebooting hosted Mike Mallazzo, now Director, Ad Partnerships & Head of GTM, Honey, on a podcast episode called “The end of affiliate arbitrage.” Last week, Morrissey hosted a pod on the bear case against email. Mallazzo followed up with an affectionate, thoughtful, no-better-option piece entitled “Email is Eternal,” the inspiration for this week’s blurb, which brings together the two topics. 

For better or worse, the two gentlemen seem to be correct—the heyday of the arbitrage era will be remembered as spanning roughly from 2010 to 2020. A former Flippa executive concurs, citing a half-a percent average drop in multiples for content sites, many of which monetize through affiliate, and a Holdco that stopped buying content sites in 2020 because of zero-click searches.

Are newsletters then next? The prospect of losing out on your own hard-written distribution is grim, but I share Mallazzo’s optimism: nothing better has or is likely to come along, people are motivated to read at least somewhat, writers have a relationship with readers, and people appreciate good writing. AI summaries of newsletters may actually inspire people to subscribe to more newsletters because they can use their collection as a select-size database with hyper-relevant information. And writers may withhold more content from the open web—why post more than a teaser if you don’t get traffic or even credit?

When newsletters share commercially relevant content about, say, a coupon or chicken coop supplies, it is probably best monetized by a publisher through an affiliate link, which takes us back to arbitrage. A newsletter has a sunken cost but is inexpensive to distribute, so it’s kind of like buying low and selling high. Indeed, many big publishers pay for very expensive traffic and installs, anticipating that they’ll turn a profit in the short or long term. See the Affiliate Hypothesis.  

There is, of course, one better way of harvesting value from commercial intent: a publisher’s very own walled garden. In this context, Google, too, can also be regarded as an arbitrage agent, at least for branded keywords sold through its AdWords product. Most users presumably click on trademark ads as a matter of navigation, i.e., they intended to go to the brand page anyway, so is Google really adding value? In fairness, there is an argument in favor, but the point is at least debatable (ads to competitors and other properties can be regarded as a form of conquesting).

So keep in mind that the era of arbitrage that is ending may not just be for content sites but for Google itself. Zero clicks or no, Google’s own traffic will eventually peak and then decline (perhaps sooner rather than later) while users will still need to find information, submit leads, and purchase things.  

In this fragmented scenario, a partnership with affiliate properties becomes more likely—as it is unrealistic to presume the surface publisher or answer engine will be able to optimize any and all revenue-generating possibilities. So hopefully this will open up new possibilities for the channel. In whatever form, we’ll continue to see arbitrage as long as we live.

As an aside, let me note that I have not overlooked the Chrome policy update affecting affiliate browser extensions. New policies to be enforced in June are clear; the mechanism of that enforcement is unclear, as is the motivation. Hello Partner has reported a positive reception all around to the update, and I will follow up on this if and when more is revealed.

The post Arbitrage Is Eternal appeared first on FMTC.