Niki Scevak Bursts the Bubble on Search Arbitrage
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Written By Reprise Media | March 4, 2005 | Share This
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Niki Scevak of Jupiter takes umbrage with Bambi Francisco’s article on MarketWatch that speaks of a pricing bubble in search resulting from ’search arbitrageurs’ who are artificially inflating the price of keyword searches.
Scevak calls Francisco out on two accounts: 1. That the concept of arbitrage as it relates to search even exists, and 2. That a pricing bubble has occurred as a result this so-called phenomenon.
We strongly agree with his post, and especially with Scevak’s assertion that the transactions of firms like Nextag are not without risk. Scevak writes:
Nextag takes a generic keyword, filters that user through the decision of what make and model, and often what price range the consumer is willing to pay for their dvd player, and then sells that more qualified lead to merchants. It furthers the consumer through the purchase funnel. Extra value is added.
Topics: SEM: Firms, SEM: Keyword Generation, SEM: Paid Search |
Nice find. I went into some detail on this topic, too.http://www.organizedshopping.com/blog/archives/001222.html
Perhaps not in the shopping context, but "arbitrage" effectively DOES EXIST in the local arena:Exmaples in a growing list of such deals:http://www.myezclicks.com/http://www.leads.com/products/http://www.affinity.com/online-marketing.htmhttp://www.lawyers.com/pdc/searchengine/premium.asphttp://money.iwon.com/jsp/nw/nwdt_rt.jsp?section=news&news_id=dji-00003420041028&feed=dji&date=20041028&cat=INDUSTRYhttp://www.homegain.com/buyerlink/index_html?ht=landing_blSearch traffic is purchased and resold with a margin for the reseller.
There are arbitrage opportunities that exist in a number of areas online, including local.One of the issues Niki had (that we agree with) is that in some of the instances Bambi listed, the arbitrageur does take on risk, which is contrary to the definition of the word… I guess in the instances you mention, the local search providers have essentially presold their inventory, so this may indeed be a true arbitrage scenario. The other major issue we had was attributing the so-called emerging bubble to these models. Do you think that companies like Homegain and Lawyers.com are inflating keyword prices that or are they just exploiting market inefficiencies because they understand the economics of their categories? This might just be a semantic discussion, but not only do I believe that it’s the latter, but I also think this business model will flourish for a long, long time.
Regardless of how you define arbitrage, there isn’t any merit to the argument that there’s a bubble (emerging or otherwise) in search marketing.In a bubble, price and value become completely disconnected from one another. Prices rise because people expect them to keep rising. All the conditions that make people intelligent — independence, diversity, and private judgment — disappear As Niki points out, many marketers are running profitable search campaigns using extremely conservative success metrics. If these same advertisers could/would factor in offline conversions or the value of branding, for example, they’d actually find that there’s upside in search marketing.If this were truly a bubble, the fact that prices are going up would make people more interested in buying. In actuality, we’re seeing the opposite — the more the price of a given keyword goes up, the less interested people are in buying it.