PPC arbitrage has always been a touchy subject for search engines, marketers and affiliate program operators.
Countless millions have been earned by arbitrageurs who purchase ads through Google, Yahoo and the link and send that traffic to affiliate programs through which they can earn more than they spend on those ads.
Is it right or wrong? That really doesn't matter; PPC arbitrage exists and as long as there's money to be made, people will engage in it.
Amazon, which operates one of the most popular affiliate programs, appears set to target PPC arbitrageurs by making it harder for them to ply their trade. It send out an email to affiliates informing them that, starting May 1, it will no longer pay affiliate fees to affiliates who send traffic through paid search ads on search engines, including the ad programs offered by Google, Yahoo and MSN.
Amazon says that the decision was made "after careful review of how we are investing our advertising resources". It applies only to North America; Amazon's existing affiliate terms must be consulted for those outside of North America.
As Marketing Pilgrim's Andy Beal points out, PPC arbitrage is the best justification for Amazon's move:
I suspect that Amazon finally realized that it could do its own keyword bidding and cut out the middle-man–those bidding pennies on long-tail keywords and making dollars in affiliate commissions.
This makes lots of sense and Amazon certainly isn't the first company to target PPC abitrage amongst affiliates. Given the economic situation, the incentives companies have to make sure that they're maximizing the use of their ad budgets and the desire to cut unnecessary expenses, I doubt that Amazon will be the last company to yank the rug out from under PPC arbitrageurs who don't necessarily do anything that companies themselves aren't capable of doing.
Of course, for Amazon to truly take advantage of this move, it will need to make sure that it fills the void by setting up many of the same sorts of campaigns the arbitrageurs were previously running. While that probably won't be an issue for Amazon, the challenge for any company is making this profitable. PPC arbitrage is hard and a lot of people have lost money trying to play the game. While Amazon and affiliate operators have higher margins to work with, it's conceivable that some affiliate programs actually benefit from the arbitrage because the arbitrageurs shoulder the risk and manage the campaigns (which does have an economic cost).
Obviously I think Amazon stands to benefit from this and it will be interesting to see where arbitrageurs who need to turn a new page go.
Photo credit: SideLong via Flickr.