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Are you arbitrage worthy?

Written on
May 18, 2009 
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DM Confidential  |
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Are you arbitrage worthy?

money_small.jpgDM CONFIDENTIAL — When an outside person hears about the arbitrage industry, specifically the cash flow businesses that result from what seems like such simple activities, they invariably start turning over in their minds scenarios by which they could do some arbitrage themselves.

It happens almost every time and for almost the same industries. From Facebook ads to parked domain revenue, stories of people making the six figure to seven figure life literally living the four hour work week will make anyone shake their head in disbelief and simultaneous incite scheming. Arbitrage spans the gambit of Internet activity, and so long as there are new traffic channels, stories of those making lots with little will continue. For those already involved in arbitrage but especially for the greater number who have seen the ads, read some articles, or serviced publishers, we have put together a little checklist as you consider testing your skills at the game of arb.

Do You Know The Industry

Knowing the industry is a slight Catch-22, because once you know the hurdles, you might make the decision not to enter. Assuming, though, that you have a fairly unwavering interest in the space and aren’t put off by a little risk, knowledge of the space is key. You don’t have to have run a business or necessarily even have worked directly in the performance marketing space, but you need to have some sense of the landscape. Either that, or you have to be a quick study and know someone who can point you in the right direction and get moved along the learning curve faster than you would on your own.

Are You First

Often in business, the person who is first has a supreme advantage. Just think of drug companies who upon successful rollout of a product have tens of years before another company can release a similar product. Not so with most forms of arbitrage advertising, especially the kind that takes place when one runs a CPA offer from a network on Facebook or Google.

There is no patent, no protection. Instead of being untouchable, ads sit there like a target waiting for others to discover and copy. That doesn’t mean a lead has no value, but a lead doesn’t have the same type of value it has elsewhere. Still, being first usually gives some cushion be it in weeks or a certain amount of dollars. Regardless of how much it yields of each, the lead is still invaluable; it provides a measure of margin not achievable when playing in a field full of me-too’s.

Are You Second

If you are not first, then where are you? As we implied above, you don’t always have to be first to succeed; in fact, in our space, being first has its advantages, but it certainly doesn’t imply those who follow have no chance. Just like search listings, sometimes being second has just as much value because you get to learn from number one before committing capital.

Second also means have a close watch of the landscape and being well positioned to strike when the opportunity calls. No campaign or arbitrage opportunity has only one “second” place; instead, coming second doesn’t literally mean being the second person to advertise a particular campaign, it implies more being among the second wave of people for a particular campaign.

Are You Late

If you aren’t first, and you aren’t among the second wave, then you have to really wonder where you fit in? Asking “Are you late?” is another way of saying have you entered a mature vertical. Think of Dish TV or online education. While you might still qualify as an arbitrager running those (i.e, getting paid on a CPA while paying on a CPC), you don’t fit the mold of the type of person and opportunity being discussed when people talk about easy money arbitrage. Certainly, you’d like to be number one or at least part of the second wave, but if you aren’t then you definitely want to know if you fit into another category. If you fit into that other category, then you really want to think twice before entering.

Are you Better

Let’s assume that you aren’t first or second and that you qualify as being “late,” where late means trying to promote an offer on an inventory source where that type of offer has already run or already runs. If you are doing that and doing so deliberately, what you have to ask is “Are you better?” If you aren’t, then you should take a hard look at the reason for pursuing that particular combination of offer and traffic source. If you feel you do have some advantage, you will want it to be in one of the following:

Payouts – people often think about advantages in terms of performance, and perhaps no other area of performance matters quite as much as payout. A person who gets $1.50 while the other gets $1, or the person who gets $40 where another gets $35, has an unfair advantage over their competition. It means they have to innovate less and simply worry about copying what they already assume works. Getting paid more is one of the oldest advantages around but still among, if not, the best.

Technology – making more money per action definitely helps, but not everyone can begin with that luxury; often they must earn it. That means having some other advantage that makes you better, and technology comes in as one of those desirable options. Quite a few companies in the performance space, including one that sold last year for more than $100 million, began life making fairly standard payouts per action, even taking the offers not directly; but these companies had an ace up their sleeve that allowed them to scale more quickly and robustly. If you have that advantage, look for places to leverage it, and if you don’t, understand what you might face.

Relationships – technology makes a big difference, especially when dealing with something as complex as Google. When dealing with newer platforms, such as those without an API, it matters less what you know than who you know. Relationship benefits can definitely manifest themselves in the form of better payouts, but they also come in the form of certain privileges invaluable in nature.

Having the right relationships might mean getting to run the offer on a traffic source others don’t, not needing the same level of oversight on creative approval; it might mean getting ads placed to run where others can’t or locking out the competition and being the only one who does. Despite our space being one made for loners, who you know can make the biggest impact of all.

Do You Have The Cash

Last and certainly not least in the arb checklist comes money. You might have an offer, a payout, a placement, and then some but lack the bankroll to fund the activity. Ask any startup, money matters. One of the understated areas that deserves its own bullet point is “Are you a better tester?” When dealing with new avenues of traffic, sometimes there is no secret sauce, nothing special outside of the patience and diligence to see something through until it works. That patience and diligence is generally known as money.

Can you stand to lose hundreds or thousands a day until it breaks even? If you hear of someone making thousands or more a day, would you have the fortitude to lose the tens of thousands they may have lost getting it to that point? Many people, and perhaps not surprisingly, do not. It takes a certain will, often a stubbornness to keep throwing money at something without guarantee it will work and without a formula that says, “after x dollars you will know for certain whether it works or doesn’t.”

The beauty of arb is that in many ways it truly is for everyone; yet, once you study it more closely, while accessible to almost any, it is still meant for just the few. If it weren’t, it wouldn’t be arbitrage.

- Courtesy of DM Confidential editor





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