The name of the game here is playing both sides of a market. The basis for arbitrage is identifying a gap in market pricing and taking advantage of it. In order to take advantage of the price gap one must have a good sense of both sides of the market: the buy side and the sell side. In this chapter I will introduce each side of the market, provide some examples, and then go into the idea of playing both sides of the market. In the Revenue and Expense Streams chapter following this I will list out many top sources for both sides of the market and provide some details about each of the big players.

The buy side of the online advertising market is that which the website publisher is buying advertising to promote his site. Essentially, as we have been learning, this consists of buying the right to display your ad in a particular space at a particular time. The ad buyer is paying a fee to obtain that right and in return the site he is promoting gets exposure (i.e. people see it), which results in additional traffic to the site.

The buyer may purchase a fixed fee banner ad position on someone else's related site, or bid on a certain keyword and pay that amount when his ad appears in the search results of a search engine.

*Quick example: George hosts a site related to orangutans. George bids on the key term "orangutan" in a search engine's "pay per click" advertising program.

When Julie, a web-surfer doing a report on the orange apes, types "orangutan" into the search engine, Georges site is at the top of the list because his bid amount was the highest for that particular keyword. Other choices for the buyer may be an affiliate program where web entrepreneurs are paid a commission for each sale of a product the website is promoting. There are various organized affiliate networks that allow people to register as an affiliate with the network and then chose products they want to promote. The website owner in this case simply registers as an advertiser and allows his product to be listed w/ the network. If an affiliate likes the product or sells similar products, they will sell it and take a commission pre-determined by the website owner/advertiser.

All types of buy side and sell side programs will be discussed in detail and listed out in the Bringing Money In: Marginal Revenue and Expense Streams chapter. For now we'll briefly discuss some sell side examples and then talk about the importance of understanding both of them.

The same website owner mentioned above who is buying different types of advertising will also be interested in selling different types of advertising. Again, he is not selling ads themselves but the right for someone to place their ad on his space, also known as his website. The larger his website, the more space he has available for sale. The more traffic attracted to his website, the higher the value of that site, all else held constant.

The website owner may register to place contextual advertising on his site. The contextual ad company, of which there are not many yet and the market is currently dominated by Google's AdSense, will scan each page of the website where ad code is located. The scan will determine the topic of the page and place related ads in the space designated by the website owner. Each time one of the website's visitors clicks on an ad, the website owner's account is credited with a certain amount of money. I will come back to this example in a moment, but let’s discuss one more to help round out the sell side.

The website owner may partner with a company that sells products related to his site. He agrees, for a fixed fee that is based on the amount of traffic the site generates, that he will place a banner ad of the company selling the products on his site. He collects the fee, the company gets the exposure. Note here that the website owner is not responsible for products actually being sold (such as a commission-based affiliate program). He simply receives a fixed fee in turn for ad placement on his site. It is up to the company selling the product, which happens to be on the buy side of the market in this example, to determine if the ad was worth it. When we get to the Analytics section of the book we will do the same calculations that company may do to determine the actual worth of the ad they pay a fixed fee to place.

OK, back to our contextual ad example. I will discuss a method of advertising arbitrage that absolutely guarantees to fail in order to explain the basis for being on both sides of the market. Believe it or not, in the almost two years of learning, experimenting, and researching the online marketing world I have actually come across many people that have either tried the following or were thinking about trying it. I promise you you're money is better spent being flushed down the toilet than to even think about being on both sides of the market with the same ad provider.

Google acts as a broker in a way for both sides of the market. There are other companies that do the same thing, we'll cover all of them in the Revenue and Expense Streams chapter, but Google is the most popular and well seasoned at it, relatively speaking. The buy side product that Google offers, among others, is Google AdWords. A website owner bids on a keyword and in turn Google ranks them in web search results OR places them on contextual ads.

*quick example: The owner/publisher of FearlessFlyingMonkeys.com wants to drive traffic to his site that sells flying monkey stuffed animals. The competition is tough for the flying stuffed animal market so the owner bids a hefty amount on the keyword phrase "flying monkeys" via his Google AdWords account. Let’s say the owner bids $1.00 on the phrase. Let’s assume that his is the highest bid so he will show up at the top of search results when someone searches Google for "Flying Monkeys." Also, when a website having to do with flying monkeys, lets say monkeyflight.com, that is also hosting contextual ads by Google (known as AdSense, the sell side of the Google product line), the ad for FearlessFlyingMonkeys.com will appear on that site as well. In either case, when the web surfer clicks on the ad, the owner/publisher is charged his $1.00 bid.

What is important here is the owner of the site related to flying monkeys, monkeyflight.com, who is hosting AdSense ads. AdSense, as stated in the example, is the sell side product from Google. A site owner will place AdSense code on her site, Google will scan the site to determine the topic(s) and then push ads to the site via the embedded code that relate to the topic of the site. In the example, Google scanned monkeyflight.com and determined it was related to flying monkeys. It then scanned its bids to determine the bid ranking for related keywords, such as "Flying Monkeys". Google then pushes the related ads to the site. Of the $1.00 paid by the FlyingMonkeys.com owner each time someone clicks on the ad, a portion of that goes to the monkeyflight.com owner hosting the ad. Hence, the buy and the sell side. The amount of the $1.00 that goes to the AdSense host is not explicitly stated by Google but I am able to back into an estimate based on some financial data. I'll go through that in the revenue stream detail listing of revenue sources, such as AdSense, in the chapter Brining Money In: Marginal Revenue and Expense Streams.

The real bad thinking here goes something like this (and I kid you not, people have tried this): a website owner pays for keyword advertising using the Google AdWords program and also hosts ads using the Google AdSense program. Theoretically there is nothing wrong with this provided you diversify your income and expense streams and pay close attention to what you bid on in AdWords. However, relying on these two streams to net out (i.e. income minus expense) to a positive number is very difficult. By nature of your site the keywords you get paid for (AdSense) will be the same as the keywords that attract people to your site (AdWords). Considering that the person who pays for the AdWords is paying out to two parties, 1.) Google and 2.) the AdSense host, the amount paid to the AdSense host must always be less than the amount paid by the AdWords subscriber for a given keyword:

AdWords Keyword Bid = Google's Take + AdSense Host's Take

As you can see, there is little chance for profit by being on both sides of the Google-only market. Unless you run into unique keyword combinations where your AdWords bids happen to be less than what some other related keyword is paying via AdSense. This is possible, but there are much better ways to capture this type of profit. Playing and understanding both sides of the market is a key concept in this book. With proper research, knowledge and analysis it is possible to be extremely profitable by doing just that.

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