The Computer Business Review Online is reporting that Google is shuttering the accounts of people who use Google's Adwords program to "buy" viewers and then direct them to websites full of high paying ads. Since on average only 1 or 2 viewers in a hundred clicks on an ad, these arbitrage opportunities only work when the price differential is fairly large. Apparently, savvy web developers have found lots of these situations. The best example of this situation is where the website purchases traffic related to "digital watches" very cheaply and then has many ads for Rolex watches which are worth a great deal.
Moral arguments about arbitrage in general aside, Google is foregoing significant revenue here in order to increase the quality of users' searches. Google makes money every time someone uses either Adwords or Adsense, effectively running both sides of this arbitrage for the website developer. Google is clearly gambling that the overall quality of the searches they provide to users is more valuable to their business than this revenue.
The real implication here, however, is that those engaging in arbitrage don't have a good alternative to use now that Google has shut them down. In particular, Yahoo! and Windows Live don't control enough of a fraction of the total web search market to replace Google. When Microsoft re-branded their search engine, they actually lost ground and Yahoo! has been unable to catch Google.
Advertising is turning into the second viable industry on the Internet, after the vices like adult entertainment and gambling. Hopefully, the Internet will be able to keep it clean.
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