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Saturday, November 15, 2008

Click Arbitrage Hits the Mainstream (If Only in Hindsight)

Under the guise of the weekly personal financial profile called "Me and My Money" in the Globe and Mail, reporter Tony Martin teases out an interesting local tech story from investor Will Ashworth that refers directly to Geosign's click-arbitrage-oriented business model. Holy moly!

For those just beginning to score at home, Geosign's properties included a site called TrueLocal, along with several thousand other websites that showed sponsored links, largely in partnership with Yahoo. Traffic was driven to those sites by SEO and low-priced clicks obtained by "lowball bidding" on Google AdWords. Google's Quality Scoring system, including the period where low Quality Scores were associated with high minimum bids per click (as high as $5.00 or $10.00), was largely motivated by top management's desire to squelch most of the arbitrage-based ads in the system.

The key excerpt from the article, "Writer pens an ode to small-cap stocks":

"Forget Nortel. Freelance writer Will Ashworth calls the 2007 collapse of Guelph-based Geosign -- where he worked for six months up to its demise, just weeks after it received $160 million in venture capital -- the biggest tech wreck. It was trying to make money from online arbitrage, but crashed when Google changed its policies. 'It certainly teaches you that in investing, things aren't always what they appear.'"

And, one supposes, in business generally.

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