Arbitrage this. Arbitrage that. If you’re really cool, you call it “arb”. I’m sick and tired of seeing the word arbitrage every time someone makes a profit. It is especially prevalent and poorly used in the online marketing world. Arbitrage is the practice of buying and selling something when there is a price discrepancy between markets. Buying corn at the farmer’s market and selling it on a street corner is not arbitrage. There are costs involved, and more importantly for the pure definition of arbitrage, there are risks involved. Maybe no one on the corner will buy your corn, then you’re stuck with it. However, IF you were able to sit in front of a computer and notice that corn futures on the west coast exchange are selling for more than corn futures on the east coast, and IF you were able to buy and sell those between the 2 exchanges at basically the exact same moment, THEN you would be doing arbitrage. More examples:
Buying cheap AdWords and getting users to click high-priced AdWords (via AdSense): Arbitrage
Buying Google/Yahoo/MSN PPC traffic and directing to affiliates: Not Fricking Arbitrage (risk, not a direct price difference between markets)
Buying computer parts online online (Sorry, Shoe) and selling them locally: Not Fricking Arbitrage (risk, additional costs, timeframe)
Taking out a loan at 5% on Prosper.com, and then re-lending the same money at 8%: Arbitrage
Buying (and converting to A) Berkshire Hathaway B shares when the price of 30 of them would be less than an A share: Arbitrage
Buying anything and selling it on eBay: Not Arbitrage
I know this post isn’t going to cause some fundamental shift in how people use the word arbitrage, but at least I got it off my chest.
How many people have to “misuse” a word before it earns another definition? Language changes.
If enough people use a word improperly, they’re still idiots. It doesn’t change the meaning of a well-defined term.
Finally someone addresses this. Having spent a lot of time in the financial world, I was amused when I first started seeing the term arbitrage used in terms of the web. Yet, it has become this giant misnomer ascribed to anything having to do with online marketing. True arbitrage in the financial markets has become harder over the years as information is more readily available than it used to be. Some hedge funds engage in “risk arbitrage” but even that is kind of a misnomer when you observe the kinds of things they do.
Thanks for echoing my comments.
Thanks for posting this. I was sick of this too!
I agree and the fact that you throw your own partner (shoemoney) under the bus to make your point is truely priceless.
In the above, I think you mean:
buy low priced adwords, click on high-priced adsense
No, I didn’t, but I did clarify what I meant.
wait.. isn’t there risk on the adwords click.
if I buy a click on a high-priced keyword, and create
a landing page with adsense, there is a risk that the
user will not click through. Therefore it isn’t
arbitrage.
ah, correct, thx