Another form of arbitrage on the internet can be found with products. Essentially, in this case, you will buy something for a low price and sell it to someone at a higher price. We see this every day in the real world. For example, someone may trade in their car for $5,000 and the dealer resells it for $7,000.
So, how is it done on the internet? Well, you could potentially buy something during a one time sale of say 30% off. Then, you can resell it for 20% more on sites like eBay or Craigslist. Make sense. The key here though is to make sure you’re not holding the ball. In some cases, you can actually list your product for sale before you even buy it. This way, if no one buys the product, you don’t actually purchase the original product.
About.com defines it as the following:
“The opportunity to buy an asset at a low price then immediately selling it on a different market for a higher price.”
So, the question is, what does this have to do with the internet. As a web developer for many years, I should know how this is used on the internet, but, I don’t so I’m learning right now.
Here are some different ways arbitrage is done on the internet:
- Click arbitrage – You buy traffic where it’s cheap, then figure out a way to redirect the traffic to someone that will pay for it. Sound familiar? How about Google Adsense? In this case, someone pays Google to show an ad, whether it’s on your site or on the search engine. In this case, the big winner is Google because people are paying Google for their traffic that they are redirecting to their own site. Another technique is to pay Google for your traffic and redirect that traffic to another site, maybe advertisers on your site, or affiliate marketing advertisers. The benefit of course comes from the difference you pay for traffic versus the amount of money you make from affiliate marketing advertisers or banners.
- CPA Arbitrage – This is similar to click arbitrage. Think about it, almost any type of arbitrage has to be based off of user actions like clicks. Here, your site or ads are designed to send someone to an affiliate marketing advertiser that will pay you a commission for someone buying, CPA (Click Per Action) something from their site. This is by far probably the most lucrative aspect. For example, if you can drive traffic at lets say $10 which causes someone to buy something which pays you a $20 commission, you’re making a $10 profit. Because the internet is so predominant these days, the affect of this can be enormous. If you’re good enough, $1000 can net you another $1000. Not bad.
