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I was a typical silicon valley engineer, doing the boring old routine.
Wake up after pressing snooze 7 times, fight traffic on 101, sit in a really BORING meeting with a technically inept manager who thinks the programming language Java is a caffeinated product, pretend to "work" (note: surfing on eBay is not a waste of time, but a valuable contribution to eBay's crowdsourced website quality assurance), go to lunch and bitch/complain/moan about our crappy jobs, then take an hour long nap in the conference room underneath the table so no one would see me.
When 3 PM rolled around, I would actually work for about an hour right before my manager showed up to ask how I'm doing, then punch out to my boring suburban home in my early 20's. (Yeah, that didn’t help with my dating life.)
Doing that for about 2 years will make anyone crazy, including me. Maybe I was too young, and maybe too crazy. But I had high standards for myself and I just could NOT see myself doing this any longer.
So I quit and never looked back.
Since then, I've always been trying to do my own thing. IT consulting, vending machines, network marketing, making games, destination sites, etc. etc. As with most entrepreneur newbies, I've dabbled but never really made much money in those things.
I've never been the religious one, but I've always had faith that I will succeed some day. So I would pray every morning that something, or SOMEONE, would come help me.
AND my prayer was answered.
Or so I thought.
The Message that Started It All
In 2008, a friend of mine who I met through network marketing sends me an IM. We were never really all that close but we got to know each other through all them "rah-rah we're the best" network marketing conventions where they try to pump you up so you can knock on more doors and sell their useless crap.
Of course, like most network marketers, he and I were never all that good and the promised riches never really materialized. So both of us went our own ways, and he went the route of internet marketing.
When he sent me that message, I hadn't talked to him in years, so I was bit thrown off guard. I knew about AdWords (I opened an account in 2001 or 2002) but had never really used it. He was asking if he can "use" it.
That was strange to me because even though I knew NOTHING about how AdWords worked, I at least knew that anyone can open an AdWords account. I'm no genius but I knew that sounded fishy.
So I asked him why he needed it, and he says he's making money online. And LOTS of it. As in thousands per MONTH (which, to a 20-something struggling entrepreneur, was a lot) just tinkering with some online ads. Of course, THAT got me intrigued.
What was it? Search ad feed arbitrage.
Let me explain how it works.
How the CPC Arbitrage Scam Works
Big search engine companies like Google, Yahoo, and (Microsoft) Bing have a HUGE list of search marketers who pay them lots of money to be on the search engine result pages . Of course, search engine companies will gladly show their ads on their web properties to monetize.
Then there are search engines companies that are MUCH smaller in scale (in terms of search volume) that are considered 2nd tier, like DogPile, Ask, etc. Now, Google and Bing would like to show THEIR search ads on these 2nd tier search engines because, hey, money is money.
The way that the 1st tier companies would show the ads to the 2nd tier guys is not through AdSense, but rather, through an XML feed. So if you do a search like
That search engine would make a HTTP request to Google/Bing asking if they have inventory for that keyword, and if they do, the results are returned back in the form of an XML feed. The 2nd tier search engine's job is to just simply display that.
Second reason? Data collection and mining, since there are multiple search engines providing this search ad feed and the 2nd tier search engine wants to maximize its revenue.
But the REAL difference between AdSense and the XML ad feed?
The XML ad feed pays 2-3x better than AdSense. Instead of Google/Bing taking 40%, they'll take MUCH less. On top of that, unlike AdSense, they actually tell you how much you get per click (RPC or revenue per click) AHEAD of everyone else.
So what does this mean? If you have access to this search ad XML feed, you can actually do CPC arbitrage: buy relevant keywords at a CPC lower than the RPC. Of course, there IS a possibility that the person clicking on the ad will bounce from the crappy landing page .
So the formula goes like this: Max CPC bid = RPC * (CTR on landing page).
Ever click on a sponsored link and the landing page shows nothing but more sponsored links? Yeah, they are "relevant" but poor quality, nonetheless. They're usually a domain with one single file and zero content. I mean I saw ridiculous domain names like " BuyTermLifeLifeInsuranceMiamiFL.info"... or "WeightLossManagementCenterTorontoCanada.info"… And these CPC arbitragers had LOTS and LOTS of domains (couple of THOUSAND .info domains).
This was 2008, when quality score  DID exist (and no doubt that these pages would've gotten QS of -250 or less). So how did these CPC arbitrage companies get around the QS issue?
Simple. Cloak  the destination URL.
Redirect to safe page if suspicious. Otherwise redirect to $$$.
Here's pseudo code:
if(user_agent is empty or bot) // GoogleBot, BingBot, etc.)
if(IP is a known bot IP or on "blacklist" IP) // Let me tell u.. this is HUUUUUUUGE list
if(IP has been registered already) // sheer paranoia
Note: Isn't it ironic how these blackhat PPC guys have a "blacklist" database of bot IPs? Shouldn't they call that "whitelist"?
This achieves two purposes:
1) Actually get approved
2) Lower QS score so that the CPC is lower
But can an average joe like me or my friend have access to this feed?
It turns out my friend used to work at a company where one of the founders knew somebody at a large search engine company (won't say who) who gave him access to this search ad feed. But in turn, the "mole" inside the search engine company would get a cut of the profits.
My friend’s boss (the founder), of course, brokers the feed to my friend for a similar kind of deal…who in turn, does the actual work.
And he wanted to, of course, work with me or broker the deal to me.
Why I Gave Up on Black Hat PPC
hen I tell this story, I get asked these questions often:
1) How big is the market?
That company where my friend worked sold 1/2 of their company to some hedge fund company for $50m+. Good timing too because search engine companies got wise and slashed a ton of their TOS-violating advertisers right after the acquisition happened.
2) This doesn't happen anymore, right?
Yes, search ad feed arbitrage? I agree. At least I don't see much of this arbitrage anymore.
But 2nd tier search engines still seem to be playing this CPC arbitrage  game in certain highly profitable (and high consumer-gullibility) industries like weight loss, insurance, and consumer products. ALL the time. In fact Ask.com  is fairly well known to be playing this arbitrage game.
There are other kinds of CPC arbitrages  going on as well, but definitely sneakier, like buying low CPM based banner ads  on sites with high but unfocused traffic like music sites, then sending them to high CPC SERPs. Usually the banner ad will say something like “Looking for a car?” Of course, the SERP will show car ads. And the basics are same: Max CPM Bid = Banner ad CTR * RPC * CTR on SERP.
Illegal? Mmm … no.
Ethical? Definitely not. As a search ad buyer, I am expecting the search engines to provide me with buyers who have the intention of buying my product. And these people do not have any intent to buy my product.
3) Didn't you get caught?
Yep, I sure did.
You gotta wonder, are there REALLY 800,000+ people in the world trying to violate Google's TOS on AdWords?
Probably not. Between my friend and I, we had probably a hundred accounts ourselves and we were a small time operation. I’m guessing there are some BIG companies that have thousands, if not hundreds of thousands, of AdWords accounts  just to rotate their cloak links going on Google.
4) You're an ass for doing that. Don’t you have any ethics in you?
Yeah I know. That's WHY I'M CONFESSING!
I take 100% responsibility what I've done and I totally apologize to anyone who I pissed off. I was misguided, and I should've done my homework to find out what was happening. Like I said, I won’t blame others, I take 100% of the responsibility.
But in my defense, I actually made NOTHING from this.
Why? There’s a reason, and that’s an even LONGER post than this. But basically, I knew there was a bigger and vastly more profitable world of CPC to CPA arbitrage using the same cloaking. So instead of taking a cut, I “helped” technically to build a rapport with him so that he would let me in on the big stuff.
There is NO doubt about it. Cloaking and CPC arbitrage hurts everyone. Because it artificially inflates the PPC market. So then the search engines should like it, right? Wrong. If you click on an ad and it goes to another ad ... then to another ad ... you’ll start thinking that the search engine sucks and never use it again.
Yeah I admit it. Blackhat PPC was easy money ... but it's just straight up hustling.
If it makes anyone feel better, I didn’t make ANYTHING off this particular blackhat project. Yes, NADA. And my dog never got to be like this dog:
Conclusion: Will I do it again? No. I personally believe in God and karma. I cannot do to others what I would NEVER want done to me, my family, my friends, or my colleagues, whether in business or in personal life.
Ever since then:
- I've been trying to restore the karma by sharing with fellow marketers about what I've learned in SEM/PPC, media buying (especially on social media sites), email marketing, lead generation and direct response marketing on my blog .
- I've tried much CLEANER businesses like a solar lead  generation company.
White hat is definitely harder to start but easier in the long run because:
- You don't have to keep hiding
- You can get sleep (I don't have to keep worrying about whether or not Google is gonna ban me every second of my life)
- Black hat companies don't produce value and hence, very little possibility for exit
So there you go. My confession.
And here’s Tony’s:
TaeWoo Kim is an entrepreneur, digital marketer, speaker, and blogger. He has over 7 years of experience in software startup, inbound marketing, direct response marketing, PPC/search engine marketing, sales lead generation, conversion rate optimization, email marketing, and social media. You can follow him on Twitter (@TaeWooKim ), Google+ , and on his blog FreshSuperCool.com .