Paid Search Arbitrage Profits

Val built a profitable affiliate marketing business in the early 2000s by exploiting the gap between cheap paid search inventory and high-value affiliate payouts during the dot-com crash.

Key Points:

• Market Timing & Opportunity:

  • Post dot-com crash: Brand advertising budgets pulled back
  • Companies shifted to performance-based marketing
  • Media costs were low (high supply, low demand)

• Business Model:

  • Buy paid search traffic (via GoTo.com, later Google)
  • Connect traffic to ~800 advertiser accounts
  • Profit from price arbitrage:
    • Example: Sell $100 NY Times subscription for $30
    • Spend $1 on ads to make $3

• Execution Strategy:

  • Test new advertisers on paid search
  • If profitable, scale up spending
  • If not profitable, optimize or move on
  • Continuously find new opportunities

• Scale:

  • One-person operation
  • Generated millions in annual profit
  • Managed hundreds of advertiser relationships
  • Focused on performance marketing metrics

The business leveraged the unique market conditions where paid search was undervalued while affiliate payouts remained high, creating a profitable arbitrage opportunity.