
A company making $100 million a year disintegrated when Google took away their business model. - erik
http://www.canadait.com/cfm/index.cfm?It=106&Id=26146&Se=0
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huhtenberg
Article in short:

    
    
      Geosign was doing "search arbitrage", which meant buying
      keywords from Google and filling their landing pages with
      ads from other providers (e.g. Yahoo).
    
      Google didn't like that. The end.

~~~
bprater
Man, can I hire you so I can surf about 90% less everyday?

~~~
hugh
Can anyone explain why the comment in this subthread by keating is marked as
"[dead]"? What does that mean?

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allenbrunson
"dead" means "killed by a yc editor." somebody with some authority around here
thought the comment was extremely inappropriate, trolling, spam, etc

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hugh
Hmm, so why doesn't it just get deleted?

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rms
So people can't cry "censorship"

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lolb
But it's still censorship?

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krschultz
I'm glad they got crushed, this title should read "Domain squatter nets $100
million a year scamming, until Google closed the loophole". Nationalistic
pride aside, there is nothing about this company worth keeping around. It
sucks for the employees who didn't know the big picture, but certainly not for
the CEO or the VC, they knew they were playing with fire.

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enonko
The company's business model had nothing to do with domain squatting. It is
enough to have a single domain to do huge amounts arbitrage. Or should I say
"it was enough". :)

By the way, there still is a number of smaller companies doing Google->Yahoo
arbitrage with Yahoo's quiet approval.

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dkasper
It would be interesting to see what happened to that if Google bought Yahoo.

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enonko
They could start arbitraging into second tier networks, like FindWhat or
LookSmart. But it's unlikely that this will actually work in practice. The
bids in those networks are too low.

Another way of doing it (and that's how some arbitragers are structuring it
even now) is to have two or more separate companies, with different billing
addresses and access respective Google accounts using different IPs.

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drubio
Value was : "search arbitrage" In essence, taking a profit out of google's
adwords/adsense program while google kept fine tuning its pricing algorithm.

The term may sound fancy, but this business model has been questionable from
the get go. I've read a few studies, and this type of practice artificially
inflated prices on certain keywords, the process would start by these
companies buying a few ads on the main google page(via adwords), if a user
clicked on the them, they were sent to a landing page with more ads of the
type(via adsense), in the hope's they would make up the difference clicking on
more ads....that's were the 'arbitrage' came in, Google didn't have the
pricing model right: to the tune of $100 million a year, its certainly isn't
illegal, these companies just figured out what keywords were being paid more
on the content side and cost them less to advertise themselves.

As an added note, this type of practice or 'search arbitrage' tends to beget
more shady practices, since the revenue margin is so tight ( and its been
getting tighter ) practices domain tasting and domain kiting, I wrote a more
thorough piece on this whole subject:
[http://www.webforefront.com/archives/2008/01/advertising_con...](http://www.webforefront.com/archives/2008/01/advertising_con.html)
( Toward the end is a news link on how Google is cracking down on this type of
'search arbitrage' which more than often equals: domain tasting )

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alex_c
"And much of it revolves not around its plans for a content powerhouse, but
the story of how the Guelph startup found a loophole in Google's vaunted
advertising model, enabling it to make boatloads of cash - until Google
decided enough was enough."

[...]

"What's more, he envisioned a network of thousands of websites all automated
by software linking keywords to pages filled with ads, returning millions in
cash in the process.

By 2005 that was exactly what was happening. Nye crafted a maze of Internet
sites that included tens of thousands of Web pages and bought up even more
keywords from Google. By connecting the keywords and the websites, Geosign was
indeed generating more than $100 million in annual revenue and was extremely
profitable."

Well, no sympathy there.

I liked this quote though:

"There's a tendency in the press to make everyone either a dog or a god. The
truth is most people are somewhere in between. Tim is no different. He has
shortcomings, but he's also a highly creative guy."

~~~
ajross
Yeah, exactly. The tone of the article is a little off. Fundamentally, these
guys were advertisement parasites. They added almost no value to the internet,
offered no meaningful products, and the world is frankly better off without
them.

And yet I get the idea that we're supposed to be sorry for them because
they're just a poor canadian company unfairly crushed by the american giant.

I especially like the use of the euphemism "search arbitrage" to describe
their business model. :)

~~~
axod
So you can say hand on heart, if you worked out a way to 'game' a couple of
systems, in order to make money with little or no effort, you wouldn't do it?
Just a little bit?

You could say the same about "direct to advertiser PPC" - people who use
adwords to bid on keywords, then drive the traffic straight to other affiliate
programs, and skim off the profit. Yes, on the one hand they are parasites,
but on the other, they are doing keyword research, generating more sales for
the merchants, etc. They are value adding.

Granted though, search arbitrage is not in the same boat, and doesn't really
benefit anyone.

~~~
ajross
That's not what I said, though. The fact that I might be tempted to break a
rule doesn't mean I'm morally obliged to shed tears for those who break it and
get burned. The folks who were most hurt here were the investors, who clearly
bought into the scam not realizing the risks involved. So if any tears are
shed it should be for them.

But what really irked me about the article was the pseudo-nationalist tone.
"Who cares if they were parasites? Those were _canadian_ parasites that Google
killed!"

~~~
BrandonM
The article clearly states that the investors _did_ understand the risk. The
folks who were most hurt were the newly-hired employees who had just quit
their previous job to join Geosign.

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tomjen
As they should. The company did not add any value.

~~~
hugh
So the big lesson here is that you can make $100 million a year (for at least
a few years) without adding any value.

~~~
coglethorpe
So where do I sign up?

Seriously, I was concerned about it until I read the word "loophole" used. The
only impressive thing the company did was bend/break the rules for so long and
on such a grand scale without getting caught.

So when will they turn off the funds to the domain name squatters?

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enonko
Not any time soon. Domain traffic converts well for many advertisers.

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DanHulton
So wait - a scuzzy company got found out and shut down? Hard to be upset about
that.

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Stabback
Good tale, however poorly written. Over half of the article told the story of
the company. The story should have mentioned more about why it failed and it's
rescue measures (the last third) instead of trying to draw the reader in
emotionally to a business article.

~~~
cridal
Exactly... stop telling me little stories. I don't read an article like that
for its literary value. Get to the point!

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dmix
It's been a while since I've read an entire article all the way through. Good
read.

Interested me because this happened about an hour from where I live.

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bprater
Next up for the ax: gray hat SEO, where you suck in an RSS feed of stuff you
didn't write and puke it into a Wordpress blog full of ads on a regular basis.

These types of sites kill Google's quality and I don't expect them to live
long.

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josefresco
They're called "Splogs", and have been dealt with by Google already.

<http://en.wikipedia.org/wiki/Splogs>

welcome to 2006

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axod
The other more lucrative part of this is:

1\. bid on high traffic, low cost keywords. 2\. Use landing pages with content
geared towards attracting High paying adverts 3\. profit!

For example, you bid on "free stuff", pay 5c a click. Then send people to a
page about class action lawsuits or something, where adsense is showing them
some adverts for lawyers, with a $5 per click...

Similarly though, you'll get penalized for this now, as having a non-relevant
landing page, and your bids will go up.

I'm glad they got shut down. Sitting in the middle doing nothing in a loophole
isn't a valid business model for long.

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snorkel
Reminds me of SEOs who bitch whenever Google changes the ranking algorithm.
Try a non-parasitic business model for a change.

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wallflower
Google-based revenues can stop with the tweak of a Google TOS.

This company's "business model" was even worse than Netscape's once Microsoft
Internet Explorer forced Netscape to make their browser free to general public
starting in January '98

Netscape revenues (browser only)

1995: $44.3M

1996: $181.2M

1997: $105.5M

1998: N/A

[<http://www.usdoj.gov/atr/cases/f1900/1999/4.htm>]

~~~
gaius
Not quite analogous, as Jim Clark always planned to make the bulk of
Netscape's revenue off their server products. The exact quote was something
like, I'm selling printing presses but first I need to teach people to read.

~~~
zandorg
And then comes along Apache webserver!

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gaius
Heh :-)

Back then Netscape Enterprise Server did a bunch of stuff that Apache didn't
(threads, API, certs, etc). Most people were using forking and CGI scripts,
but we were saving a ton of money on colo that easily paid for the license by
using NSAPI instead of Perl. Even now, over a decade later, I maintain that
NES 2.01 was possibly the best web server ever written. If I could use it
today, I would.

What really killed Netscape was that the only thing less reliable than NES 3
was the watchdog process they included with it to restart it when it crashed!
That was around the time that Apache was catching up, and the rest is history.

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josefresco
Search arbitrage based on geographic areas is pretty neat actually ...

Let's say you buy the keyword "mortgage" which is low value/high volume
because it's broad and doesn't imply intent. You then geo-target your traffic
to just people in California, and send that traffic to a page with "california
mortgage" ads. Which of course are much higher value as they are more targeted
and represent a smaller niche. Profit.

It's really quite brilliant. All done using Google's own tools.

------
arn
Lots of comments about being a parasite, adding no value, and that he deserved
it... but I don't see it that way. Sure, it was "obvious" that it would
eventually get shut down, but he built a $100 million/year business out of
it... and knew that it was going to be short lived. I respect his plans to
flip it into a legitimate business. If Google had not shut it down for about 6
months more, Geosign might have become a major player.

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ismail
I cant understand wtf the point of the article is. They make it seem as if the
company was in some way picked on by the mighty google. Point being, they were
committing FRAUD, don't let words like 'Arbitrage' confuse you. Its plain and
simple fraud, you try to get around the system with dishonesty, you get
shutdown. The real scary part of this whole article though was that VC FIRMS
invested in it!!! WTF?

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josefresco
Where is the fraud? They bought legitimate keywords and sent the traffic to
sites with more ads.

It's pretty much the business models of tens of thousands of web properties,
just boiled down (no content) and refined (automated on a mass-scale) into
something that makes them millions.

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ismail
Hey man, if people are doing it, it does make it right. My definition of fraud
is gaming the system as they did, and using it in a way that was not meant to
be used to get $$. It happens in all industries and it can drive a company
into the ground(close up shop)

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gm
The most stupid thing for a company to do is to get in the way of a giant, or
for a consultancy to have a single customer.

Wasn't this predictable?

How many startups are out there that "do X like Y company, except our pricing
model is better"? With such a subtle difference, really, shame on those who
are taken by surprise when the giant pounces.

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juanpablo
So... you haven't read the article.

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jrockway
I think he is just ranting in general.

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tlrobinson
This vaguely reminded me of the movie "Boiler Room".

If it sounds too good to be true...

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jrbedard
And the book "Wolf of WallStreet", autobiography of the guy that founded that
"Boiler Room"

