Huh? I’m scratching my head at Google’s new AdWords policy that attempts to ban affiliate arbitrage bidding, since one could drive a Mack truck through the loophole left open.

Affiliate arbitrage is when an affiliate buys key words on Google and links the ad directly to a merchant’s site. The affiliate commissions add up to be more than the affiliate ad buys on Google cost. As a result, the affiliate earns a profit.

Because of affiliate arbitragers, at times, Google's paid search listings have been overwhelmed with ads for one merchant. Some merchants like the fact that all paid links on Google lead to their site and push the competition off the page. Also, merchants like having an army of affiliates optimizing their paid search terms on a commission basis. And in fact, a band of smart affiliates working on a commission basis might out perform two paid search marketers that work for a merchant -- for example, an eBay marketing director said last August at Search Engine Strategies that eBay couldn't not accomplish with their in-house search team what their affiliates do for them in the search engine management space.

Google’s new policy attempts to limit this type of arbitrage. However, there is rather huge loophole in the language. Here is the wording:

“With this new affiliate policy, we'll only display one ad per search query for affiliates and parent companies sharing the same URL. This way, users will have a more diverse sampling of advertisements to choose from.”

URL is the key word. What is to stop merchants from making unique URLs for each affiliate?

Here is an example:

www.merchant.com/index1.htm
www.merchant.com/index2.htm
www.merchant.com/index3.htm
www.merchant.com/index4.htm

Moreover, Commission Junction has a unique URL for each affiliate link since the URL includes the affiliate ID (PID) and the merchant ID (AID)

Here is an example:

http://www.merchant.com/?AID=12345678&PID=12345678

LinkShare uses a similar syntax in which variables change to create a unique URL for each affiliate link to a specific merchant.

Now think about the wording of the new policy. It does seem pretty useless.

The rumor circulating tonight is that Google made a mistake and meant to write domain, not URL.

Whether Google did or not, I think this policy, as worded, will prove to be useless. I would guess more changes are coming.

Assuming Google meant domain and not URL, Google does appear to have left the rest of affiliate advertising on the search engine alone. Google seems to be trying to bring themselves (almost) in line with where Overture has been since the industry developed by insisting that the advertiser owns the domain.

Affiliate advertising adds significant value to merchants. As Google challenges merchants to develop new policies on affiliate advertising, I hope that merchants remember not to throw the baby out with the bathwater by eliminating all affiliate advertising.

This will all be very interesting to watch as it plays out.

Is there any data that indicates what percentage of searches display results with identical URLs from a merchant and its affiliates?

This bit at the end of the email might be used to close the loophole however Google might see fit: "we reserve the right to exercise editorial discretion when reviewing AdWords ads created within the program."

I think Google is purposely being vague right now, surely the mean domainm, not URL.

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