Arbitrage is the process of purchasing an asset to then later trade at a higher value and extract profit. There are many different ways you can create valuable arbitrage situations. These include traditional uses of the word such as in finance, where traders buy an asset on one exchange, to quickly sell it for a small profit on another exchange.
Attention arbitrage also exists. Attention arbitrage is the process of purchasing more attention than the true market value of which you paid. Essentially attention arbitrage is the process of buying attention for less than it should costs. Referral programs work to some degree in this sense. Bounty programs, popularized with initial coin offerings are another great example of attention arbitrage in action. We will take a quick look at a few different types of advertising arbitrage for niche sectors today. We will also show what does not work and five ways to properly deploy a beneficial advertising arbitrage situation for your business.
Examples of Advertising Arbitrage
Attention arbitrage essential operates through a referral program where users spend less time/money marketing another service in exchange for a reward. Much of the popularization of bounty programs became within the cryptocurrency sector due to the democratization of the marketing tasks. Essentially opening up an advertising arbitrage situation in which marketers could easily see their returns. It truly can be a fantastic marketing tool for your business or service.
Another wonderful example of advertising arbitrage comes in the form of social media advertising today. When you pay for a user that’s worth $4+ for only $0.10 or less, that is a wonderful arbitrage situation. Many channels today offer even better results with organic posts that are properly planned and coordinated. Furthermore, the businesses that took advantage of the last major digital arbitrage opportunity in the late ’90s was Amazon, which spent heavily on Google AdWords to secure their market position. With Amazon’s use of Google AdWords in mind, remember these opportunities to grab attention will pass. Just as a $0.10 ad on Google AdWords worked fine, today it may be worth $5 or more depending on the particular sector. Social media will go through the same process and it is only a matter of time before the market catches up to the valuable attention available today.
Referral programs are another great option for brands looking to establish new uses. If properly set up, users will need to be able to trust the program and having automatic solutions can assist in this process. Further, it is important the underlying brand offering the referral program be trusted in and of itself.
When Trading Attention Does NOT Work
The problem with bounty programs is that too many tokens were being distributed utilizing this model while not being inherently worth anything. If users spend time and lose money on the attention arbitrage trade, they are not going to continue doing it. Both examples help move the transactions along, helping the system as a whole.
Furthermore, marketers will have to be able to trust your company to offer their time working to advertise a referral program. Trust built between a company and its users comes down to three core points- transparency, value, and finally usefulness. These three aspects, when increased, can help build a foundation of trust between your business and users or marketers. It is vital to establish trust with your users and thus using more transparency, providing more value, and having a truly useful function of your product or service will be key to this point
Ways to improve your Advertising Arbitrage
1. Automatic Solution – A fantastic way to establish trust starts with an automatic system for the referral program. Users want to trust your system and making sure it is fully functional will be the first step. A marketer will not spend time advertising a referral program in which they may not be paid. So, prior to making the automatic solution- make sure you have a working program. The automatic aspects can truly help push your program to the next level though. First, it will help with scaling. Second, it will help establish trust and this is invaluable in an arbitrage situation.
2. Marketers can easily see their returns – A dashboard display of results can greatly help your program. It will be important to use gamification as much as you can within your referral program. Marketers should easily see how much money they have earned, how much potential they have to earn, and it is also a wise idea to take advantage of a human’s natural response to rewards. With that, send emails or notifications to marketers as soon as they successfully get a registration.
3. Marketers get positive returns – It’s important marketers will get a positive return on investment for their work. This is also vital for the business. The business should know the value of their average customer and the costs of user acquisition. For many businesses, the cost of acquisition may be very high and thus merit the use of a referral program. In an advertising arbitrage situation, it is vital to provide value for all parties involved in the trade. So is the case with arbitrage that there are three parties involved and in the case of advertising arbitrage through a referral program the parties include the businesses, the marketers, and the users.
4. Make Registration ProcessSimple – User interface or commonly said UX will be a vital component to your program. It will help establish your business as a further trusted source. Furthermore, if you think of a referral program as an attempt at exponential growth then you will quickly see how a slight change in your website and marketing materials conversion rate will have profound results.
5. Bring Value – Overall, everything you do in business should bring value to another. This is key for your underlying foundation as a business but also key within your attempt at attention arbitrage. To properly deploy an advertising arbitrage situation, a business should focus on the value proposition for each party involved in the trade. This includes as noted, the business itself, marketers who will advertise the program, and end users who will register for a new product or service. Value. Value. Value. Should always be at the center of each and every step of the trading process.
I write on behalf of my consulting practice, Newa.io. Come stop by the site and say hello!