Ad arbitrage

Data-Driven Decision Making for Business

Ted Kwartler

Instructor

What is arbitrage?

The simultaneous buying and selling of securities, currency, or commodities in different markets to take advantage of differing prices for the same asset.

transaction-1

transaction-2

Arbitrage example

Digital ads is a growing market

Annual Ad Spent

¹ https://www.statista.com/outlook/216/100/digital-advertising/worldwide

How does ad arbitrage work?

Place ads on website to generate revenue
- Ad revenue: $1 per 1000 visitors
- Cost: pay $1 to get 1000 visitors
Ad arbitrage: cost < ad revenue

content website

Pay for incoming traffic

$$ Paying for users

Get paid for your traffic

$$ getting Paid

It's not that easy

arbitrage

Machine learning to the rescue

Ultimately, it's a human decision

Human in the loop
- People interpret model outputs
- People perform the action rather than an automatic model decision

Human interpretation

ID	Description	Cost Per Impression	Amount of Traffic	Sponsorship Revenue per traffic
1	From Social Site A to webpage A	.10	100	.05
2	From Social Site B to webpage A	.08	200	.09
3	From Social Site A to webpage B	.12	75	.11

Cost: 200 * 0.08 = $16
Revenue: 200 * 0.09 = $18
Arbitrage profit: $18 - $16 = $2

Let's practice!

Data-Driven Decision Making for Business