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Auction Ads: A $500K Virtual Investment

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Auction Ads is a company which has just launched some new technology which places items within eBay auctions within blogs according to the blogs content. I LOVE this business in terms of the potential win/win for customers and the company and the potential revenue stream for the investors.

Business Model:
Auction Ads business model is compelling:
1)  EBay has an affliate marketing channel which pays affiliates when they refer customers to their site
2) The eBay affiliate program is tiered.  As the affiliates monthly revenue increases, so too does the percentage of revenue. It begins at 40% of the fees ebay earns and caps out at 65%.  But to hit 65% you need to refer at least $1M to eBay.

Ebay Tiers:
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Some Core Functionality:

  • Cut and paste ad codes straight into your blog
  • Customized ads based on blog subject matter
  • All ads include a referral link so if anyone signs up you get credit 

Likes:
There is so much to like even though its such a headslappingly obvious business model:

  • By consolidating the monthly revenue made across multiple blogs and sites it should not take took long to hit and pass the $1M monthly revenue number.  It should therefore be possible for Auction Ads to give their blogging channel a higher monthly payment than they could capture directly through eBay.
  • As all ads have a referral link their channel partners (the blogs) can also gain revenue from other blogs who sign up via their ads. Another incentive to stay with the Auction Ads program
  • There are viral marketing elements to the business model which should spread the Auction Ads program quickly and ensure the highest monthly tier rate is achieved within eBay.
  • In a previous article I mentioned how I believe people are mentally blanking out adsense ads on the web.  This is an alternative that will not be instantly categorized as ‘adsense ignorable’ and should have better click through rates.

Auction Ads in Action:

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Dislikes:
The only concern I have is eBay sells alot of stuff, but how much of it is absolutely relevant to the breadth and depth of subjects covered by blogs and are the blog readers in the market for whatever is being sold?

For example, let’s say there’s a blog about cars…easy to have an eBay ad.  No problems at all to imagine.  What about a blog on cat neutering – I know, perhaps one of my more obscure examples but that’s the point.  Yes you could sell eBay books on the subject, but are cat neutering readers going to be interested in bidding on an eBay book on the subject? So, a great model for obvious and mainstream’ish blogs and sites…maybe not so for quite a few blogs out there and even if they do place ads, will they generate any volume?

Saying that which blogs have most traffic?  Are there 100 blogs out there that have the lions share?  If so a)  this ad program makes sense especially for the top 100 b)  but why would they use Auction Ads rather than just having their own affiliate links?  Because its easier than doing it themselves it probably the answer but what’s the difference in revenue for them to go with Auction Ads rather than direct?  If I was Auction Ads, I’d be striking some low margin deals with the top 100 which would also give them further exposure to the wider market.

Another question that makes me hesitate a few seconds is what are the barriers to entry for a company doing the same thing?  The barriers will get higher as Auction Ads gains more and more market penetration but they had better hope an exact competitor does not come out of the woodwork very soon.

My Virtual Investment:
With my virtual $1M, I would hope my bid to invest $500K would be accepted by Auction Ads.

http://www.auctionads.com/

Andrew
Founder
http://www.AdvisorGarage.com