The Financial Post ran a very interesting story last week about GeoSign, a Guelph, Ontario company whose business model was to arbitrage price differentials in Google and Yahoo! search engine advertisements. It’s worth a read if you’re interested in the economics behind search advertising, or if you ever wondered why more and more web pages are nothing more than an empty list of ads.

Essentially, search arbitrage involves an individual or company buying Internet traffic through the acquisition of keywords from Google, then sending viewers who click on the ad links to a site ("landing page" in Google terminology) that appears to have content, but is actually just full of online advertising linked to the original search term. Anyone clicking an ad link there makes money for the keyword holder. For example, a company might bid for the Google rights to the phrase "small town car sales" and send traffic to a website it controls, filled with more car advertisements, called "Alltheautomotive.com." The keyword cost only 20¢, while a click on the advertising on the website might yield $1.50 return.

Geosign convinced a VC to invest $160M just before Google pulled the rug out by changing their advertising policies.