Was looking for a new car insurance carrier the other day and noticed the following ad on Google.

All State

On the bottom right corner is an SideStep paid search ad. If its a little small, you can go to google and search for “all state car” and see for yourself (if its still up).

When I clicked over this is what i saw.

all state 2

I would not even have noticed if not for the Kayak-SideStep merger news that came out a few weeks back.

So what the hell is SideStep doing buying “all state car” insurance key words? What the hell is SideStep doing having ad blocks TWICE the size of its input fields? Apparently SideStep is joining the growing rank of companies making good money in the click arbitrage business. How big is this revenue source for SideStep? I have no idea. Is this a systematic strategy or a side effect of a automated keyword buying algorithm? I cant be sure.

But I do know this. If SideStep-Kayak plans to go public, they better break out this revenue source as a separate line item. In banking speak, this is a classic “non-core” revenue stream which should be given a much lower (or even none at all) valuation multiple than its travel related revenue streams. I have no problem with arbitrage of any kind (I used to be in finance) but when you sell your stock to the general public as a “travel search engine” you better be making atleast 95% of your revenues from “travel” rather than arbitraging click prices for a bunch of tail keywords. If I want to buy into that business I can wait for the NameMedia or DemandMedia IPO instead.

Here is what I pulled out from the venturebeat post

Both companies are generating large amounts of cash through CPM (where advertisers pay per thousand advertising views), CPA (where advertisers pay when a user actually buys a fare or ticket) and CPC advertising (where advertisers pay when a user clicks through to their site), according to Marshall. The Techcrunch article reports Kayak is doing roughly $50 million in annual revenues, while SideStep does $35 million.

Emphasis/bold is mine. I have a strong hunch that “CPC advertising” is an euphemism for click arbitrage revenue. And if I had to guess, this is probably contributing about $10M a year to its bottom line. I could be wrong. . . this is certainly a lot of inferences from a few datapoints. All I know is that I, for one, wont be participating in their IPO - if they do end up going public.