Trading derivatives on Google Keywords

Google is worth bazillions of dollars because they’ve created a commodities market: people bid a price on a keyword, and when someone clicks, that keyword bid is consumed, just like a barrel of oil, pork hind, or frozen concentrated orange juice.  The trick is that the core commodity here, marketing budgets, is pretty large and very renewable, and with constant upwared pressure on prices.

If we were to look at this system like a commodities market, would it be possible to create a derivatives market?  Could one short-sell keyword bids?  Could one create meta-bids on the value of a group of keywords?  One possible model might be to offer a time-limited, set price for clicks for a given keyword regardless of the current “market price” trading on that keyword position.

For example:

1. Let’s call our derivative trading company “Keyword Derivatives, Inc”
2. An online shoe company buys a contract from “Keyword Derivatives, Inc” for 100 clicks before the end of the week for “Chuck Taylor High Tops” at $1 each.  Total price of the contract: $100.
3. Keyword Derivative traders in turn will bid to get position for “Chuck Taylor High Tops“.  Depending on demand, they may pay Google $.05 per click, they may end up paying $5 per click.  Keyword Derivatives is assuming that risk.
4. Keyword Derivative traders must increase their bid amounts in order to fulfill the 100 clicks before the end of the week, while trying to maintain their profit margin by keeping bids under $1.  Keyword Derivatives may end up spending $50 to google, it may also end up spending $172, depending on its ability to optimize keyword placement and bidding strategy.

Many ecommerce companies try to manage their keyword budget as a certain percentage of sales.  Most companies who are buying keywords have a set price in mind for the cost of acquiring a customer.  The problem is that the bid structure of Google keywords is highly volatile and only trackable in hindsight  This makes keyword management very hard to manage and track for optimization.  There are many keyword management companies out there with predictive modeling to try and guess the optimal price for a given bid, but what if these companies were to go ahead and offer their own set price, and take care of the optimal bid themselves?  The keyword management software company could actually become a keyword brokerage.  They have the expertise, the software, and the ability to contract with their client to deliver the clicks.  The only missing part here is the in-house arbitration expert to figure out how much risk is in the keyword, and what price to charge the client for the guaranteed 100 clicks.

Hmmm… this might just work.  Does anyone know any quants looking for a job?