Highlighting the threat posed to pay-per-click model, a study released by research and advisory firm Outsell, has indicated that Google, Yahoo! and Microsoft are not doing enough to combat fraud that cost United States advertisers $800-million last year.

Published: 05 Jul 2006

Highlighting the threat posed to pay-per-click model, a study released by research and advisory firm Outsell, has indicated that Google, Yahoo! and Microsoft are not doing enough to combat fraud that cost United States advertisers $800-million last year.

As per the report, advertisers say they believe 14.6 percent of all clicks are bogus, and 75 percent of those advertisers say they’e been victims at least once. That perception of click fraud has prompted 27 percent of advertisers to reduce or stop their spending on click-based advertising. Another 10 percent said they intend to curtail their spending, meaning a total of 37 percent of advertisers are decreasing their pay-per-click spending.

“If we take the 37 percent of advertisers who have reduced or intend to reduce their PPC and apply the average 33 percent reduction rate, we see a 12 percent hit to total PPC ad spending, said Chuck Richard, vice president and lead analyst for Outsell, in the report.

“In other words, as strong as PPC ad growth still is, it would be 12 percent higher if the click fraud problem had not driven this large group of advertisers to lower their PPC spending.”

That 12 percent loss equals $500 million in lost revenues between Google and Yahoo, according to the report. Previous estimates of click fraud activity have calculated the amount of fraud between 10 and 30 percent.

A Google representative in a statement said: “We take this issue very seriously, have devoted significant resources to it, believe we manage it very well and believe the problem is small.”

A Yahoo representative said, “Yahoo views click fraud as a serious, but manageable challenge. In fact, it was one of the first challenges we identified when we created the pay-per-click advertising model in 1998, which is why we built a robust, proprietary click through protection system very early on.”

Yahoo’s click through protection system has identified and not billed advertisers for billions of clicks, including those resulting from click fraud and clicks that were improperly billed, Yahoo said, according to a report. “We are very confident in our system’s ability to detect fraudulent clicks, but we also recognise that our customers--and the industry as a whole--have many questions and concerns about click fraud, especially given the litigation that Yahoo and other search engines have been engaged in over the past few years.”

To combat click fraud problems, the Outsell report recommends that the online advertising industry adopt a third-party auditor to oversee pay-per-click services. Outsell also foresees growth in pay-per-performance advertising, “that acid self-confidence test for publishers in which advertisers only pay for clicks that deliver actual sales, genuine inquiries, or other forms of confirmed leads to advertisers.”