Hefty bill for online click fraud

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Online advertisers paid more than $800m last year for fraudulent clicks on their ads and more than a quarter of them have reduced their spending as a result, according to a study by the Outsell media research firm.

The figures represent a blow to internet companies such as Google, Yahoo and Microsoft’s MSN who earn most of their revenues from advertising.

The three have avoided putting a number on the incidence of click fraud but Outsell said it averaged 14.6 per cent of all clicks billed to advertisers, even after Google and others had filtered out those ones they believed to be invalid.

The 14.6 per cent equates to $800m of the $5.5bn US search engine market in 2005.

Click fraud relates to the pay-per-click advertising model, where advertisers bid for keywords related to their businesses for which users might search. Those bidding the highest will see their ads featuring prominently on the results pages of the searches.

But unscrupulous competitors can use online robots to click on the ads and deplete their rivals’ marketing budgets. Others set up websites affiliated to the search advertising network and generate themselves a cut of what is being paid with bogus clicks on the ads they carry.

Outsell, which interviewed more than 400 online advertisers, said 75 per cent of them reported experiencing fraudulent clicks.

“What really surprised me was that 27 per cent had already reduced their online spending and 10 per cent intended to do so because of click fraud,” says Chuck Richard, author of the report.

“That 37 per cent who are seriously dissatisfied enough to change their behaviour represents a huge opening for anyone marketing an alternative.”

The search engine companies themselves are looking at alternatives to pay-per-click. Google is testing a pay-for-performance or cost-per-action network that will charge advertisers according to whether clicks on their ads lead to actual sales or genuine inquiries.

Outsell also recommends that Google, Yahoo and MSN should share data and be more open about click-fraud statistics. It says they should partner with advertisers and third-party audit bureaux to increase trust in the system.

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