Will Advertisers Leave Google & Yahoo Over Click Fraud?

Microsoft & Google Tech News

The Economist today (subscription required) released two articles both dealing with click fraud. The articles both make mention of Google’s phenomenal growth, bringing up the search giant’s share price rising above $500 earlier this week that puts
the value of the company at more than $150 billion. Internet advertising in general is worth around $27 billion a year and is expected to grow to around $61 billion by 2010 (see chart below). This means that the Internet is expected to be responsible for at least 20% of global advertising spending, which is four times its share now. But, at least as far as the Economist is concerned, “’click fraud’ might undermine the industry.”

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The theory is based on Google and Yahoo having a “cavalier attitude to click fraud.” The largest category within online advertising is pay-per-click, which represents almost half of the online advertising budgets of companies. The hard-to-trace act of click fraud is estimated to account for anywhere from 10% to 50% of all clicks, though it’s all guess work (most agree it’s closer to 10%).

So Google and Yahoo! have recently joined a group at a trade association called the Interactive Advertising Bureau (IAB), which is planning on establishing standards for pay-per-click advertising. Look for industry-funded auditing and certification to be released by the middle of 2007.

The two classic examples of click fraud are 1) clicking on your own ads (or paying someone to click on your ads) and 2) clicking on your competition’s ads to use up their ad budget on nothing. Both Google and Yahoo claim they are taking these problems seriously even if the Economist compares them to reluctant teenagers, “Like recalcitrant teenagers, they are grudgingly giving in and doing the homework they should have done ages ago.”

My question among all of this uproar, do these estimates for quadrupling market share of online advertising as a part of global advertising account for a certain amount of click fraud existing? If so, is it the same amount that exists now, more, or less?

And I’m a little puzzled by the Economist’s claim “But if the internet giants don’t deliver what the advertisers want, advertisers will find other ways to market themselves.” That may be true, but surely advertisers realize that click fraud won’t disappear entirely. A minimal amount must be permissible. Otherwise, the industry (i.e., Google & friends) would have never made it this far in the first place.

In other words, the “internet giants” are already delivering what advertisers want. I’m all for making it better via minimizing click fraud among other improvements. But can we admit that it’s unlikely to go away any time soon without claiming it as the demise of internet companies?

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