Report: Advertisers Turned Off by Click Fraud, Reduce Spending

  |  July 6, 2006   |  Comments

A new report finds advertisers reducing or eliminating PPC spending with Google, Yahoo and MSN, due to click fraud.

Click fraud has caused an estimated $1.3 billion in damage to pay-per-click advertising and has driven as many as 27 percent of advertisers to reduce or eliminate PPC programs. That's according to a new report from Outsell, Inc.

The report's lead analyst, Chuck Richard, said the $1.3 billion number includes $800 million that advertisers have paid and evaluated to be fraudulent, plus $500 million that advertisers have failed to spend because of rising concerns over click fraud.

Outsell came to its conclusions after conducting a Web-based survey of 407 advertisers in mid-May.

Fraudulent clicks account for as much as 14.6 percent of clicks on the three search engines and their network of publisher sites, according to the study.

Advertisers are increasingly cautious about spending in the category, the study found. Twenty-seven percent of advertisers already make smaller buys than in the past, or have simply withdrawn from PPC programs all together.

The average spending decrease reported by advertisers is 33 percent and 16 percent say they've pulled out completely. Only 19 percent of advertisers report no reduction in spending.

"I think these numbers indicate that there is a sea-anchor effect to all of this, slowing down or dragging down the business," said Richard.

PPC campaigns are still found to be effective for branding, but Richard finds CPA (define) programs better suit product-related campaigns.

"All these pressures are going to accelerate the introduction of CPA programs and the adoption of them," said Richard.

Among search companies, Snap.com, has already been offering CPA programs, and Google has admitted to testing CPA pricing.

Other than a wholesale change in the pricing model, Outsell advocates that Google, Yahoo and MSN become more transparent about their anti-click-fraud operations and fraud rates, saying it would help ease advertiser and publisher contention. "I think that anything that they release would be effective, from all points of view, it would satisfy advertisers to some extent, and put some credence toward showing this is well managed," said Richard.

"It's not a solution. Just announcing figures is very important, but I think the similarities are clear, just as every security system has been hacked, people out there are just immensely creative in finding ways around the system," said Richard, who called it a cat and mouse game. "They are always going to be at least a half-step behind the people out to defraud them."

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