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Click-fraud on rise – can it be the end of profits online?

by Darren

The more I read about click-fraud lately, the more I begin to think of it as the “Achille’s heal” of the contextual ads game. If you don’t stop it, people lose faith in the system and it goes the way of the Hula Hoop. Google has been getting in trouble for click-fraud, but they claim to have the problem under control. Others are not so sure.

This recent article indicates that click fraud on the web continues to rise.

The sales referrals generated by clicks on the brief advertising links popularized by the two Internet powerhouses are a sham 14.1 percent of the time, based on information collected from 1,300 online marketers.

I’ve actually seen quoted numbers as high as 30 percent this week, but in any event, between 14 and 30 cents of every dollar you spend is being wasted on fraud? Whoa! This is a red flag that’s so huge it actually makes me shiver to my bones. If the numbers get any higher, it might place the entire legitimacy of the system in question.

If 30% of Google’s revenues come from click-fraud, it would mean their revenue is over-inflated by around $1 billion per year. If investors adjusted for this, Google would lose billions of dollars of market cap in days.

Yahoo, I feel, has been extremely worried about click-fraud in YPN. They’ve never gone international in almost a year, and they don’t appear to be expanding the program much. They also showed lagging numbers to Wall Street. Part of the slowdown might be seasonality, but I’m really beginning to wonder if there’s a system slowdown occuring.