Unlike advertising in traditional media such as billboards and print publications, "cost per click" Internet ads displayed with specific keyword searches have been promoted as a definitive way for companies to gauge their exposure to potential customers. As a result, US sales from advertiser-paid search results are expected to grow 25 percent this year to $3.2bn, up from $2.5bn in 2003, according to research firm eMarketer. From 2002 to 2003, the market rose by 175 percent.
As more advertisers have competed for desirable keywords in their industries, the cost for clicks has risen too. On average, advertisers are paying 45 cents per click this year, according to financial analysts, up from 40 cents in 2003 and 30 cents in the second quarter of 2002. In certain sectors, such as travel, legal advice and gaming, the cost can reach several dollars per click.
But marketing executives say click fraud is pervasive among affiliates of search leaders Google, Yahoo-owned Overture Services and FindWhat.com. In a typical affiliation, any Web publisher can become a partner of these large networks by displaying their paid links on a Web page or within its own search results and then share in the profits with every click.
"There's a fatal flaw in the cost-per-click model because a ton of marketing dollars can be depleted in a fraction of a second," said Jessie Stricchiola, president of Alchemist Media, a search-engine marketing firm based in Los Angeles that specialises in fraud protection. "Technology is continuing to be developed that can exploit this pricing model at incredibly high volumes."
Google's fraud squad
Google declined an interview for this report, citing the mandatory "quiet period" before its initial public offering, which is expected to raise $2.7bn. But the company said in a statement that it has been "the target of individuals and entities using some of the most advanced spam techniques for years. We have applied what we have learned with search to the click fraud problem and employ a dedicated team and proprietary technology to analyse clicks."
In recent documents filed with the Securities and Exchange Commission, the company also acknowledged the problem as a threat to its revenue, of which 95 percent is derived from advertising. Google and other search networks provide refunds to advertisers when click fraud has been discovered.
"If we are unable to stop this fraudulent activity, these refunds may increase," Google said in its SEC filing. "If we find new evidence of past fraudulent clicks we may have to issue refunds retroactively of amounts previously paid to our Google Network members."
