by: Tommy Maric

Click fraud is currently a major topic in online advertising. Many
argue that it presents a threat to the stability and viability of
pay-per-click (PPC) advertising, the key revenue generator for both
Google and Overture. In actuality, click fraud is not a significant
issue at all.

Click fraud occurs when ads are clicked for reasons other than a
genuine interest in learning more about the product or service
advertised. Click fraud occurs in two forms. In one instance, fraud
arises from competitors trying to sabotage each other. One
competitor clicks on the ads of another just to drain the budget of
that company. The other instance occurs when webmasters (or people
associated with the webmaster) repeatedly click Google AdSense ads
(which are syndications of others’ ads) on their own web pages in
order to generate more revenue. While both Overture and Google have
developed sophisticated technologies to detect click fraud, their
systems are, and may never be, foolproof.

The real question is how much does click fraud actually damage the
PPC industry? Gross fraud, i.e., when one person or technology
consistently and repeatedly clicks on an ad, aside, which Overture
and Google can easily detect, we believe that click fraud has no
real impact on the industry. The following explains why.

Efficient market theory says that it is impossible to “beat a
market” because prices already incorporate and reflect all relevant
information. As the PPC industry has matured, efficiency has begun
to take root. That is, the price of each keyword has been driven up
to the point where it reflects the highest price an advertiser is
willing to pay for a click.

For instance, a book retailer may pay $1.00 per click based on
internal metrics. These metrics dictate, for example, that on
average 30% of clickers purchase a book and the average profit per
sale is $4.00. So, for every 100 clicks ($100 cost), they make 30
sales ($120 revenue) and generate a $20.00 (20%) profit. Note that
years ago, the same retailer may have been able to pay only $0.50
per click, but as the market matured and more retailers began
advertising, competitive bidding forced the price up to $1.00 where
the highest return the most advertisers can make is 20%.

The key point is that click fraud is already taken into effect when
advertisers select the highest amount they will bid. For instance,
there is no difference whether an advertiser pays $0.83/click for
121 clicks with 21 being fraudulent, or $1.00/click for 100 clicks
when there is absolutely no fraud. In either case, the advertiser
pays $100 and generates a profit of $20, and Overture and/or Google
make $100. What changes is the advertiser’s yield (e.g., the percent
of clickers who purchased the book) which in turn effects their
highest bid price. That is, with fraud, 30 out of 121 clickers
(24.8%) purchased the book, and without fraud 30 out of 100 clickers
(30%) purchased it. Without fraud, the bid price in an efficient
market will rise from $0.83 to $1.00.

In summary, online advertisers must focus on analyzing and improving
their internal metrics (e.g., conversions) and not worry about click
fraud as it is already incorporated into keyword bid prices.
Hopefully, the frivolous lawsuits and refund requests spawned by
apparent click fraud will end as those in the industry recognize
this undeniable fact.


About The Author:
Tommy Maric is the manager of TopPayingKeywords.com
TopPayingKeywords.com is designed to help webmasters maximize their
profits using Google’s Adsense™ program. Through extensive research,
TopPayingKeywords.com develops up-to-date databases of the most
popular keywords and their accompanying bid prices. For more
information, please visit http://www.toppayingkeywords.com

Contact:
877-TOP-WORD
(877-867-9673)
info@TopPayingKeywords.com