Advertisers wasted over $800 million last year on phony clicks, prompting many to blame Google and Yahoo for extensive fraud, according to a report released on July 5.
The survey, by Outsell, a market researcher in Burlingame, Calif., takes a close look at click fraud, which has been nagging Google and Yahoo for several years. Both Google and Yahoo recently settled click fraud lawsuits, though their problems with click fraud persist.
According to the report, advertisers say they believe 14.6 percent of all clicks are bogus, and 75 percent of those advertisers say they've been victims at least once. That perception of click fraud has prompted 27 percent of advertisers to reduce or stop their spending on click-based advertising.
Another 10 percent said they intend to curtail their spending, meaning a total of 37 percent of advertisers are decreasing their pay-per-click spending.
"If we take the 37 percent of advertisers who have reduced or intend to reduce their PPC and apply the average 33 percent reduction rate, we see a 12 percent hit to total PPC ad spending," Chuck Richard, vice president and lead analyst for Outsell, said in the report. "In other words, as strong as PPC ad growth still is, it would be 12 percent higher if the click fraud problem had not driven this large group of advertisers to lower their PPC spending."
That 12 percent loss equals $500 million in lost revenues between Google and Yahoo, according to the report.
Previous estimates of click fraud activity have calculated the amount of fraud between 10 and 30 percent. The Click Fraud Index is currently reporting that click fraud activity is hovering between 14 and 15 percent.
The Internet advertising market is expected to be worth about $15.6 billion in 2006, up from about $10 billion in 2005. Google is expected to capture about 25 percent of that market, compared to Yahoo's expected 20 percent, according to research firm eMarketer.
To combat click fraud problems, the Outsell report recommends that the online advertising industry adopt a third-party auditor to oversee pay-per-click services. Outsell also foresees growth in pay-per-performance advertising, "that acid self-confidence test for publishers in which advertisers only pay for clicks that deliver actual sales, genuine inquiries, or other forms of confirmed leads to advertisers."
For its part, Google recently introduced a new service called Cost Per Action, in which an advertiser only pays when a user takes a demonstrable action after clicking.