Click Fraud Cost Advertisers $800 Million Last Year

Study Blames Search Engines for Lack of Vigilance

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NEW YORK (AdAge.com) -- Advertisers wasted $800 million on fraudulent clicks last year, according to market researcher Outsell, which conducted a study of 407 advertisers responsible for roughly $1 billion in ad spending. The study found that decreasing confidence in pay-per-click advertising is causing the industry to lose an estimated $500 million in potential pay-per-click spending.
The study was critical of search engines for failing to address click fraud, but Yahoo, MSN and Google insist they have been aggressive in their stance against it.
The study was critical of search engines for failing to address click fraud, but Yahoo, MSN and Google insist they have been aggressive in their stance against it.

Slowed and stopped advertising
The study was critical of search engines for not being vigilant enough in stopping click fraud. Outsell found that 27% of advertisers have slowed or stopped their pay-per-click advertising because of suspected click fraud, including 16% who have stopped spending altogether. The average spending reduction is 33% of total pay-per-click spending. These advertisers estimate that 14.6% of the clicks they're billed for are fraudulent, Outsell reports, representing about $800 million in wasted spending in 2005.

Another 10% of advertisers have plans to cut their pay-per-click spending budgets, according to Outsell's findings.

Chuck Richard, Outsell VP and lead analyst, was particularly critical of the major search engines for what he sees as their failure to address the problem. "Google, Yahoo and MSN are stonewalling on click fraud, to their own and others' detriment," Mr. Richard stated in the report.

Representatives for Yahoo, Google, and MSN deny such accusations, insisting they have been aggressive in their stance against click fraud.

Google's alternative
Last month, Google began testing a cost-per-click ad alternative that only charges advertisers after their ads generate sales or qualified sales leads. Among other benefits, the new model will likely reduce cases of click fraud, which occur when ads are clicked on repeatedly to paint a false picture of their value. It's no small matter: Google paid $90 million in ad credits earlier this year to settle one click-fraud suit.

Just last week, a federal judge gave preliminary approval to a settlement in a lawsuit that accused Yahoo of not properly safeguarding advertisers from click fraud. U.S. District Court Judge Christina Snyder in Los Angeles approved the settlement whereby Yahoo would pay $5 million in legal fees and offer credit or cash refunds to advertisers shown to be victims of click fraud since 2004.
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