The lawsuit by Kinderstart against Google, while an interesting issue, is small potatoes compared to what many consider to be the real elephant in the room: click fraud.  Both Yahoo and Google have already run into legal trouble -- resulting in relatively small monetary settlements -- regarding such allegations.  Today the San Francisco Chronicle discusses a new report by Burlingame market researcher Outsell Inc. suggesting that click fraud cost merchants $800 million last year and is a signficant enough threat that 27% of merchants are cutting back on click-based advertising.

Coincidentally, over on ZDnet, Digital Micro-markets blogger Donna Bogatin has recently been discussing both Microsoft's and Yahoo's assessments of and attempts to thwart click fraud, concluding that click fraud prevention could be the next great search engine differentiator.  She also suggests that Google has lagged behind its competitors in facing this issue publically. 

Now this is hardly a new problem. It has been around long enough to have spawned a whole set of start-ups aimed at prevention.  But the fact that it won't go away -- and if the Outsell report is accurate, may actually be getting worse, at least from the merchants' perspective (and who else counts?) -- may suggest that cost-per-click needs an upgrade.  The next step, of course, is the cost-per-action model that some analysts and customers are pressing for.  Some sites already offer this and Google is reportedly experimenting with it as well. 

But CPA is a very slippery slope.  The issue goes back to why online publishers traditionally resist cost-per-click pricing for display advertising: your revenue becomes dependent on the advertiser's creative.  A good ad is going to get more clicks than a poorly executed one.  CPA action takes that dependency a step further: the search engine's revenue depends on both a well-designed pitch after the click plus an enticing offer.  If the advertiser fails on either of those points, you're not going to get paid and your inventory isn't generating revenue.

If I ran a search engine, I'd be spending a lot of time and energy trying to maintain the credibility of my cost-per-click business. If the market really does turn to cost-per-action, we may end up looking back on these as the Golden Days of search engine advertising, when the money just fell from the sky. 

 

Okay, so it wasn't a good day.  Not for the markets, and definitely not for Yahoo, Inc.

There wasn't much news from Yahoo today, but there were some overall concerns.

The first was competition. Competition is fierce in the Internet business with the big guns attacking the market from each angle possible. Just today Google, announced a toolbar partnership with Adobe where the latter would offer Google toolbar with its software, something Yahoo had done a couple of years ago already.

But today's competition concerns didn't come from within the industry, it came from Newspapers that claim to gain ground, especially in the local market.  In fact, readership of newspapers has been "growing enough that their online ad rates are approaching their print rates."

The second concern was click fraud, meaning those who click on their own ads or set programs to do so.  While Google just launched a CPA (Cost per Action) advertising that might be able to combat click fraud, Yahoo is still new to the game of affiliate marketing and isn't as well poised to handle fraudulent clicks.

On the flip side, Yahoo is still considered cheap within its industry and a buy.

Yahoo is a late entrant to the user-generated video service despite running its video service since 2004.  Will Yahoo be able to break into the market?  For now the service is comprehensive, meaning user-submission videos as well as Yahoo's own video property, which makes it into a large library.  This could make a difference.

Yahoo shares lost 38 cents (1.22%) today to close at $30.68.