I guess journalism schools should teach it: whenever you're doing a story about anything, take a look and see what's happening on eBay.  I didn't do that when I wrote last week's post Click Fraud Worsening?, which noted that a recent study found that more merchants were pulling back on their keyword advertising out of concerns over click fraud.  But a Blogging Stocks reader named Joe did take a look around eBay, and what he found is quite remarkable.

See for yourself. Head over to eBay, search for "Adsense clicks", and as of this morning you'll find more than a dozen auctions offering everything from "5 Google Adsense Ads Clicks Hits Each day for 5 Days" (BuyItNow for $1.99) to  "1000 Adsense hits clicks website marketing traffic.  Adsense clicks delivered within 10 days. Different IP's" (12 bids, up to $31) to "Unique: Guaranteed Unlimited Legal Adsense Clicks - Extremely Simple" ($9.99). 

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. 

 

After a successful IPO of Gmarket, of which Yahoo Inc owns 10%, Gmarket (GMKT) share price fell by about 1%. While Yahoo cooperates with eBay in the US, it competes against it in Asia such as in Gmarket's case.

Today was a day of wheeling and dealing for Yahoo, settling its "click-fraud" lawsuit and announcing two new partnerships.

Search Engine Watch also reported that Yahoo gained market share in China, now stands in second place with 21.1% after Baidu's 43.9% share. Google (GOOG) is in third place with 13.2%. The latest survey carried out by Analysys International.

Yahoo shares (YHOO) gained $1.05 (3.29%) to close at $32.97.

Henry Blodget has covered click fraud heavily, and it remains a concern to him. It should be a concern to anyone who uses Google Search -- searcher or advertiser. Although the Google folks continue to downplay the click fraud problem -- including a gloss-over response at yesterday's Press Day 2006 --  my belief is that it can not be underestimated, regardless of the sophisticated algorithms in place to detect such mischievous and damaging activity. This Wired article further demonstrates the potential earth-shaking problem at hand. If fraudsters weren't successful, then computer viruses, worms and phishing scams would not be such a large problem.

Ok, I know -- comparing the web search customer to an artificially intelligent computer program designed to spot abnormal click trends is a stretch. But can even the smartest computer programmer possibly anticipate the limitless number of variables an equally-sophisticated programmer may use to unleash click fraud schemes --  and especially for black-coat high-paying customers? It's not just click fraud when a human or manned click farm simply clicks on a Google ad repeatedly -- the bot farms that could (or are) developed most likely appear to click from countries all over the world, spend varying amounts of time on the clicked site, and come from IP addresses that appear unconnected. This is what intelligent click bots do, and they are probably getting better every day.

I'm sure Google -- of all companies -- is way in the forefront of detecting click fraud on its global search network. After all, advertising around search results makes up nearly all of Google's revenue. It's easily in the best interest of Google to keep the tightest of tabs on this kind of activity. However, you can throw that out the window if click fraud becomes a bad public relations situation for Google.

An adage I'm fond of quoting is that perception is reality, and Google's response, so far, is that click fraud is not a problem and they are on top of what little click fraud there is. Google's AI engineers may have this looming issue under control, but the way in which they communicate does not really instill confidence in Google's advertising customers. It will only become worse as a perceived problem unless Google can better communicate that they can quash this issue. Perception is reality to the rest of the world, including the public market.

Update: this blog post over at Cnet tells of a lower-than-30% click fraud rate that purports to be more realistic. We aren't so sure.

One of the few dingers against Google recently -- well, in the media anyway -- has been the rise of advertisers using the Google network against "click fraud". This is the practice that some people, shops and bots employ to continuously click on ads to cause a competing advertiser's budget to dry up -- enhancing ads from competitors in the process. It's definitely not playing fair.

The one thing Google cannot allow to happen -- without it adversely (possibly) affecting its bottom line -- is to rankle its advertisers. Sure, many advertisers could not afford to do without their Google presence. But  would they shift more ad dollars to Yahoo's similarly-designed ad system (similar as of just recently), and maybe Microsoft's upcoming competitor to Google's AdSense system? You never know. Every time eBay forces fee increases -- even though they are the largest auction site in the world -- some seller customers jump ship.