Investors in Google, Inc. (NASDAQ: GOOG) and Yahoo!, Inc. (NASDAQ: YHOO) as well as potential investors, must get their hands on the October 2, 2006 issue of Business Week ASAP. The cover article by Brian Grow and Ben Elgin, "Click Fraud: The Dark Side of Online Advertising," examines widespread abuses in online advertising. The article examines and explains various illegal techniques used to generate bogus traffic that leads to increased ad revenues. Part of Yahoo and Google's amazing growth trends have been propelled by an explosion in the magnitude of online adveritsing. Turns out, some of that growth was artifically generated. When this article becomes widely publicized, and it will, expect shares of Google and Yahoo to take a dive at least temporarily until more refined fraud detection measures are in place. The number of clicks will no longer be used as a reliable rubric for measuring Web site traffic.

By 2010, spending on online advertising is forecast to top $29 billion. As the stakes get higher, the scams will get more ubiquitous. In addition to investigating online advertising fraud, "Click Fraud" also explains various current methods for generating bogus responses to online ads. Click fraud generates illegitimate revenue for the Web site carrying the ad. People or clickers are hired simply to click the ad and get a small portion of the revenue generated. They are not in any way interested potential customers. Parked web sites are a particular problem for Google and Yahoo. These sites have little content other than Internet ads. Paid-to-read schemes hire clickers to generate fake clicks on parked Web sites. Automated fake click schemes include clickbot, which uses software that produces automatic clicks on internet ads. Botnet is a collection of computers that can generate thousands of fake clicks.

Both Yahoo and Google insist the companies are aware of online advertising fraud, and that they have taken steps to reduce to size of the problem to a manageable level. Interviews with people actively participating in various types of click fraud argue otherwise. The problem is compounded by the very diffuse natureon the Internet, making it impossible to police. Several of the more daring click fraud schemes are run from China and Russia, countries with loose Internet laws.

Online advertising fraud involves Google and Yahoo originally appeared on BloggingStocks on Tue, 26 Sep 2006 12:43:00 EST. Please see our terms for use of feeds.