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Is
Click Fraud Really a Problem?
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by:
Tommy Maric
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Click fraud is currently a major topic in online advertising. Many
argue that it presents a threat to the stability and viability of
pay-per-click (PPC) advertising, the key revenue generator for both
Google and Overture. In actuality, click fraud is not a significant
issue at all.
Click fraud occurs when ads are clicked for reasons other than a
genuine interest in learning more about the product or service
advertised. Click fraud occurs in two forms. In one instance, fraud
arises from competitors trying to sabotage each other. One competitor
clicks on the ads of another just to drain the budget of that company.
The other instance occurs when webmasters (or people associated with
the webmaster) repeatedly click Google AdSense ads (which are
syndications of others’ ads) on their own web pages in order to
generate more revenue. While both Overture and Google have developed
sophisticated technologies to detect click fraud, their systems are,
and may never be, foolproof.
The real question is how much does click fraud actually damage the PPC
industry? Gross fraud, i.e., when one person or technology consistently
and repeatedly clicks on an ad, aside, which Overture and Google can
easily detect, we believe that click fraud has no real impact on the
industry. The following explains why.
Efficient market theory says that it is impossible to “beat a market”
because prices already incorporate and reflect all relevant
information. As the PPC industry has matured, efficiency has begun to
take root. That is, the price of each keyword has been driven up to the
point where it reflects the highest price an advertiser is willing to
pay for a click.
For instance, a book retailer may pay $1.00 per click based on internal
metrics. These metrics dictate, for example, that on average 30% of
clickers purchase a book and the average profit per sale is $4.00. So,
for every 100 clicks ($100 cost), they make 30 sales ($120 revenue) and
generate a $20.00 (20%) profit. Note that years ago, the same retailer
may have been able to pay only $0.50 per click, but as the market
matured and more retailers began advertising, competitive bidding
forced the price up to $1.00 where the highest return the most
advertisers can make is 20%.
The key point is that click fraud is already taken into effect when
advertisers select the highest amount they will bid. For instance,
there is no difference whether an advertiser pays $0.83/click for 121
clicks with 21 being fraudulent, or $1.00/click for 100 clicks when
there is absolutely no fraud. In either case, the advertiser pays $100
and generates a profit of $20, and Overture and/or Google make $100.
What changes is the advertiser’s yield (e.g., the percent of clickers
who purchased the book) which in turn effects their highest bid price.
That is, with fraud, 30 out of 121 clickers (24.8%) purchased the book,
and without fraud 30 out of 100 clickers (30%) purchased it. Without
fraud, the bid price in an efficient market will rise from $0.83 to
$1.00.
In summary, online advertisers must focus on analyzing and improving
their internal metrics (e.g., conversions) and not worry about click
fraud as it is already incorporated into keyword bid prices. Hopefully,
the frivolous lawsuits and refund requests spawned by apparent click
fraud will end as those in the industry recognize this undeniable fact.
About the author:
About The Author:
Tommy Maric is the manager of TopPayingKeywords.com
TopPayingKeywords.com is designed to help webmasters maximize their
profits using Google’s Adsense™ program. Through extensive research,
TopPayingKeywords.com develops up-to-date databases of the most popular
keywords and their accompanying bid prices. For more information,
please visit http://www.toppayingkeywords.com
Contact:
877-TOP-WORD
(877-867-9673)
info@TopPayingKeywords.com
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