Advertiser concerns about search engine companies’ commitment to battle click-fraud may be justified, and the industry should consider creating third-party verification groups to quell those concerns, according to a new study by two University of Southern California researchers.

“There’s evidence this is a problem of more than $1 billion in scope and nobody has taken an impartial look at it before,” Kenneth Wilbur, an assistant professor of marketing at the USC Marshall School of Business, said in a statement. Wilbur collaborated with economics doctoral student Yi Zhu on the study. “The industry may want to consider creating third-party organizations, as other ad-supported media have, to certify the quality of their efforts to combat click-fraud.”

When a keyword auction is very competitive, click-fraud depresses search-engine revenues, the study found. But in less-competitive auctions, click-fraud can increase search-engine revenues, reducing their incentive to prevent click fraud.

Oversight Needed for Search Ad Industry
The study says that the search-advertising industry would benefit by creating a neutral third party to authenticate click-fraud detection efforts.

Search advertising has exploded in the past decade to more than $8 billion in revenues in 2007, according to the researchers. Advertisers are increasingly looking to keyword search advertising because it reaches consumers who are looking to buy, and because all their actions online can be tracked and measured.

The downside of keyword search is that it can be manipulated and exploited by competitors. Click-fraud is a catch-all term that applies to online actions that increase a Web site’s search-advertising revenues or exhaust a search advertiser’s budget.

The Click-Fraud Network, an industry watchdog organization supported by software company ClickForensics, estimates that in the third quarter of 2007 about one in every six clicks on search engines sites was at high risk of being fraudulent. More than a quarter (28.1 percent) of all clicks on search engines’ content network Web sites were considered high risk.

Naturally, Google and other search engine sites refute these numbers, and the debate continues over exactly how much click-fraud exists, how to measure it and what to do about it. However, in a rather surprising move, Yahoo and ClickForensics just partnered up to try to stem click-fraud for Yahoo users.

Meanwhile, the paper by Wilbur and Zhu, Click Fraud, applies economic theory to build a model of the search advertising market. It mathematically proves that click-fraud can increase search-engine revenues under a variety of scenarios, according to the authors, and has been accepted for publication in Marketing Science, the top journal in the field of quantitative marketing.

Widespread click-fraud has huge implications for the booming online advertising industry, the report states. And efforts to quell concerns about click-fraud face a difficult Catch-22: If search engines reveal too much about how they prevent click-fraud, they may reveal how those measures can be beaten. So they reveal little, forcing advertisers to trust what the search engines are doing, even as they have to pay for every fraudulent click that goes undetected.

In 2006, Google CEO Eric Schmidt sparked controversy when he said that eventually, advertiser distrust would depress keyword prices, self-correcting the problem. “In fact, there is a perfect economic solution, which is to let it happen,” said Schmidt.

Fraud for Profits?
The new study confirms the impact of click-fraud on keyword prices. Advertisers, however,are more concerned about total spending, not just prices for a specific keyword. Click-fraud automatically increases expenditures by increasing the number of paid clicks. The question is, when do depressed prices offset the rising expenditures from more clicks?

Because the report suggests that click-fraud can increase profits for search engine companies in some cases, the authors call for the search-advertising industry would benefit by creating a neutral third party to authenticate click-fraud detection efforts.

Such an entity could maintain confidentiality, while providing impartial verification of detection methods, an approach common in other advertising-fueled media. Nielsen Media Research measures TV audiences, Arbitron measures radio, and the Audit Bureau of Circulation authenticates newspapers. Even online banner advertising contracts are usually sold on the basis of third-party audience figures from comScore or Nielsen/NetRatings.

“We hope to call attention to the issue of click-fraud,” said Wilbur. “We do not doubt search engines’ good intentions, but their networks are so wide open that it is difficult to police all the network’s users. We have suggested several mechanisms the industry can adopt to build advertiser confidence in the click figures they are getting.”

About the study and its writers: visit the author page; the complete click-fraud study is available here.

Michelle Megna is managing editor of ECommerce-Guide.com.

Article source - http://www.ecommerce-guide.com/news/news/article.php/3738776

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