Click fraud is becoming a huge headache for online advertisers and companies that facilitate these ads (e.g. yahoo and google). This week's (October 2nd, 2006) business week cover story is on this very same topic. It is interesting that some people believe that companies like yahoo and google passively profit from click fraud and therefore in theory have an incentive to tolerate it. However, I believe that this logic is completely flawed.
Click fraud is a serious problem that is shaking the confidence of customers in online advertisements. This could mean serious trouble for Google, Yahoo and any other internet company (whose revenue model is ad based). First, customers will move away from this form of advertising and secondly, they will apply a "click fraud" discount to the amount of money they are "willing to pay" for these ads. Moreover, if customers aren't sure about what they are paying for, the industry cannot grow and thrive. We all know what consumer confidence can do to products and the economy in general. So, it is in Google or Yahoo's best interest to make these clicks reliable and restore confidence in advertisers that pay for these clicks. I will not be surprised to see Google or Yahoo come up with innovative ideas to address this issue very soon. There is already some talk about moving to a cost-per-action (CPA) model instead of cost-per-click (CPC). Implementation challenges still remain but there will be increased pressure on companies to do something about it soon. The stakes are huge.
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