Last Update: May 5, 2006


Click Fraud: Real But Manageable

We believe the "bad click" problem will eventually lead to modestly higher costs for both search engines and advertisers. We believe the problem is manageable, however, and we do not believe it will cripple the industry.

We believe the magnitude of the bad-click problem is at the lower end of the commonly cited "10%-30% of all clicks" range. The problem appears to be growing, and search engines do not have enough data about post-click behavior to fully police it. Thus, we believe advertisers will increasingly have to spend more money on auditing click-streams, which will modestly reduce their paid-search ROIs. One expert estimates that click-fraud auditing costs will total 1%-2% of paid-search spending, a nominal amount. Because advertisers (or third-party auditing services) can analyze click-streams all the way through to conversion, we do not believe advertisers will suddenly abandon the medium en masse.

Similarly, we believe the search engines will be forced to spend more on auditing and customer service efforts. This, combined with a slight amount of revenue lost to pressure on keyword prices due to the cost of click-stream audits, could modestly reduce profit margins.

Not Doomsday

The heart of the click-fraud debate is not about whether the problem exists (it does), but whether it can be managed. Click-fraud doomsayers believe that search engines can’t adequately police the problem because they don’t have data about post-click conversions (meaning that they can’t track what happens to a click referral after the click). As fraudsters get smarter about disguising fake clicks, this argument goes, the search engines will lose the ability to tell bad from good. The weakness in this argument is that advertisers and third-party monitoring services can track click referrals through to conversion, and can then confront the search engines with this data.

Search Engines Must Make Changes

The search engines are currently reluctant to listen to advertiser complaints, and, sometimes, in a startlingly poor display of customer service, fall back on contracts saying they don’t have to. The engines will have to learn to listen and better address the problem, or they will frustrate customers and lose business. Reviewing and addressing customer click concerns will cost money, but it should not be a back-breaker.