Online 'Pay per Click' Fraud Costs US Advertisers $800m

07 July 2006

According to a study carried out by Californian online research and advisory firm Outsell, US advertisers lost $800 million (€628.63m; £436.16m) last year on click-through frauds.

The study of 407 advertisers, between them responsible for around $1 billion in online adspend, is critical of search engines for their lack of vigilance in blocking click fraud. The survey also found that decreasing confidence in pay-per-click advertising is causing the industry to lose an estimated $500 million in pay-per-click revenues.

Twenty-seven percent of advertisers have slowed or stopped their PPC advertising because of suspected fraud, including 16% who have stopped spending altogether. The average spending reduction is 33% of total PPC spending.

These advertisers estimate that last year 14.6% of the clicks for which they had been billed for were fraudulent, says Outsell. That represents around $800 million in wasted spending. Another 10% of advertisers have plans to cut their PPC spending budgets.

Outsell vp and lead analyst Chuck Richard points his finger at the major search engines for their alleged failure to address the problem. "Google, Yahoo and MSN are stonewalling on click fraud, to their own and others' detriment," he states in the report.

However, hands were raised in pious indignation by spokesman for the search triumvirate - all of whom insist their companies have been "aggressive" in the fight against PPC fraud.

Aggressive they may have been. But unsuccessful.

Last week, a federal judge in Los Angeles gave preliminary approval to a $5 million plaintiff settlement in a lawsuit accusing Yahoo of not properly safeguarding advertisers from click fraud.

Google, meantime, is testing a cost-per-click billing alternative that charges advertisers only after their ads generate sales or qualified sales leads.

Data sourced from AdAge (USA); additional content by WARC staff