Click-fraud rate on Google, Yahoo down, report says

According to a new report on the scope of fraudulent clicks on search-related ads, the click-fraud rate among top-tier search sites like Google and Yahoo is dropping. It fell to 11.9 percent in the third quarter, compared with 12.8 percent in the previous quarter.

But at second-tier search providers, it rose to 23.2 percent from 20.3 percent. The overall industry rate inched down to 13.8 percent from 14.1 percent, according to figures released on Wednesday from Click Forensics, which operates the Click Fraud Index. The index compiles data from more than 2,500 online advertisers and agencies.

To be fair, the figures don't necessarily mean advertisers are being overcharged for 12 percent of the total keyword search ads they buy on Google and Yahoo. That's because the figures include all clicks detected on the advertiser side that are believed to be fraudulent, including clicks that Google or Yahoo may have either not charged the advertiser for or credited them for after the fact, said Click Forensics Chief Executive Tom Cuthbert.

Click fraud--a hot issue in the search industry--occurs when search-related ads are clicked on for the purpose of boosting revenue to the Web site hosting the ad or depleting the budget of the advertiser.

Advertisers complain that they are credited for only a small fraction of the total of fraudulent clicks detected on their network, Cuthbert said. Google has said that the percent of fraudulent clicks advertisers are credited for or never charged for is less than 10 percent.

Since Google and Yahoo won't release aggregate click-fraud numbers, citing competitive issues, it's nearly impossible to come up with accurate figures for how much search engines might be overcharging advertisers, Cuthbert said.

Robert Peck, an analyst at Bear Stearns, said he was impressed that Google and Yahoo were able to drive down the click-fraud rate.

"As the concerns of click fraud have been plaguing the online search industry for a while now, we think it is a mild positive for the industry overall that the index indicates click fraud is under control," he wrote in a research note released on Wednesday. "While we find the indication that click fraud is under control encouraging, we note that click fraud issues might become more pronounced as we are approaching the big holiday shopping season starting late November."

Both Google and Yahoo have settled lawsuits over the issue. Those companies, the Interactive Advertising Agency and others are working together to establish guidelines for quantifying click fraud.