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Study: Click fraud could threaten pay-per-click model

Survey finds that 27 percent of respondents say they've already slowed or stopped their pay-per-click advertising.

Online advertisers estimate that about 14.6 percent of the clicks on ads for which they're billed are fraudulent, costing them about $800 million last year, according to a study released Wednesday.

The study, called "Click Fraud Reaches $1.3 billion, Dictates End of 'Don't Ask, Don't Tell' Era" and released by research and advisory firm Outsell, claims that "Google, Yahoo and MSN...are stonewalling on click fraud, to their own and others' detriment."

Search engines have refused to release figures on the amount of fraud in search advertising, most of which comes from Web sites boosting their revenue by clicking on ads on their own sites.

A recent study from the Click Fraud Network put the , while other companies that sell click fraud detection and prevention services have pegged it at 20 percent to 30 percent. Search companies say it is much lower than that and is under control.

The total effect of the $1.3 billion mentioned in the Outsell study represents $800 million spent on fraudulent clicks by advertisers and $500 million that advertisers say they no longer spend on pay-per-click advertising, the study said. Pay-per-click is the primary revenue source for Google and a big revenue contributor for Yahoo.

The survey of 407 advertisers also found that 27 percent said they had already slowed or stopped their pay-per-click advertising, including 16 percent who have curtailed such spending entirely.

Seventy-five percent of those surveyed said they had experienced click fraud, and 7 percent said they'd requested refunds and had netted an average of $9,507.

In response to an e-mail seeking comment, a Google representative sent a statement that said: "We take this issue very seriously, have devoted significant resources to it, believe we manage it very well and believe the problem is small."

A Yahoo representative provided this statement: "Yahoo views click fraud as a serious, but manageable challenge. In fact, it was one of the first challenges we identified when we created the pay-per-click advertising model in 1998, which is why we built a robust, proprietary click through protection system very early on."

Yahoo's click through protection system has identified and not billed advertisers for billions of clicks, including those resulting from click fraud and clicks that were improperly billed, Yahoo said.

"We are very confident in our system's ability to detect fraudulent clicks, but we also recognize that our customers--and the industry as a whole--have many questions and concerns about click fraud, especially given the litigation that Yahoo and other search engines have been engaged in over the past few years."

A Microsoft representative released a statement that said: "Microsoft recognizes that invalid clicks, which include clicks sometimes referred to as 'click fraud,' are a serious issue for pay-per-click advertising."

Both Google and Yahoo have been sued over click fraud and both have settled the cases.

Last week a judge gave preliminary approval to a settlement agreement Yahoo reached with Checkmate Strategic Group. Under the deal, Yahoo would pay about $5 million in legal fees and review advertiser click fraud complaints from January 2004.

Earlier this year, Google announced that it would pay $90 million in advertising credits and attorneys fees to settle a class-action lawsuit over click fraud.

A lawsuit designed to block the settlement has been filed by advertisers who claim Google is getting off too cheap.

Some experts have said the only way to solve the problem is to .

The Search Engine Marketing Professionals Organization is